May 21, 2012, 02.02 PM IST | Source: Moneycontrol.com

Ashok Leyland to launch 5 new products in FY13

India's second largest commercial vehicle maker Ashok Leyland will launch 5 new products in the domestic market in the current financial year, including the Avia range of vehicles.

Nachiket Kelkar
Moneycontrol.com

India's second largest commercial vehicle maker Ashok Leyland will launch 5 new products in the domestic market in the current financial year, including the Avia range of vehicles.

The aggression comes at a time newer players like Mahindra Navistar, Volvo, Mercedes and AMW are increasingly fighting for a slice of the heavy truck market, which was not so long ago dominated by just two players - Tata Motors and Ashok Leyland.

Last year, 8.09,532 commercial vehicles were sold in India according to Society of Indian Auto Manufacturers. Ashok Leyland sold 1,01,990 units. SIAM has forecast CV sales will grow 9-11% in fiscal 2013, slower than the 18% in the last financial year.

The company will launch Avia range of trucks in the second half of fiscal 2013. Ashok Leyland had signed an agreement to acquire the truck business unit of  Prague, Czech Republic based Avia in 2006. The unit was subsequently renamed as Avia Ashok Leyland Motors.  Avia makes the D Line series of trucks.

Apart from Avia, the Hinduja Group company will also launch 10x2 five-axle truck in the second half of 2012-13, a full-flat front engined bus, called Jan Bus, a new low floor 8 tonne mini bus and a new BSIV engine powered haulage truck in its U-Truck range, K Sridharan, CFO said in a conference call.

The company's Neptune engines will be also launched in the current fiscal, he said.

Meanwhile, Ashok Leyland plans to invest over Rs 4,000 crore in Tamil Nadu, for a new light commercial vehicle plant with its joint venture partner Nissan.

The new greenfield facility will be set up by Ashok Leyland-Nissan Motor Co in Pillaipakkam.

The JV company currently makes the Dost LCV in India. While the JV company directly sells the Dost in Tamil Nadu for sales tax incentives there, Ashok Leyland sells it in other states. Totally 7,593 units of the Dost were sold in the last fiscal year and the company has a target to sell 32,000 in FY13, Sridharan said. In April 2,218 units of the Dost were sold.

Apart from the investment in Pillaipakkam plant, Ashok Leyland has a capital expenditure plan of Rs 600-650 crore this year, part of which will be go towards consolidating its operations at Pantnagar plant in Uttarakhand and around Rs 150 crore will be towards research and development.

The company enjoys excise benefits at Pantnagar and so has been ramping up production there. 29,000 units were produced at Pantnagar last year, and the company says production this year will be close to 40,000 units.

Ashok Leyland shares fell more than 2% on Tuesday after it disappointed the street with a lower-than-expected net profit of Rs 269 crore in the fourth quarter, down 10% year-on-year. Its net sales rose 11% to Rs 4,236 crore.

Analysts on average had expected the truck and bus maker to report net profit of Rs 280 crore on revenue of Rs 4,160 crore in the quarter.

Vinod Dasari, Ashok Leyland's MD said, the company gained "precious" market share in Central India and in the tipper and LCV segments last year, but other segments saw muted growth.

"We were hit from many sides: our strongest market - South - was depressed. Also, segments like ICV in which we are not too strong grew substantially," he said.

Medium and Heavy Commercial Vehicle sales remained in the slow lane last year as expensive loans and lower freight rates, hurt fleet operators. The mining ban in the south also hurt sales.

However, Dasari said the company has gained back share in March and April and hopes the momentum continues going ahead.

It has a debt of Rs 3,000 crore currently and Sridharan said the compan will raise around Rs 400-500 crore more debt in the current financial year.

Analysts gave a mixed reaction to the results.

"In lieu of budget-related duty hikes, the MHCV space was forced to take a 4% price hike in early April (versus 5% price hike taken gradually over FY2012). This, in our view, will dampen operator sentiment as operator profitability is already under pressure given high interest rates and weak freight rates. We maintain our cautious view on the MHCV industry and expect margin pressure across MHCV makers in the coming quarter," said Binay Singh and Shreya Gaunekar of Morgan Stanley.

Morgan Stanley rates Ashok Leyland at "underweight."

Dolat Capital, on the other hand, advises investors "buy" Ashok Leyland, following sharp correction in the recent past. It has a target price of Rs 33 on the stock.

Dolat analyst Mayur Milak says the company is exploring newer markets for export and the new products that it is launching in the domestic market will keep the momentum going. 

He is expecting a volume growth of 10% over FY12-14 and feels macro headwinds could hurt CV segment demand.

Ashok Leyland shares were down 2.1% at Rs 25.60 on NSE in afternoon trade.

nachiket.kelkar@moneycontrol.com

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