Ashok Leyland to cut FY14 investments to Rs 400cr
The Chennai-based company on Tuesday reported a much wider-than-expected net loss of Rs 142 crore, compared with a profit of Rs 67 crore in the year ago quarter. Its revenue in the April-June quarter declined 22 percent year-on-year to Rs 2,364 crore. Operating margins hit a low of 1 percent.
July 18, 2013 / 08:20 IST
Nachiket Kelkar
moneycontrol.com
India's second largest commercial vehicle maker Ashok Leyland is cutting capital expenditure and other investments in the current financial year to Rs 400 crore from Rs 1500 crore in FY13, as it grapples with a sharp slowdown in sales that has dented profits.
Also Read: Truck sales won't recover for rest of 2013: Ashok LeylandThe Chennai-based company on Tuesday reported a much wider-than-expected net loss of Rs 142 crore, compared with a profit of Rs 67 crore in the year ago quarter. Its revenue in the April-June quarter declined 22 percent year-on-year to Rs 2,364 crore. Operating margins hit a low of 1 percent.A key reason for the company's disastrous performance is got to do with the overall slowdown in the commercial vehicle industry in India. While medium & heavy truck and bus sales have been hit for more than a year now, even sales of light trucks like Ashok Leyland's Dost and Tata Motors' Ace, have hit speed bumps in the last couple of months.Ashok Leyland's sales last quarter plunged 25 percent year-on-year to 14,900 units. “This is probably one of the longest and sharpest downcycle,” Vinod Dasari, MD, said in a post earnings conference call with investors.On top of sluggish sales, the company has also lost market share by 3 percent in the last quarter, as competitors have become aggressive and are offering huge discounts to sell trucks. Its market share in the medium & heavy truck segment, for instance, is down to 29 percent from 32 percent.Ashok Leyland wants to cut discounts, but seems to be compelled to offer them, else it could loose market share further.“We reduced discounts by up to Rs 50,000 last quarter, but had to open the gates again towards the end of June,” K Sridharan, CFO, said.
The company has taken price hikes in April and July. But it is still offering discounts on an average of Rs 1.45 lakh. The competition is offering discounts of as much as Rs 2.50 lakh, Dasari adds.He is confident of recovering market share if this “madness” of discounting in the industry stops.Meanwhile, Ashok Leyland is taking several measures to cut costs. Sridharan says, the company has cut down number of working days per week, cut salaries by 5 percent and drastically reduced casual labour.The company has also taken several measures to cut discretionary spends like travel, advertising etc. Overall, between the fourth quarter and the first quarter, it has had about Rs 125-130 crore in cost savings, Sridharan added.Also, the company has no plans to make new investments in capacities, except in the light commercial vehicle space.SPEEDING PRODUCT LAUNCHESWhile on the one side, the company is putting a tight control on expenses, it is hastening product launches to enter new segments and stay ahead of competition.Till not so long ago the CV market in India was only a two-horse race. But now there are new players like Volvo-Eicher, Bharat Benz, Man, Scania, Mahindra Navistar and Asia Motor Works, which have forayed into the market and more players are watching.Ashok Leyland launched the multipurpose vehicle Stile on Tuesday. Stile is developed by its joint venture with Nissan. Nissan sells a similar product badged the Evalia in India.Dasari says the company is “accelerating” new product launches.It will soon launch an upgrade to its successful light truck Dost and later a passenger variant of the Dost will follow. This year it will also launch the Avia range of trucks. Ashok Leyland had acquired the Czech truck maker Avia in 2006. It will also launch the ICV or intermediate commercial vehicle range this year and a brand new N-Truck with a world class cabin will be launched by Oct-Nov.Dasari hopes that the market will pickup in the next couple of quarters, helped by a good monsoon, clearance of some infrastructure projects by the government, sale of buses under the new JNNURM (Jawaharlal Nehru National Urban Renewal Mission) scheme announced in the Budget, a gradual renewal of mining licenses and sales of logistics vehicles to the defence sector. This coupled with the new launches and the cost control measures that it is taking now should help it turnaround fortunes, he feels.Ashok Leyland shares hit a 4-year low of Rs 15.60 on Tuesday after the disappointed results in the first quarter. The stock was up 2.2 percent at 16.10 on NSE in afternoon trade on Wednesday.nachiket.kelkar@network18online.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
