Ashok Leyland retains FY13 sales target despite slowdown

Nachiket Kelkar
moneycontrol.com

Ashok Leyland says current market environment for medium and heavy commercial vehicles remains challenging but has maintained its target to grow at over 14% this year. MHCV sales India have hit speed bumps on the back of the overall economic slowdown, and expensive loans. Ashok Leyland's total sales in June rose 28% year-on-year to 10,244 units.  However, excluding 2,725 units of the Dost light commercial vehicle, its sales fell 6%. For the April-June quarter its total sales surged 43%. But again, excluding Dost, its sales growth was just 5%. Rival and India's largest CV maker Tata Motors too has seen a slowdown in sales of heavy trucks. Ashok Leyland hopes to sell around 93,000 units in the domestic market and export 14,000 vehicles, said K Sridharan, CFO. Separately, it also has a volume target of 32,000 units of Dost, which was launched in partnership with Japan's Nissan Motor, he said in a conference call with institutional investors. A passenger variant of the Dost is expected to be launched by the third quarter of the year. Ashok Leyland's confidence comes from the fact that growth in southern markets, where the India's second largest two-wheeler maker is dominant,  has been stronger than in overall India. For instance, in the haulage 4x2 segment of heavy trucks, southern markets have grown 9%, compared with a 10% drop in sales all India, Sridharan said.   Political stability in states like Tamil Nadu and removal of iron ore mining ban in Karnataka is expected to boost sales in the southern region, the company says. Ashok Leyland had a 26% market share in the first quarter. Sridharan said the company has seen significant growth in market share in multi-axle trucks, haulage and tipper segments. The current slowdown and increased competition from the likes of Mahindra Navistar,  Mercedes Benz has led to an increase in incentives by truck makers. Sridharan said that the incentives are around Rs 15,000 higher per vehicle compared to a year ago. There is pressure on margins due to the slowdown and increased competition. However, he is hopeful of maintaing Ashok Leyland's operating margins at 10% for the full year. The company along with Nissan is investing Rs 4,000 crore in a new LCV plant in Tamil Nadu. A part of the plant will also be used by Ashok Leyland for manufacturing MHCVs. Ashok Leyland has already invested Rs 950 crore for the MHCV plant and will further invest Rs 300 crore this year. The remaining around Rs 750 crore will be invested by Jan 2017.  Around Rs 1,800 crore is being invested for the LCV plant, of which Sridharan said Ashok Leyland's contribution will only be around Rs 500 crore, while the rest will by the JV. It doesn't have any major capex plans outside Tamil Nadu. Ashok Leyland shares closed up over 3% at Rs 25.15 on Wednesday.