Commercial vehicle mkt will not grow in FY13: Ashok Leyland

In difficult conditions, certain midcap stocks like Ashok Leyland have not performed well. Vinod Dasari, MD of Ashok Leyland believes the commercial vehicle market is indeed quite difficult now. According to him, even the mining industry is not seeing recovery and infrastructure projects have almost come to a halt. All these are impacting the economy and the market as a whole, opined Dasari.

However, Ashok Leyland has been able to maintain its volumes in the heavy commercial vehicles (HCV) segment and has added volumes in its light commercial vehicle (LCV) segment. Overall, the company's market share has risen to 26.5% from 23% earlier, informed Dasari. But, the commercial vehicle sector will not see growth in FY13, he warned.
Dasari further added that Ashok Leyland will continue to defend their market share despite rising competition and expects pressure on bottomline to continue. Besides, the company is hopeful about introducing three new products in the next 6 months. Here is the edited transcript of the interview on CNBC-TV18. Also read: Auto sales review: Cars, 2-wheelers, MHCV under pressure Ashok Leyland July sales up 25% at 9,785 units Q: How difficult is the market now?
A: Market has been quite difficult. I think a combination of the fact that the mining industry is not doing well because of all the allegations going back and forth for coal as well as other metals and infrastructure projects have almost come to a halt. The general tendency in the industry has been quite cautious because while on one hand we keep talking about the GDP still at 5-5.5%, the industrial production is negligible, flat.
But despite that what people don't realize is that we get lost in the wood sometimes. Despite the market actually falling by about 13-14%, our volumes in maybe heavy commercial vehicles (HCV) are the same as last year. So we haven't lost any volumes. In fact, if one adds 'Dost' which is our light commercial vehicle (LCV) addition, our volumes have gone up substantially compared to last year. Q: Has there been any significant market share change in the MHCV segment?
A: Yes compared to last year when we were about 23% by this time in the first four months, we are about 26.5%. We have gained market share. Q: Where do you think the industry will be by the end of the year the way things are going, is it going to be flat or are you even staring at negative?
A: The only thing I can be sure about is that it would be wrong to predict that in Q4 the market will be growing at 10-12%, which analysts from every research agency was predicting. We at Ashok Leyland did not see growth opportunity of 10-12% but, we were still saying there will be some growth and there will be some market share gains.
I think the market at the end of the year might be flat because the government has to do something, whether it is fixing the tax rate, whether it is working with the RBI to reduce the interest rate or do something to give this economy a fillip. Today, there is so much going on, so many allegations back and forth everywhere that nobody wants a decision and that is where everything is stalled and that is hurting the economy.
But, I think by Q3, the government will do something and Q4 is typically the boom time for commercial vehicle industry. Given all that, we will hopefully be flat or maybe even slightly better. We continue to do well in exports, which is a good market for us. We have developed five new markets and we are exporting more there. We have newer products coming up which will further enhance Ashok Leyland's performance.
_PAGEBREAK_ Q: You have outperformed the industry so far, but do you think you can hold on to that 7% growth target you are talking about for the full year or is that likely to be scaled lower?
A: I think we should be able to hold on. I say this because we have got a couple of very good products coming up in Q3. We have the first 10x2 vehicle and substantial improvements in vehicles that are run of the mill MAVs. We are not talking about it, as of now, we are just doing all the customer trials and we will launch them in Q3.
In Q4, that is in January, a combination of what we showed in the auto expo last year plus a completely new generation cab which is designed in Europe and manufactured in India is going to be exported to Europe also. So it is a world class state of the art cab, on top of our U-Truck. When we launched the U-Truck customers loved it. They said we like the chassis, we like the performance of the vehicle but the cab is old, give us something which is contemporary. We worked on it and we had been working on it for 2-3 years and that cab will be launched in January.
The entire range of intermediate commercial vehicles (ICV) which are 7.5 tonne to 16 tonne is also coming up. We own a company called AVIA in Czech Republic and that vehicle with the cab in a completely new line in our Pantnagar facility is also going to be launched in January. In Q4 we have two world class products coming back to back and in Q3 we have several products developed specifically for the Indian markets. I am quite pleased by the efforts that we are doing for product development.
If we look at the reasons why we have gained market share over the last few months or able to hold on to it I would step back with respect to all the competition and even five years ago there were only two players, we and the Tatas. Now there are probably ten players.
If you look at our core segment of 16 tonne and above, five years ago our market share was 30-31% and at the end of July, we are 32-33%. We are a strong player and we will defend our market if not grow our market. In the 7.5-16 tonne segment we had only one product, we used to have 2-3% market share five years ago. But, today we have 11-12% market share. If I look at the longer-term period we have consistently grown.
But not just products, I think the fact that we doubled our network over the last 2-3 years, and expanded pan India has also contributed to growth. We were the first to offer service uptime guarantee saying we will put your vehicle back on the road within a certain period of time otherwise, I will pay you a penalty. The fact that we started using Mahendra Singh Dhoni as our brand ambassador, you cannot directly translate that into saying how many vehicles did Dhoni sell, but it is just to show that we are an aggressive company, we are not a very conservative company.
Our Pantnagar plant is doing exceptionally well. It continues to grow and set new records. Overall, despite the general feeling that the economy is bad, yes it is bad, but within that we have to perform better and we are doing much better. Q: What is happening at the bottom-line level because we hear that there is a lot of discounting going on in the sector right now and the discounts are growing – your margins have slipped to 8% last quarter? Do you see a lot of pressure still on the bottom-line?
A: I still think there will be pressure because every time the volumes come down there will obviously be a fight for the last truck that we sold. The discount levels are substantially higher than what they used to be and the newer players are the ones who are adding a lot to the discount.
But, in the end, the actual acquisition cost of a vehicle is only about 20%, of the total operating cost for the vehicle and that is the EMI cost. 60% of it comes back to what is the fuel consumption or operating expenses of the vehicle. There is tyre and batteries but many customers know about the performance of Ashok Leyland vehicles or they will experience it when we give them newer products.
Customers focus more on that and not on part time or short time discounts. That is not something that we are focused on. Yes, our discounts are higher than what we planned but, not to the tune that our competition is doing, not anyway near that. Q: Are you facing any working capital issues as well because this quarter seem to show up a few that's there and also we keep hearing that delinquencies might be going up at the level of truck loan financing. Are those difficulties beginning to crop up because of the weak cycle?
A: Ashok Leyland is not directly involved in truck loan financing. We have a subsidiary called Hinduja Leyland Finance which does. They haven't had a spurt of delinquencies at all, they are still doing pretty good. No financer does more than 10% of Ashok Leyland vehicle so we haven't heard any delinquencies from any particular pocket saying that there is a significant chuck of delinquencies coming from a particular region or a particular set of vehicle types.
Working capital was an issue but we have resolved it. We have substantially improved it, in fact our working capital is probably one of the best in the last couple of years. There is certainly a lot more that we can do in that and we have a team working on improving our working capital.