Ashok Leyland Q1 net down 22% on higher expenses, ad spends

Moneycontrol Bureau

India's second largest commercial vehicle maker Ashok Leyland missed street estimates on Tuesday with a net profit of Rs 67 crore, down 22% year-on-year due to rising costs and higher spends on advertising and promotion.

Its quarterly revenue rose 20% to Rs 3,007 crore, helped by strong sales growth, especially of its small commercial vehicle Dost, which is made in partnership with Japan's Nissan.

Analysts on an average had expected Ashok Leyland to report net profit of Rs 84 crore on net sales at Rs 3,036 crore, according to a CNBC-TV18 poll.

While LCV sales have been strong, most CV makers have seen slow growth in the heavy truck segment, as fleet operators have postponed purchases amid slowing economy.

The Hinduja Group company had sold 27,487 units in April-June quarter, up 43% from a year ago. While domestic sales rose 3.5% to 17,335 units, exports were up 14% to 2,904 units.

"Even while the total industry volume in India dipped by 12%, we were able to increase our market share by 3.8%. Dost did very well, achieving 21% market share in the first 9 months of sales," said Vinod Dasari, MD.

The company's profit was, however, impacted by higher expenses. Employee costs were up 7% to Rs 268 crore, depreciation rose 5% to Rs 89 crore and other expenses jumped 50% to Rs 310 crore due to higher sales overheads. 

More over, the company's aggressive advertising and marketing push also hurt bottomline.

"Our profits have taken a hit largely because of the robust brand building and marketing initiatives that we kicked off during the quarter including the signing on of Mahendra Singh Dhoni as our brand ambassador. In addition, we were also hit by spiraling power costs," Dasari said.

The market outlook remains tepid but the company is cautiously optimistic of the coming months.

"We will focus on introducing a slew of new products that the market is waiting for, keep building our network and continue our brand building efforts to maintain and improve our market share," he said.

Ashok Leyland shares ended down 2.1% at Rs 23.30 on NSE on Tuesday.