Worst behind CVs; will meet export guidance: Ashok Leyland

Reema: You have bagged a large project order worth USD 79 million from Africa. When will it contribute to your revenues?

A: This is not an order like we get other export orders for large things. If I compare this with Sri Lanka order which was for one type of vehicles or couple of types of vehicles in a very large number. What we are doing in various parts of Africa is what we did in parts like Sri Lanka and Bangladesh many years ago was helped the local economy build a transport infrastructure. So, we will sell trucks, we will sell buses, we will sell light commercial vehicles (LCVs), we will sell spares, we will do driver training, we will set up service training.

Overall, we want the country to come up and get lot more active in the transport industry. I know that these are seeds that we are sowing and these are small orders but as those countries become mature and much more developed, they will buy lot more. Today, we are successful in Sri Lanka because we have been having a joint venture with the government now for over 25 years.

Sonia: What kind of potential do you see in the Africa market through this model that you spoke about? How big it is and how much market share are you eyeing?

A: Africa will take time. It is not going to be an overnight thing where Africa will suddenly contribute a huge amount but over the next five-six years it’s our goal to make 1/3rd of our revenues to come from outside India. I would say that a substantial chunk of that 1/3rd will come from Africa in five-six years time and every country in Africa is trying to get out of their past and grow significantly. There is tremendous potential, everywhere I go I feel there is tremendous potential.

It is not going to be an overnight thing and that’s not what our intent is. We are investing our time and energy and we will probably be putting up modular plant in some of these countries. We haven’t decided which one but we have tried this experiment in Middle East; we have built a plant for four a day in Ras Al Khaimah seven years ago. Today we expanded it and we are now producing ten a day in that plant. So that’s another example of how we use local skills and local suppliers to help build the economy as well as sell in that market.

Sonia: You said to us that 1/3rd of your revenues will come from outside India over the next five-six years but what about in the very near-term. How much export growth are you targeting one year from now and how much will export contribute to your overall revenues by the end of FY15?

A: Compared to last year’s first half our exports grew by about 25 percent and if you take the quarter, we grew by about 40 percent. I had said previously that this year I expect our exports to grow about 30 percent roughly and we are on track to achieve that. Usually exports used to be 8-10 percent our sales. This year they will be somewhere closer to about 14-15 percent of our sale. So we are halfway mark as to where we want to be five years from now. Where will I be export as a percentage of total in FY16. It’s little difficult to say because it backs a question as to exactly when and how much domestic commercial vehicle (CV) volume will come back.

Sonia: For export orders that you are getting, will you be increasing your capex or is it just Leyland providing capabilities to these orders?

A: These are all small plant, these are modular. They will be done with local partners where we will provide the capabilities. We are not going to spend millions of dollars in investment. It will be very small, all within the capex numbers that we have said.

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Sonia: Any other countries where you expected to win orders from?

A: We are working on some maybe in another ten days time we will have another announcement but these are all small things. These are not game changing things like 4,000 vehicle order that we got from Government of India. These are small orders but every little bit helps and one of the things that we had pursued over the last 18-24 months is that if the market in domestic India is going to be so low, we need to make sure that we fill up the plant with export orders as well as domestic bus orders and that’s what we are doing.

The truck volume still continues to be quite low. So, we fill it up with busses and spares and defense and all of that and if we do that then at the same time we focus on reducing our breakeven point to a point where even at this level we can make money. So that was the reason why you saw that after five consecutive quarters of losses. Last quarter was the first time we were able to show an operating profit.

Sonia: That was the big positive takeaway that you turned profitable after five quarters of losses, can you say with any certainty that the worst is now over for the sector?

A: I believe the worst is over. But the good times are not here yet. So we cannot become complacent. Is this going to be a V-shaped turnaround, I don’t know so it is not a V-shaped turnaround but it could be a bathtub type of turnaround but how long is that bathtub I don’t know. I don’t like to speculate. What I am saying is assume what we are doing in our company is to prepare the company to continue at this level for sometime. Margins of this kind of volumes are higher than they have ever been before. We will continue this cost reduction work that we are doing looking more into our product as well as building new markets and new products.

Sonia: In Q2 conference call, you had said that Layland has gained market share in all regions because of the bus orders and now the market share stands at close to 27 percent. Can you tell us how much market share gains are you targeting by the end of this fiscal, by the end of next fiscal, what could the trend be?

A: We are not targeting any growth in market share and the market share growth has not come only because of busses, the market share growth has come not just in all regions but it is also across all segments. This market share is not right to be tracked only what happened compared to last month or last year. What we do when we look at market share is we look at market share across segments over the last five years.

So Ashok Leyland competes in three different sectors, one is 16 tonne and above, where we have had a market share of 30 percent plus or minus 1 percent for the last five years. So there has been a lot of entry of new players and what used to be a two-player market has now become a 9-player market, we have not lost market share. In fact at the end of first half, our market share was 32 percent. Will it remain there, will it come down to 31 percent, I don’t know but we are going to defend it below 30 percent mark.

On 7.5 tonne to 16 tonne segment, our market share used to be only 4-5 percent five years ago with the launch of vehicles like Boss and the Ecomet -- we are now up to about 15 percent market share.

In the LCV segment where we did a joint venture with Nissan which are less than 7.5 tonne market, we didn’t even exist five years ago. We have the Dost and the Partner and we are now nearly 12-14 percent market share there also.

So market share in our segment is not something which we track overnight, somebody might win a large order and show a large market share gain or do a substantial discounting and show big market share, that is not how it should be tracked. It should be tracked over a period of time.