Rabin Ghosh

Mumbai: Ashok Leyland, the country’s second-largest commercial vehicle (CV) manufacturer, has set a target of improving its market share in the truck and bus segment from 29% now to over 33% in three years. The Rs 7,000 crore company is increasing focus on exports, spare parts, and engine trading in a bid to beat cyclicity in its core business.

Managing director R Seshasayee told analysts on Tuesday, the company would achieve a 10% operating margin for the whole year.

Margin levers like price hikes (2% hike implemented earlier this month), better cost management (operating cost has come down by 2% over 2 years), and softening of some key raw material prices are expected to aid margin expansion, he said.

The company is also confident of a revival in CV offtake during the second half so as to achieve a 90,000 unit sale by March for the whole year, 16% more than what it had sold last fiscal.

This means, it will have to sell about 53,000 units of trucks and buses between October and March, as against the 40,000-odd sold in April-September, representing a 5% decline in volume year-on-year. Truck sales declined by 25%, though a strong performance by buses helped limit the slide.

“The STU (state transport undertaking) order book is comfortable. Private passenger segment grew 20% in the first half of the year and we expect the trend to continue. We have a 53% market share in the segment. Also, the drop in truck in South (Ashok Leyland’s home turf) is lower than all India and during the first half of the year, we have increased our market share by four percentage points here. We also expect this trend to continue. Then, there is increased focus on defence and exports,” chief financial officer K Sridharan said.

Ashok Leyland is moving towards reducing its dependence on the highly cyclical CV business, which is currently in a bear grip owing to factors like increased interest rates.

The non-cyclical defence, exports, engine trading, and spare parts businesses account for 18% of its revenues, which the company wishes to take to 30%. In engine trading, it aims to double volumes in two years. Exports are expected to double in three years.

The company has lined up capital expenditure worth Rs 4,000 crore over the next three years, which would see its capacity more than double to 1,84,000 units per annum from 84,000 units currently. It is setting up a 50,000 units per annum greenfield capacity in Uttarakhand, which would entail fiscal benefits to the tune of Rs 75,000-100,000 per vehicle for the company.

The company would raise the funds for expansion through internal accruals and debt, and does not plan to go for equity dilution. As for Avia, the Czechtruck maker it acquired last year, Seshasayee said it was expected to manufacture 3,500 units this fiscal and was exploring some large new markets like Russia and Iran.

With increase in volumes, Avia’s margins are expected to improve, too.

Source : DNA