Witnessing a de-growth in the Commercial Vehicle segment due to lower truck rentals, Ashok Leyland reported a 5.1% drop in overall sales.
The diesel price cut is set to push down truck transport freight charges. Also the arrival of vegetables and fruits into Agricultural Price Marketing Committees in the past four weeks has further dropped by 25% and heavy rains have curtailed the operation of the trucking business. Additionally, August doesn’t hold better prospects for the transport sector.
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AL posted a Net Profit of Rs. 290.78 crore against 144.49 crore during the same quarter of the previous year – a jump of over 200%. Net sales growth was limited to 10.6% at 4,175 crore as against Rs 3,775 crore. The profit growth was attributed to a better product mix. The company has also bagged an order for 3600 buses from various State Transport Units which would help increase its presence in the Domestic Market. The company is also targeting a revenue contribution of 25% from exports and has taken a few initiatives on expanding production capacity, setting up new plants etc.
The company’s sole distributor in Bangladesh i.e. IFAD Autos is establishing an Assembling Unit for HCV, LCV and MDV vehicles with an estimated capacity of 960 units of Tusker Super-1613H Truck (most popular brand) for the first year and body fabrication unit with a capacity of 840 Unit/Year (though there are reports suggesting that the overall plant capacity is 7,000 trucks and buses a year which contradicts the capacity mentioned the prospectus). The plant is set to go operational in September this year with zero investment from Ashok Leyland.
Ashok Leyland and Tata dominate Bangladesh’s commercial vehicle market, with 35% market share each. In the bus segment, Ashok Leyland is the market leader in Bangladesh.
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The company is also planning to invest $5-6 million or 70 crore for an assembly plant in Kenya which would start off with 5,000 units (in terms of plant capacity). This plant would be operational by July, 2017 and would serve as an export hub for three neighbouring countries, besides meeting local demand in Kenya. The company plans to ship kits from India to assemble there. The plant expects to attract tax incentives, freight benefits, along with the advantage of localization.
This is being done on the back of the order received for 3,600 vehicles worth $200 million from a West African country formerly known as Ivory Coast. The order includes supply of trucks and buses, which will be delivered in the next 12 months.
Additionally, the company is expanding the capacity at Ras Al Khaimah unit in United Arab Emirates to 6,000 units (recently the company had expanded from 2,000 units to 4,000 units).
Disclosure: Analyst holds the stock as part of personal portfolio. Please assume we are biased.
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