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Ashok Leyland Sales Growth At 7.1%, Banks On Pre-Buying Close To BS IV Implementation From April, 2017

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Ashok Leyland Sales Growth At 7.1%, Banks On Pre-Buying Close To BS IV Implementation From April, 2017
We bring you our monthly report on the automobile sales for the month of January, 2017. You can catch all the January Sales here. You can also find all the coverage in relation to the automobile sector here.


Following other auto makers but in a delayed mode, AL announced a price hike of Rs. 60,000 to Rs. 1.25 lakh during the first week of January. This was followed by another positive for the company as its Managing Director Vinod Dasari earned the title “Autocar Professional’s Man of the Year 2016”. Here are some excerpts from an interview following the news:

  • On Global Expansion

We identified six regions in the world, which were India-like in terms of road conditions, load conditions and which are also growing. They are SAARC, ASEAN, Middle East, Africa, Latin America and CIS. The second step of the strategy was how we compete in these markets. Today about half of our bus sales happen outside India, not many don’t know that. The entire BRT system in Lagos is run by Ashok Leyland. Ninety-five percent of the buses are Sri Lanka are Ashok Leyland buses. So we first enter (a market) with buses.

  • On Export Revenue

10% to 15% currently which we want to move to about 25-30% in another 4-5 years.
AL inaugurated a new outlet in the Eastern India at Dimapur – a facility spread over 30,000 sq. ft. The facility has been placed strategically at 7th Mile on Asian Highway 1 and will cater to all the vehicles of Dimapur, Kohima, and other floating population.
Here is what R. Nagarajan, Vice President-Global Service, Ashok Leyland said:

Nagaland is a very important market for us and we are very pleased to inaugurate this facility in the state. With this new outlet, we look forward to increase our market share in the North East region from the existing 21%. The major drivers of economy in the region are road construction, agriculture, tourism, and trading. We are confident that this new outlet will further strengthen our strategic presence in Nagaland.

Ashok Leyland Sales Growth At 7.1%, Banks On Pre-Buying Close To BS IV Implementation From April, 2017
On new commercial vehicle launches, AL launched the ‘GURU’- the latest Intermediate Commercial Vehicle (ICV) and the ‘PARTNER’ – a modified and completely home-built 3-litre engine vehicle with improved fuel efficiency and ALs air-conditioned LCV goods vehicle. Also launched was ‘GURU’ (BS-III and BS-IV variants) to address its weaker presence in the Intermediate Commercial Vehicle segment. AL is looking at close to 10,000 annual unit sales for both these trucks combined and ICV is one of the key focus areas for the company as it looks increase its market share in this segment.
Here is what Vinod Dasari, Managing Director said:

We want to get to a position where we will have a 30% market share across segments in the industry. We are targeting an export ratio like one export for every two domestic sales. With these launches, we have strengthened our position in the market and are closer to our vision of emerging as one of the top 10 truck makers, globally, by significantly increasing the market share in ICV and LCV segments.
The new launches address the two segments between 5-tonne and 12-tonne range where we were weak. Guru has been developed in 18 months as against a normal time frame of three-four years.

Ashok Leyland Sales Growth At 7.1%, Banks On Pre-Buying Close To BS IV Implementation From April, 2017
AL is also planning to incorporate a left-hand drive for this newly launched model and pitch it for exports to Africa and West Asia. For now it is looking to export the left hand drive units to Gulf Cooperation Council (GCC).
All these new launches come after the company divorced its partner Nissan and has decided to widen its product range. Now it is working on the new strategy which involves reviving two brands that we due to be launched this year. Here are the details shared by Nitin Seth, President (LCV & Defence), Ashok Leyland:

  • The production line from Nissan’s factory has now moved to Ashok Leyland’s Hosur facility and we are all set to embark on a new journey.
  • We have started working on Partner and Mitr, which have been off the market for over a year now.
  • Minimum investment of around Rs 400 crore in this business
  • Pillaipakam land, acquired jointly by Ashok Leyland and Nissan, to set up a Greenfield facility for LCV is still in possession of AL and currently there are no plans of expansion.
  • Ashok Leyland has identified four clusters as part of its LCV export strategy: ASEAN, Africa, Gulf and SAARC

On the Bharat Stage-IV emission norms set to kick in from April 1, 2017 – ALs Anuj Kathuria who heads the trucks division is banking on pre-buying in Q4 since vehicle prices are set to rise from April, 2017. Here is what he said:

  • Pre-buying could result in a lull in sales if a lot of fleet operators were to meet their requirements for new vehicles with the Bharat Stage-III variants
  • Impact of demonetisation now seemed to be waning, and the company expects to clock better year-on-year numbers
  • Company is expected to at least match the performance of the preceding fiscal, even as it hopes to marginally improve on the same.
  • Expect the company’s market share in the intermediate commercial vehicle segment to 30% from 20%
  • Target of doubling revenue from exports by 2020.

ALs finance arm – Hinduja Leyland Finance was in the news as it raised Rs. 250 crore via a Right issue. The investors including Hinduja group entities and private equity investor Everstone Capital. The reason cited behind this fundraising was due to the delay in the IPO process along with the demonetization effect
The rights issue was necessitated because of a delay in the company’s initial public offering (IPO) of Rs. 700 crore in view of the impact of the government’s move to replace high denomination currency notes.
AL also released its third quarter results on the 25-Jan-17 which stood as follows:

  • Revenue increased by 8% to Rs.4,723 crore against Rs. 4,366 crore
  • Profits dropped by 13% to Rs. 186 crore against Rs. 214 crore
  • High input/raw material costs were to blame for the fall

Commenting on the Q3 results, ALs Managing Director Vinod K. Dasari said:

Q3 has been quite challenging, for the industry, primarily due to the steep increase in material cost. Demonetisation had an impact but the Industry is recovering from it. Despite these challenges we have maintained healthy operating margins. Pre-buy in Q4 owing to BS-IV implementation in FY 2017-18 along with our recent introductions in the ICV segment – Guru (Truck) & Sunshine (Bus) and LCV segment – Partner (Truck) and MiTR (Bus) expected to have a very positive impact on our volumes in the current quarter.

Here are the some of the points from the earnings call:

  • Faced with lot of turmoil due to demonetization – driver wages, toll, fuel is paid in cash
  • Volume came down in the Industry. Bus grew at 30% due to invoicing of STUs.
  • Level of discounting in the industry grew higher to 3 lakh per vehicle
  • Increase in raw material prices especially steel led to price hike which could not be passed in November or December. Price hiked by 4% across products from 1st January, 2017.
  • Expect some pre-buying due to Euro 4 implementation from 1st April, 2017.
  • Inventory is in place for the surge in demand. Current factory inventory stands at 11,500 units
  • Export revenue for Q3 stood at Rs. 388 crore. (Q2 was Rs. 700 crore).

ALs Bangladesh partner – Ifad Motors will soon start off its assembling plant at Dhamrai which will has a capacity of 10,000 vehicles per year. Here is what the Managing Director of Ifad Autos Taskeen Ahmed said:

The plant will assemble around 7,000 trucks of various ranges as well as around 3,000 buses each year, making it the largest commercial vehicle assembling plant in Bangladesh. In addition, we will also build around 3,000 truck and bus bodies from the same facilities each year.
Assembling these vehicles locally will reduce the burden of import tax and other expenditures which will enables us to sell the Ashok Leyland vehicles at around 15% less price. Local assembling will also enable us to use locally produced automobile components which, in the long term, will help to flourish the domestic manufacturing of various auto part.
Our target is to grab the bulk of the market for medium and heavy commercial vehicles of the country within the next four years. Currently, the body building segment for buses and trucks in the country are run in a very unstructured manner. This also increases the risk of road accidents due to poor compliance and quality assurance.
However, our Ifad assembling plant will host the country’s first production line for body building of commercial vehicles which will ensure better compliance and quality assurance. At the same time, the time needed for building a truck body will be reduced from 25 days to 10 days while the time needed for building a bus body will be reduced from 40 days to 15 days.

AL reported sales of 14,872 units in January, 2017 against 13,886 units during the same time last year resulting in a growth of of 7.1%.
Ashok Leyland Sales Growth At 7.1%, Banks On Pre-Buying Close To BS IV Implementation From April, 2017

  • Sales of MHCV stood at 12,056 units against 11,208 units
  • Sales of LCV stood at 2,816 units to 2,678 units

Ashok Leyland Sales Growth At 7.1%, Banks On Pre-Buying Close To BS IV Implementation From April, 2017
Note: Sales numbers presented here are manufacturer reported sales numbers i.e. factory dispatches to dealerships. They are NOT retail sales figures to end customers.
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