Mumbai: The country’s second largest truck and bus maker, Ashok Leyland Ltd, has managed to stay afloat largely on the back of its renewed focus on non-cyclical businesses such as defence and auto engines.
In 2008-09, the Hinduja Group’s flagship firm saw its net profit erode by more than half to Rs190 crore and sales volume contract 35% to 54,431 units.
Thinking electronics: V. Sumantran says Ashok Leyland will focus on communication, fleet tracking and navigational aids. Prajakt Patil / Mint
V. Sumantran , executive vice-chairman, Hinduja Automotive Ltd, the group’s holding company, says the Chennai-based firm is in the process of transforming itself for the future. The seeds of these transformations, he says, were sown three years earlier, much before he joined the group in April 2008, and should help it ride the choppy waters—the cyclical nature of the commercial vehicles business—better.
The former executive director at rival Tata Motors Ltd, responsible for its first car, Indica, says the Hinduja group is keen not to stray too far and focus only on verticals it understands. Edited excerpts:
How are newcomers like you steering changes at Ashok Leyland?
It’s very tempting to think that newcomers came and changed the face of the company, but I must say very systematically, the seeds have been sown over a long period of time so that the company is transforming itself. Globally, the commercial vehicle industry has been very cyclical. The company (Ashok Leyland) had decided some time ago that it needs to stabilize the wave and ride the choppy waters with much greater ability.
The first few steps taken were all very logical. The defense (sector), for instance, is a solid revenue earner. This was adjacent to what we are doing. It’s a very demanding sector with respect to specific technology, but at the same time, you can count on a certain fraction of the revenue. And going forward, it’s a sector where we can look at exports growth. Not many people know that Ashok Leyland’s Stallion(truck) is one of the top-three widely used mobility platforms globally after General Motors’
Secondly, we have also been investing in our own range of powertrains (or engines); this is strategic to the future. Ashok Leyland’s engines are its own design and IPR (Intellectual Property Rights) owned. We said as we are already doing it why not have engine and genset businesses. Our engine business from the last two years has been growing by almost 100% year-on-year. This was another stabilizing factor.
Then we started to say we need to now look at sectors in India that are growing, but in which) we do not have a play. We have seen an explosion in light commercial vehicles. I launched Tata Acewhen I was still at TataMotors. Its success is sometimes beyond my imagination—every little town and village you go to, you see a Tata Ace. It’s a signal of a transformation in the freight movement.How did the joint venture (JV) with Nissan (Motor Co. Ltd) happen?
It’s difficult to say as in this industry we are all talking to each other all the time and partners are also changing. In Hanover, about three years ago, GP (G.P. Hinduja, president, Hinduja Group), myself, Dheeraj (Dheeraj Hinduja, co-chairman, Ashok Leyland) and Sesh (R. Seshasayee, managing director, Ashok Leyland) had met with all the senior leadership. It was the inflection point. Fast-forward, we now have a functional JV. I am happy to say it’s on track and we will be more efficient.
There have been some delays in the product rollout from the JV?
We have already said we expect six-seven months’ delay because of land acquisition. But having said that, having seen so many projects in my life—at GM and Tatas, I am not concerned about it. The best part is, we will come out with globally competitive products, and with not only the benefit of engineering, but also cost reduced for India.
But your capex has been small and your market share has been more or less constant.
Yes, we have been accused of being south Indian. I have never heard BMW being shy about being called a Bavarian company; BMW is BMW. In Germany, Bavaria is regional. We are all the products of what we are.
Can you elaborate on the newer, non-cyclical verticals?
After stabilizing the revenue base, what we do is for the future. We quickly narrowed down on three areas. We said we can only be in sectors we understand and not any sector. After filtration, we came up with three sectors, the first being electronics. The explosion of electronics in manufacturing and vehicles is scary, particularly for an Indian company. The Eagle module of the Apollo mission that landed on the moon had significantly less electronics and memory compared to what you will see on a BS IV Ashok Leyland truck in 2010.
What are the critical areas of the electronics business Ashok Leyland will focus on?
We are now about communication, fleet tracking and navigational aids. It was a critical sector and we couldn’t have done it ourselves so we did a JV with Siemens VDO (now a part of Continental). Here again, what we have been doing are low-cost products that are in this domain. A telematic solution tracking fleets, for instance, costs a fraction, with the same functionality, of what it costs in Europe. One, it’s applicable in India, and two, we can source it back and embed it back with 80% of the concept and make it globally available.
Offering green solutions is another key focus area. In Europe, they are adding about €3,800 just to manage (the transition) from Euro4 to Euro5 (emission norms). We were looking at an acquisition but (that) didn’t go well. So we hired the key technical people in this business and created a tech centre in our company in Germany. The company offers after treatment solutions to auto makers in Germany that gives them a significant cost advantage. They are designed, procured and sold in Germany. We also want to change the mindset of being an Indian company to a global company, irrespective of where we are, provided we know our strengths.
To prepare ourselves for the future, we looked at a combination of IT (information technology) and productivity enhancement. We are not competing with IT giants. We are looking at offering manufacturing and industrial enterprise solution. Everything from product development to manufacturing, supply chain management, vendor, and customer-dealer management, is linked by IT. The idea led to a new company, Defiance Tech Pvt. Ltd.
All these will offer us significant future revenues and they will be stand-alone, self-standing outward-looking business enterprises. We will be playing the role of a consultant.
Please keep these two Qs in the web version
Some joint ventures did not click, like the one Ashok Leyland had with Iveco for 19 years. How do you bring in new technology without a partner?
All of us in the group ask ourselves: Are we prepared for the future, do we need to look into tie-ups. We have come to the conclusion that we have the confidence, the investment appetite and the conviction to steer an independent course. Having said that, we are not arrogant to believe we don’t need anybody else. This is the era of finding the right partners who share values in what we want to do in some areas. But your main course is independent and you are not influenced or steered by another partner. One has to be intelligent in finding a right partner.
When you separate from a company like Iveco, the options are far better. Today, the access to technology is not a big deal. We have an agreement with AVL in Austria. Ford, GM, BMW, everybody uses AVL engines. We get the best of European designs. Only the combustion chamber is sourced from them, the rest of it is developed in-house. We get a new brand at a local cost.