Chennai: Ashok Leyland Ltd, India’s second largest truck manufacturer, has formed an equal joint venture (JV) partnership with Finland-based Alteams Group to manufacture auto components for the automotive and telecommunications sectors, to cater to growing domestic demand and also leverage India’s emergence as a hub for the manufacture of auto-components.
The project, to be implemented over two phases, will involve a total investment of Rs335 crore and generate revenues of Rs650 crore in five-six years. The name of the new venture is yet to be decided.
“The JV reflects the expansion of Ashok Leyland’s presence in auto components to take advantage of rapidly growing opportunities in India and abroad,” said R. Seshasayee, managing director of Ashok Leyland.
In the first phase, the JV, which will make high-pressure die-casting aluminium products, will partly meet Ashok Leyland’s requirements for components for engines and gearboxes in the world’s fifth biggest bus and truck market, and its portfolio will extend to parts for passenger cars and other non-automotive applications. The JV has also secured orders from Nokia’s manufacturing unit near Chennai.
Ennore Foundries Ltd, part of the Hinduja group that owns Ashok Leyland, is in a similar line of business and Seshasayee did not directly respond to queries on whether the JV and Ennore Foundries would compete with each other.
In its second phase, the JV will expand its product portfolio and start exporting to other parts of Asia. Alteams Group already has five manufacturing facilities in the world, including one in China.
“Ashok Leyland has been showing a greater interest in the components business and we are seeing increasing demand for aluminium products,” said Ashutosh Goel, an analyst at Edelweiss Securities who has a “buy” rating on Ashok Leyland.
India’s auto parts industry could grow nearly fourfold to $40 billion by 2015 as the domestic market expands and more firms tap low-cost centres such as India where manufacturing costs are 30-40% lower than in Europe, according to consulting firm McKinsey & Co.
Shares of Ashok Leyland rose 0.66% to close at Rs38 on the Bombay Stock Exchange.
While the new venture would give Ashok Leyland, which trails Tata Motors Ltd in the commercial vehicles bushiness greater presence in parts, gains to its truck and bus business would be slow in coming, said one analyst.
“This venture does not change the fortunes of Ashok Leyland right away,” said Ramnath S., an analyst at SSKI Securities who has a “neutral” rating on the stock. “The more critical issue is how many trucks they sell,” he added.
Ashok Leyland said sales in the first quarter reported a positive growth, despite competition reporting negative growth. This is mainly due to increase in bus sales, said Seshasayee.
However, he refused to divulge exact sales numbers.
The broad indicators— freight rates, load demand, low default rates reported by finance companies—have remained robust in the first quarter, added Seshasayee. It is only the sentiment which has become negative, he said.
Rina Chandran of Reuters contributed to this story.