Ashok Leyland weighs options for new LCV: partner, buy or build

Ashok Leyland weighs options for new LCV: partner, buy or build
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First Published: Wed, May 30 2007. 12 43 AM IST
Updated: Wed, May 30 2007. 12 43 AM IST
Ashok Leyland Ltd will expand its operations in light commercial vehicles, the second fastest growing segment of the truck market, and consider international acquisitions in the auto components business, according to Dheeraj Hinduja, president of the Hinduja Group.
The Mumbai-based group owns the India’s second-largest truck and bus maker.
He said the firm is willing to spend up to Rs1,800 crore to build a new factory to make the products if it is unable to rope in a joint venture partner or make an acquisition.
“One way is to do it through a joint venture or an acquisition, (or) through the development of our own product.” said Hinduja. “It’s always better to take a tried and trusted product as long as it meets the cost equation in India,” he added.
Hinduja said an acquisition would likely cost less than the Rs1,800 crore the group has earmarked for a factory to build the product, if it were to develop it entirely on its own.
Ashok Leyland plans to start by producing 20,000 LCVs a year. This compares with the 2,25,000 Ace vehicles rival Tata Motors Ltd, India’s largest automaker by sales, plans to produce in the tax-free zone in Uttarakhand starting 2008.
Ashok Leyland has a marginal presence in the light commercial truck segment, dominated by Tata Motors’ Ace, which by analysts estimates is the single-largest selling truck in India, with sales of more than 60,000 units a year.
Indian companies such as Tata Motors and Bajaj Auto Ltd are investing to build factories that will roll out new light commercial vehicles which, including their own weight, can carry between one to seven tonnes, to capture the increasing demand for these trucks. Demand for such vehicles grew 39% to 1,68,503 vehicles in fiscal 2007 from a year ago as more transporters adopted the hub-and-spoke model. Under this, heavy tru-cks carry goods on highways and small trucks are used to carry them inside towns and cities. This segment is expected to continue to grow at 15-17%, analysts say.
“The growth in industries such as courier services is further boosting the demand (for light commercial vehicles),” said Amitabh Chakra-borty, president, equity business at Religare Securities Ltd. He added that the company had an insignificant presence in the light commercial vehicle segment right now with “just 1.4% market share”. A capacity of 20,000 LCVs a year would help increase this, he said.
Hinduja also said Ashok Leyland would look beyond commercial vehicles at “components (and) engineering services.” He expects international sales, components and engineering services to account for 30% of Ashok Leyland’s revenues over the next two years from 25% now. For that, the group is looking at acquiring a footprint abroad through acquisition of both commercial vehicle companies and auto parts makers.
“This (the increase in revenues) will happen with international expansion,” he said.
“In components, we have internally factored in on certain areas we want to focus,” he added. “Delphi, Visteon—they’ve had their troubles and people are looking at certain segments (parts of these companies for acquisition). We’ve been approached by investment bankers with several proposals. We are evaluating them.”
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First Published: Wed, May 30 2007. 12 43 AM IST
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