Ashok Leyland Ltd’s shares rose over 3% on Wednesday, after the auto maker reported volumes for June. Excluding sales of its newly launched light commercial vehicle (LCV) Dost, volumes fell by 6% year-on-year (y-o-y). In April and May, volumes had risen by 17% and 11%, respectively.
Some analysts were expecting a bigger y-o-y decline in volumes. On the one hand, sales in June 2011 represented a relatively high base. On the other, medium and heavy commercial vehicles (M&HCVs) had built up a sizeable inventory, which was expected to impact primary sales in June.
The company said in a call with analysts that demand in the southern states has been relatively better compared with the rest of the country, which is why it has been outperforming the industry. Investors also liked its comments that it still expects the M&HCV segment to grow by 14% in the 2012-13 fiscal year. In the first quarter, this segment has grown by merely 5.5%.
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Ashok Leyland clarified that the large capital expenditure plans reported in the media included investments planned by joint ventures, and its share of expenditure is relatively lower.
According to an analyst with a domestic brokerage firm, this came as relief, as sections of the market were fearing high dilution in the company’s equity.
Meanwhile, sales of the Dost LCV, produced by the joint venture with Nissan Motor Co. Ltd, have been growing steadily. They grew by 18% on a month-on-month basis in June. According to Karvy Stock Broking Ltd, Ashok Leyland’s entry into the LCV segment will reduce cyclicality in sales and provide a cushion for the company.
Additionally, it expects the increased contribution to volumes from the company’s new plant to generate fiscal benefits of Rs252 crore this fiscal year and Rs316 crore in the next. This is a welcome relief, given the pressure on margins lately.
But, as pointed out in this column earlier, sentiment for the Ashok Leyland stock will improve meaningfully only when the tide turns for the M&HCV industry.
On a year-till-date basis, the company’s shares have underperformed the broad market, rising by 10%, compared with a 15% rise in the Nifty index of the National Stock Exchange.
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