Ashok Leyland’s product mix lifts performance

Ashok Leyland’s August data enthused the Street as sales of trucks rose 18% from a year ago and that of light commercial vehicles by 14%


Barring a few blips, truck freight rates are recovering, too, with an 8-10% recovery posted through this fiscal.
Barring a few blips, truck freight rates are recovering, too, with an 8-10% recovery posted through this fiscal.

The clouds of recession are clearing for commercial vehicle (CV) maker Ashok Leyland Ltd. The company has been in the news recently for positive reasons after several quarters of weak sales, production cuts and cash flow constraints.

The company’s product mix has given it the edge. A few days ago, it won orders worth Rs.1,500 crore to supply buses to state transport undertakings, besides getting orders from Sri Lanka.

More importantly, Ashok Leyland’s August data enthused the Street, too, as sales of trucks rose by 18% from the year-ago period and that of light commercial vehicles (LCVs) by 14%.

This time around, the company’s sales growth, although on a smaller base, scored over Tata Motors Ltd. Analysts say that much of the latter’s loss in market share has been gained by the former. Faster recovery in tractor-trailer segment sales, which has almost doubled from a year ago, boosted Ashok Leyland’s sales as this segment comprises nearly 15% of its truck volumes.

A report by Prabhudas Lilladher Pvt. Ltd explains: “A recovery in infrastructure segment has necessitated transportation at the project sites. Also, fleet-owners are adding multi-axle trailers as large clients are insisting on younger age fleet to award long-term transport contracts.”

Ashok Leyland has a strong presence in both tippers used in infrastructure and mining and in trailers.

The company’s stock has returned 87% since April, surpassing market leader Tata Motors’ return of around 28%. Besides, much of Tata Motors’ stock price increase can be attributed to the stellar performance of its overseas subsidiary, Jaguar Land Rover Plc.

Meanwhile, barring a few blips, truck freight rates are recovering, too, with an 8-10% recovery posted through this fiscal. Although this is partly due to diesel price hikes, the Indian Foundation for Transport Research and Training says that improved movement of goods and dismantling of ageing fleet of trucks augurs well for manufacturers.

Even at the industry level, the sales contraction in medium and heavy duty vehicles between April and August, compared with a year ago, was thankfully down to a single digit at 5.4%.

Dealer channels also indicate higher footfalls for truck purchases and lower defaults on old CV loans—both positive indicators of a demand revival.

Ashok Leyland now needs to address the high debt burden and related interest cost, along with its working capital burden.

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