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Ashok Leyland looks for higher volumes

Ashok Leyland looks for higher volumes
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First Published: Mon, Feb 01 2010. 10 58 PM IST

Updated: Mon, Feb 01 2010. 10 58 PM IST
Auto maker Ashok Leyland Ltd told analysts it’s likely to sell around 28,000 vehicles in the three months to March. This would be more than double the 10,788 vehicles it sold in the year-ago period.
The firm has said it could close the fiscal with sales of 65,000-66,000 vehicles. The next fiscal may see volumes touching 75,000-80,000.
The projections are perhaps a reflection of the sustained strong industrial production numbers. If results for the December quarter are an indication, the management’s targets are likely to be achieved. Barring a couple of price hikes that raised revenue, it was the increase in sales that led to an 81% jump in net sales over a year ago.
In the last quarter, India’s second largest truck maker’s sales grew around 101% to 16,127 over the year-ago period. It also said it had hiked prices by around 3.6% from April till date, with the latest raise about a fortnight ago.
However, raw material costs could rise 2-3% in the fourth quarter, given the hike in steel and rubber prices. In the third quarter, material costs were down to around 71% from around 74% of its net sales.
An excise duty hike of 2-3% too is possibile, besides the new emission norms that will make trucks more expensive. Also, corporate circles expect an interest rate hike, which may hurt sales as trucks are largely bought on hire purchase.
On its part, Ashok Leyland is trying to shore up profits. Interest costs were lower during the December quarter at around 0.9% of net sales from around 4% in the year-ago period. The firm’s strategic move to cut inventories, aided by its cash-and-carry system for dealers, helped reduce working capital requirements, and, hence, interest costs.
In the downturn of 2008-09, the firm had introduced a system of paying workers full salary even as they worked only a few days of the week, when the rest of the industry was retrenching. Their leave was banked in their favour, to be used when better days returned, helping retain them.
The scrip has been changing hands at around Rs50. For the nine months ended 31 December, the firms’s earnings per share was around Rs1.50 which, according to analysts’ consensus, should touch around Rs2.50 for the full year. This leaves little room for investors to reap returns through an appreciation in share price. The only kicker would be if Ashok Leyland’s sales for 2010-11 touch the 2007-08 levels of around 83,307 vehicles, which at this juncture seems an uphill task.
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First Published: Mon, Feb 01 2010. 10 58 PM IST