Price hikes in the last six months and a nearly threefold increase in December sales would be the kickers for a positive third quarter for Ashok Leyland Ltd.
The country’s second largest bus and truck maker’s sales in December alone grew by 165% over the year-ago period, and 30% sequentially, to 6,099 vehicles. More importantly, this is the third consecutive month of positive sales during 2009.
For the three months ended December, too, vehicle sales have doubled over the previous corresponding period to 16,127, with its market share at around 23%.
Government orders for buses have also done their bit to shore up volumes in December. According to analysts, Ashok Leyland sold 2,373 buses during the month against 1,683 and 1,567, respectively, in the preceding two months.
Another strategic move to hike prices twice in July and October by a cumulative 4% across its products has helped protect the company’s profit margins.
According to analysts, an increase in steel and rubber prices would have hit profitability but for the price hikes and the robust offtake in sales volumes.
In fact, Ashok Leyland’s competitor and market leader Tata Motors Ltd set the trend by announcing a 1% hike last week.
Market circles are certain that a similar hike could be effected by Ashok Leyland. In fact, some market watchers reckon that this could be a move by the truck segment to protect operating profits, if the government rolls back the stimulus package and hikes excise duties.
Although clear demand-pull is now visible in the truck segment, the cumulative sales for the year till December are still down 13% at around 38,117 vehicles. This is on account of the poor performance of the company and industry in the first two quarters ended June and September.
While the upbeat sentiment will continue in the fourth quarter, margins could take a slight hit, unless input costs decline. It may be difficult to keep passing on a rise in input costs to the consumer, given that compliance with the new emission norms will in itself make the trucks costlier from fiscal 2011.
The company plans to launch a new platform of trucks, which includes tractors, tippers and haulage trucks ranging from 16-49 tonnes, in the next 18 months.
Analysts’ consensus is for net sales of around Rs1,800 crore for the December quarter, which is nearly 80% higher than the year-ago period.
A report by the Mumbai-based broking firm Prabhudas Lilladher Pvt. Ltd says “the average realization per vehicle is expected to be higher compared with the second quarter of 2009-10 due to a change in the product mix”. The company sold more heavy-duty trucks with better realizations as industrial activity picked up.
The operating profit margins will also expand to around 10.5% during the quarter from 8.2% in the corresponding period a year ago.
Taking a cue from the December sales, the stock price, too, has rallied in the last week from Rs49 to Rs53. With the momentum in sales to continue until March, the interest in the stock is likely to persist in the near term.