Financial Daily from THE HINDU group of publications
Saturday, Jun 12, 2004
Financial Daily from THE HINDU group of publications Saturday, Jun 12, 2004 |
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Corporate
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Performance Columns - Microscope Ashok Leyland rides industry resurgence Raghuvir Srinivasan
FISCAL 2003-04 was an exceptionally good one for the commercial vehicles industry and Ashok Leyland Ltd's (ALL) results bear that out clearly. The 66 per cent jump in profit before tax and 28 per cent rise in turnover could not have been achieved but for the resurgence in the industry. Interestingly, the company was hobbled by capacity constraints during the year and yet managed a 34 per cent rise in sales volumes at 48,654 vehicles. ALL's problems on the capacity front forced the company to forego business in the bus segment in favour of trucks due to which it suffered a loss of market share in the former segment. However, the sterling performance in trucks ensured that the company would maintain its share on an overall basis. The company managed to mitigate the impact of a sharp rise in cost of inputs such as steel and copper through stringent cost control measures and a small six per cent increase in selling prices. These were, however, not good enough to prevent a minor drop in operating margin from 10.57 per cent in 2002-03 to 10.04 per cent in 2003-04. ALL's financial management has been exceptional as ever, with interest costs dropping by a huge 64 per cent to Rs 20.79 crore during the year; the company actually earned interest of Rs 1.7 crore during the fourth quarter. The current fiscal is an important one for the company, as it has to overcome the capacity problem to capitalise on the ongoing boom. The plan to expand capacity from the current 50,000 units to 67,000 units should help but a lot depends on how soon ALL is able to get it on stream. The company is also planning a test launch of its first Newgen vehicle with a Hino J series engine and a modern passenger bus with body built by Irizar-TVS. The success of the Newgen series is critical to the future plans of ALL in the high-end segment, where competition is likely to get tough once Tata Motors brings the Daewoo range into the country. The budgeted capital expenditure of Rs 300 crore for this year should be easy to finance from internal accruals. Initial reports on the monsoon appear encouraging and could well support a continuation of the growth in the industry. While it would be unrealistic to expect the industry to grow by the same quantum as last year, a growth in the region of 10-15 per cent appears a strong possibility at this point in time. The question is: can ALL get its increased capacity on line in time to exploit this anticipated growth? That would be critical to its performance this fiscal.
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