Companies

Ashok Leyland: Slowdown takes a toll

G Balachandar Chennai | Updated on October 06, 2019 Published on October 06, 2019

File photo of Ashok Leyland vehicles on display   -  Photo: Bijoy Ghosh

There’s fear that the woes, shared by many, run far deeper this time

For the third time in the past decade,  commercial vehicle player Ashok Leyland is facing  a  difficult year, one in which it has effected  production cuts and taken other tough measures.

The Hinduja flagship has resorted to production cuts across its factories in the past few months, due to falling  demand for trucks on the back of the  slowdown in economic activity.

However, the slowdown has hit the industry as a whole. Tata Motors, the top player, and Ashok Leyland, are also reported to have seen a more-than-40 per cent decline in medium and heavy commercial vehicle (M&HCV) sales during the first half of this fiscal year.

The third big player, VE Commercial Vehicles, saw M&HCV sales drop by about 30 per cent during this period.

The CV industry and Ashok Leyland faced a similar situation in 2013-14 and 2008-09, when demand slumped due to a drop in economic activity.

In 2013-14, the Vinod Dasari-headed Ashok Leyland laid off more than 1,200 casual workers, and effected a 5 per cent salary cut for executives. After pruning its capex, the company also announced a VRS scheme for employees from the executive cadre. In 2008-09, too, when sales at the Chennai-headquartered company declined 70 per cent for some months on the back of a slowdown in the CV industry, the company significantly cut its capital expenditure, froze a  capacity addition plan at Ennore and reduced capacity at its Uttarakhand plant. It also effected plans to cut its wage bill.

Poor sales

Now, for the third time in the past 10 years, the company  has had to resort  to production holidays at its factories due to poor truck sales.

However, in previous years,  the industry bounced back after a year or so, with  gradual improvements in demand and through stimulus measures from the government (in 2009-10) to spur economic activity.

This time, the situation is bleak for  several reasons.. While  government measures and efforts to improve liquidity are expected to help revive demand gradually, regulatory norms such as BS-VI appear to have caused some confusion and uncertainty. Also, the outlook for freight availability is dim.

For Ashok Leyland, some small respite is the demand situation in the southern market, which has seen only a single-digit decline in truck volumes as compared to a double-digit fall in other regions.

If demand in the South also falls in the coming months, the situation will turn serious for the Hinduja flagship.

The CV industry is pinning its hopes on some pre-buying  in the coming quarter, in order to get some relief in  this fiscal year.

Published on October 06, 2019
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