Increase in working capital and higher depreciation has dragged down Ashok Leyland's net profit by 30 per cent to Rs 86.25 crore (Rs 122.64 crore) for the first quarter of FY2011-12. In the quarter ended June 30, 2011, turnover rose 6.3 per cent to Rs 2,495.5 crore.
Depreciation for the quarter was higher by 37.7 per cent at Rs 84.7 crore. Financial expenses rose 68 per cent to Rs 53.3 crore (Rs 31.6 crore) on the back of an increase in working capital.
The company's EBITDA at Rs 244.6 crore is marginally better than in the previous year (Rs 234.8 crore) despite employee costs being higher at Rs 249.7 crore (Rs 202.5 crore).
“Our EBITDA level was flat but interest costs have been high. Financial expenses were significantly high due to substantial working capital and higher depreciation leading to the dip in profits. We are bringing working capital under control,” said Mr Vinod K. Dasari, Managing Director.
“After the robust growth of 2010-11, the first quarter has seen a significant moderation. The rise in cost of ownership due to spiralling input costs, rise in fuel prices, hardening interest rate and fall in freight availability contributed to this.”
The company reported a 10 per cent dip in vehicle sales at 19,277 units (21,400). Domestic volumes were down 14 per cent to 16,738 (19,460), while international operations rose 30 per cent to 2,539 from 1,940 last corresponding quarter.
Ashok Leyland attributes the drop in domestic volumes to the south, which has been the company's stronghold for long. “There were regional imbalances in demand. The South was in an election mode with freight movement being affected in both government and private sector,” said Mr K. Sridharan, Chief Financial Officer.
The company is seeing significant gains in the North, said Mr Dasari, with its Pantnagar plant achieving 60 per cent capacity in March 2011.
Inflation and rising commodity prices have taken a toll, said Mr Sridharan. The company had increased prices across product categories by 1-1.5 per cent in July. But there is a ray of hope with commodity prices softening internationally, he added. He is also hoping that interest rates, which have peaked, would fall.
Ashok Leyland is planning a capital expenditure of Rs 4,000 crore in the next 3-4 years, said Mr Sridharan. He, however, would not share details on the areas of investment.
On the outlook for 2011-12, Mr Sridharan said the company expects a volume growth of 10-12 per cent, with an export target of 12,000 units and domestic volumes of 105,000.
On the export front, the company's stronghold is the SAARC region. “We will also focus on Latin America and the African continent,” said Mr Dasari.
Mr Dheeraj Hinduja, Chairman, Ashok Leyland, said, the company's growth strategy is to “de-risk the commercial vehicles business and invest in new projects.”
DOST, the light commercial vehicle from the Ashok Leyland-Nissan JV is scheduled for launch on Friday. It is expected to be fully rolled out by August. Its association with John Deere will also see a rollout in the coming quarter.