While business will be better this year, the outlook for CVs isn’t too bright yet.

It’s been a rough ride for Ashok Leyland in 2008-09 with sales down 23 per cent to Rs 5,981 crore. The fall in the March quarter was over 50 per cent. That was to be expected because the company’s volumes during the year were down over 40 per cent and it lost market share in the commercial vehicles (CVs) space.

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Also, analysts point out that an amount of Rs 50 crore, was not included in the profit and loss account for foreign exchange transactions since it followed the modified AS11 norms. Besides, high interest costs pushed down the recurring profits by 82 per cent.

Industry watchers are not quite convinced that the CV cycle has turned and feel volumes may fall slightly in the current year too, despite signs of freight rates firming up in the southern and eastern parts of the country. The management says it should be able to recoup some market share in CVs and hopes to see better volumes for buses this year, a segment in which it has a strong 46 per cent share.

While the lower prices of raw materials will benefit Ashok Leyland, it needs to clock better volumes to be able to extract significant benefits. Also the company hopes to save on working capital once it clears the inventories and pipeline stocks. It has scaled back its total capital expenditure and investments by Rs 1,000 crore toRs 2,000 crore for the next three years, which would ease the strain on the balance sheet.

While all these measures will help, ultimately Ashok Leyland’s recovery hinges on an economic turnaround. But despite easier access to koney, fleet operators mat wait for freight volumes to pick up before they invest in new trucks. At the current price of Rs 24.70, the stock trades at about 12 times estimated 2009-10 earnings but given the somewhat uncertain outlook for CVs, that multiple is hard to justify.

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