Ashok Leyland hopes for some improvement in Q4

Says first half has been affected by tough market conditions

The downturn in the commercial vehicle industry has affected Ashok Leyland. The company reported a net loss of Rs 25 crore during the second quarter as compared to Rs 142.5 crore profit a year ago. The company said that it was a reflection of the tough market situation experienced during the first half of the year.

 

Revenues were Rs 4,913 crore in the first half of the current fiscal as against Rs 6,346 crore in the corresponding period last fiscal.

 

“There is likely to be some improvement in the fourth quarter, but we do not expect any significant change. As an organisation we have used this opportunity to re-structure and will remain focused on creating better value for customers through new products, improving operating efficiency and divesting some of the non-core investments. Our recent sale of Defiance Testing & Engineering Services is part of this overall company strategy,” said Vinod K Dasari, managing director, Ashok Leyland.

 

The market continues to contract, with the total industry volume (M&HCV Domestic) down by 25%. Ashok Leyland clocked total M&HCV volumes of 30,820 (41,411 units a year ago) and LCV volumes of 14,021 units. (15,913 units a year ago).

 

“Despite the challenging scenario, the company maintained its market share. It retained leadership position in the passenger segment, aided by better penetration in the ICV bus segment,” said the company.

 

While the company has reported a net loss of Rs 167 crore for the first half of fiscal 2014 (against net profit of Rs 210 crore in the year ago period), net loss has reduced from Rs 142 crore in first quarter to Rs 25 crore in second quarter. Sale of long term investments generated Rs 48 crore during the current quarter.

 

Yaresh Kothari, Research Analyst- Automobile at Angel Broking said that Ashok Leyland has reported an adjusted bottom-line loss of Rs 69 crore in second quarter, which was lower than estimates of Rs 83 crore largely due to higher tax reversals during the quarter.

 

However, the interest expense increased sharply by 23.6% quarter on quarter (20% yoy) following an increase in the debt levels (increased by Rs 1,400 crore in second quarter as compared to March 2013 levels).

 

EBITDA margins declined to 2.2% (down 793bp yoy) as against expectations of 3% on account of the substantial decline in volumes (down by 22.7% yoy), lower utilisation levels and also due to higher discounts and inferior product-mix, Kothari said. Volumes declined by 22.7% yoy leading to a steep decline of 22.6% yoy in the top-line to Rs 2,550 crore, which was broadly in-line with Angel Broking's estimates.

 

“We believe that the operating environment would continue to remain challenging for the company, as we expect the commercial vehicle cycle to remain weak in second half of the fiscal as well," added Kothari.

 

Meanwhile, Dasari said initial customer feedback for its new products has been encouraging.

 

“We are confident the new products will help build volume and lead to greater customer satisfaction. We continue to invest in product development, network expansion and quality improvement initiatives,” said Dasari.