Ashok Leyland may hike prices

The commercial vehicle major was affected due to the downturn during the second quarter of FY14

At a time when the commercial vehicle (CV) industry is going through a rough patch and facing heavy discounts, Ashok Leyland Ltd (ALL) is mulling a price increase with effect from November followed by another in the new year.

Gopal Mahadevan, chief financial officer, Ashok Leyland, said heavy discounts in CVs (in the order of Rs 2-2.5 lakh) would continue to be a big challenge for the industry. “Our market share in the first quarter this fiscal dropped three per cent by staying away from discounts. However, after announcing the discount, our market share improved by three per cent in the second quarter,” he said.

Mahadevan added the company expected to sustain the market share or increase slightly. However, it does not expect the  increase on a quarterly basis, as it involves costs in the form of discounts.

The market continues to contract with the domestic volume in medium and heavy CV (M&HCV) segment down 25 per cent. ALL’s sales here during Q1 was at 30,820 units as against 41,411 units a year ago.

The light CV volumes were at 14,021 unists compared with 15,913 units last year.

At an analysts interaction, Mahadevan said the company had set a target of Rs 700-1,000 crore capital augmentation by selling lands, diluting partially or fully the non-crore assets for repaying the debt.

Yaresh Kothari, research analyst (automobile), Angel Broking, said Ashok Leyland reported an adjusted bottom line loss of Rs 69 crore in the second quarter this fiscal -- lower than its estimated Rs 83 crore -- largely due to higher tax reversals during the quarter.

The interest expense too rose 23.6 per cent quarter-on-quarter as the debt increased by Rs 1,400 crore considered from the March 2013 level.

Meanwhile, company’s managing director Vinod K Dasari said he was hopeful of some improvement in the fourth quarter. However, he does not expect any significant change in the market condition as the commercial vehicle cycle would remain weak in second half of the fiscal as well.

“As an organisation, we have used this opportunity to restructure our business with focus on new products, improving operating efficiency and divesting some of the non-core investments. Our recent sale of Defiance Testing & Engineering Services (DTE) was part of this strategy,” he said. The company generated Rs 48 crore during the current quarter by sale of its long-term investment in DTE.

Going by the initial customer feedback on fuel efficiency and driving comfort, the launch of BOSS in the intermediate CV segment during the second quarter has been very encouraging, the company said.

It also launched a new engine platform--Neptune-- in the multi-axle haulage vehicle called the Sankagiri Express; the new MPV - Stile- the second product from the Ashok Leyland-Nissan alliance has just been launched and the initial feedback was positive.

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