Ashok Leyland to increase overseas exposure

In a move to overcome challenges faced in the domestic market, commercial vehicle major Ashok Leyland is planning to increase its exposure in the global market.

According to the ICICI Direct report, released after the conference call with analysts today to discuss the third quarter results, the management would focus on reducing working capital and other initiatives to improve the balance sheet and reduce flab.

Debt levels of the company have improved by Rs 750 crore from August and is expected to further improve by Rs 300 crore by March. This was primarily from the sale of non-core assets like long-term investment in IndusInd Bank and idle land in Hosur, the report stated.

Despite increased competition, it managed to hold on to the market share. Good response to the new ICV (intermediate Commercial vehicle) Boss and pan-India launch of the Captain series would only improve this further, the report added. For the quarter, market share in buses declined as a few state transport undertaking orders had been deferred to the fourth quarter while it gained in the truck segment.

The company also said it would put a tight control over spending and avoid unnecessary investments. During the quarter, capex and investments stood at Rs 32 crore and Rs 87 crore respectively.

To diversify the revenue stream, it would at look at increasing exports with a medium-term goal. The company said it would aim at increasing export contribution to 33 per cent from the current 10 per cent. However, it did not mention any time frame. It would be looking at increasing exports to West Asai and African countries by setting up sales teams.

Outlook
The management told analysts they were expecting the fourth quarter volume to be higher. The ICICI Direct report stated with industrial activity still reeling under the impact of the slowdown, a quick recovery in volumes was unlikely before the second half of fiscal 2015. Still, new product launches in the ICV segment and launch of LCV passenger variants are likely to boost volumes as ALL fills gaps in its offerings and gains incremental market share.

Although losses were to be expected as the impact of high operating leverage and discounts continue to plague ALL, the quantum of the slide in operating margin was worrying. Focus on cost rationalisation was the need of the hour as a demand recovery seems afar, the report stated.