Leyland to cut investments by 39 per cent

Ashok Leyland, India's second- biggest truck maker, will cut spending plans by as much as 39 per cent and review a venture with Nissan Motor as a slowing economy saps demand for commercial vehicles.

The company expects to spend Rs 2,000 crore ($410 million) in the three years starting April 1 compared with an earlier plan for Rs 3,300 crore, Chief Financial Officer K Sridharan said in an interview today. The truck maker may also cut the capacity of a new plant due to open next year, he added.

Ashok Leyland joins larger rival Tata Motors in slashing spending on new factories and facilities after slowing demand for commercial vehicles led to an 84 per cent plunge in profit in the last quarter. Honda Motor Co and other auto makers are also delaying expansion in India as a cooling economy damps car and truck sales.

"Demand is no longer getting postponed, it's disappearing altogether," said Mahantesh Sabarad, an analyst at Centrum Broking, who last month cut his rating on the stock to "accumulate" from "buy".

The Chennai truck maker has delayed its venture with Nissan by between six and eight months.

"Nissan and Leyland are now working on the drawing board level to see what best we need to address this slowdown," Sridharan said. "We are not approaching this project the way we had done earlier."

Light trucks
The two companies were planning to invest about $575 million. The venture, with a capacity of 100,000 light trucks a year, was to be 51 per cent-owned by the Indian truck maker, the companies said in October 2007.

Ashok Leyland gained 0.4 per cent to Rs 13.95 at close of Mumbai trading today. The stock has fallen 7 per cent this year.

The company may also reduce the capacity of a factory in northern India, slated to open in March 2010, to as many as 50,000 vehicles a year from an earlier plan of 70,000, Sridharan said.

Indian commercial vehicle sales fell 16 per cent to 288,140 between April and December, according to the Society of Indian Automobile Manufacturers. The industry grew 3.6 per cent in the same period a year earlier. Almost all trucks and buses in India are sold on credit.

"It's very difficult for such deep downturns to get corrected in two to three months," Sridharan said.

"When it will really reach a positive growth is a moot question."