Ashok Leyland’s plans to take up the capacity at its Chennai and Pantnagar plants have been put on hold. The Chennai-based truck and bus manufacturer would rather conserve cash for the moment. The Rs 700 crore that it had set aside to ramp up production facilities will come in handy at a time when sales of commercial vehicles are slipping. Volumes in November were down by a sharp 67 per cent and even if exports are taken into account, the number isn’t very much better at 60 per cent.
The situation wasn’t as bad in the six months to September — the firm managed to push through volumes of close to 6,000 a month. But the numbers in the last two months have almost halved; rampant overloading, say industry watchers, is one reason for the poor offtake. It’s not Leyland alone that’s feeling the heat — market leader Tata Motors saw volumes come off by 29 per cent and 40 per cent in October and November respectively.
That puts Leyland in a bit of a financial spot. In the six months to September 2008, the company earned a net profit of Rs 122 crore, which was lower than the profit earned in the corresponding period last year, even after excluding foreign exchange losses. Unless things take a turn for the better, the net profit in the current year will almost certainly be lower than the Rs 478 crore posted in 2007-08.
After all, even after selling twice the volumes, revenues for the first half of the year were up just 11 per cent and that too because the gensets and spare parts business did well. With a bit of luck, Leyland may be able to maintain the top line at last year’s level of Rs 7,729 crore. And although prices of steel and aluminium are falling , it will be a while before the operating margin — which was 8.1 per cent in the first half of 2008-09 —improves.
For some time now, Leyland has been tweaking the product mix in favour of buses, which fetch it better realisations. But it hasn’t had much success in the last two months. In a challenging environment, in which credit is expensive, it’s hard to see the company spending the Rs 2,500 crore, it had intended to, over the next couple of years.
