“The announcement of the government of India about increasing local sourcing is very positive for defence suppliers like us and clearly the government intention shows that it is moving from Make in India to Make by India” said Gopal Mahadevan, CFO at Ashok Leyland. The company did not elicit the quantum of defence orders it could potentially target, but it sees directionally the announcement of the government auger well for the company. Mahadevan believes that a large order of Rs 8000 crore for the Hindustan Aeronautics suggests that the government will be planning to rope in private enterprise in the due course.
The company has mobility solutions such as 4X4,6X6, 8X8, 10X10 and 12X12, which can be used by the defence forces and some of these platforms are already used by the security forces. The company can benefit from the existing mobility solution and developing light strategic vehicles.
On the recovery on the commercial vehicle (CV) front, the company believes that the decline in the CV segment appears to be bottoming out and industry volumes are improving on a month on month basis. The total semblance of normalcy for industry volume is expected to the fourth quarter of the current fiscal year. Ashok Leyland’s plants are operating at 30-35% of their capacities and now all of its plants are operational. It has produced 10,000 units of BS6 vehicles so far. According to the company, the recovery in the intermediate commercial vehicle and tippers has faster than the rest of the industry. The push on infrastructure by the government could push cement transport, thereby could boost demand for heavy trucks.
The company is expecting the debt level of the company to come down sharply in the remaining quarters of the current fiscal. The company has net debt of Rs 4247 crore at end of June 2020, the company stated in an investor call. The inter corporate deposit which has turned investors skittish has started to come down. The inter-corporate deposit to the Hinduja group company has dropped to Rs 400 crore in August 2020 compared with Rs 500 crore in March 2020.
The Chennai headquartered truck maker will be investing around Rs 500-600 crore on the capital expenditure in the current fiscal.
The cost structure of the company is expected to lean with continued focus on the cost reduction initiatives and the company will bring more modularity in the manufacturing process. The modular vehicle platform ‘AVTAAR’ has received encouraging response from its customer. It must be noted that various cost reduction measures resulted in cost saving of Rs 550 crore in the last fiscal year. The lean cost structure could help the company to superior margins compared with last cycle when operating leverage kicks-in. The company’s management expects Ashok Leyland to be much more strong, resilient, efficient and financially performing company going forward.
The new LCV range codenamed ‘Phoenix’ will be rolled-out in the next 60-90 days. Ashok Leyland is one of few companies which has been able to roll out a range of new vehicles in just two years.
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