Withstanding a 33% contraction in demand for medium and heavy duty commercial vehicles, Hinduja Group flagship Ashok Leyland has registered a net profit of Rs 190 crores during 2008-09, keeping intact its profitable track record of 60 years. On a reduced sales volume of 54,431 vehicles (83,307 nos), sales turnover is at Rs 5,981.07 crores (Rs 7,742.58 crores), with other income contributing Rs 49.62 crores (Rs 57.61 crores).

Faced with a steep fall in demand, the Company had curtailed production by resorting to lesser number of working days starting November’08 which has brought down operating costs, contributing to lower “other expenses” at Rs 493.21 crores (Rs 541.20 crores). Employee costs during the year have been contained at Rs 566.18 crores (Rs 616.09 crores). However, financial expenses rose to Rs 118.71 crores (Rs 49.74 crores), reflecting higher borrowings to meet capex commitments, higher working capital requirements and higher interest rates. Profit from ordinary activities before tax was lower at Rs 208.45 crores (Rs 638.15 crores) with income tax claiming a lower Rs 12.45 crores (Rs 161.84 crores) and fringe benefit tax Rs 6.0 crores (Rs 7.0 crores). Net profit from ordinary activities after tax is Rs 190.00 crores (Rs 469.31crores).

Analyzing the composition of vehicle demand, said Mr R Seshasayee, Managing Director: “One disturbing trend in the segmental shift is the steeper fall in demand for higher capacity vehicles such as tractor trailers and multi-axle vehicles, at least temporarily retarding the modernization of India’s vehicle composition”. These are also segments where Ashok Leyland has a stronger presence and the maximum model options. This segmental reversal and the relatively robust demand in the Eastern region impacted the Company’s goods volumes. The redeeming feature was the bus demand which was down just 9.7%. The Company improved its market share in buses by 0.5% and retained the number one position. Overall, the share of non-cyclical business has gone up to 50% from 34% in 2007-08, with the engines business fetching a revenue of Rs 404 crores (Rs 204 crores). This represents higher volume of genset engines (11,264 nos) and transformation of the business stream from mere trading in engines into ‘the Power Solutions Business’ through greater value addition.

The diversification JVs are progressing. The joint venture with John Deere for construction equipment is progressing a pace. As for the light trucks JV with Nissan, with respect to the various products, development activity is on track and on schedule. Under consideration is optimization of investments by making use of existing facilities of both the partners. The two partners are also evaluating the possibility of enlarging the product range in the manufacturing plan, including some additional products from Nissan’s global portfolio of Light Commercial Vehicles. The economic slowdown and the delay in land acquisition together have pushed the project dates back around six months. Current assumption for start of volume production is 2011.

In partnership with AVL Austria, the Company has developed two versions of the new generation Neptune engines: the 4 cylinder engine in the 160-230 hp range and the 6 cylinder engine in the 270-380 hp range. The Neptune engine will power the modern truck range to be built on the modular UNITRUCK platform, to be launched in April 2010. The Product Development at Ashok Leyland is currently under migration to GENMOD, the transformational matrix management process with breakthrough performance targets for future vehicles.

The Company is extending its lean management initiatives to Marketing. Under its new Working Capital Management initiative, pipeline inventories are being reduced through various measures including warehouse rationalization.

The Company has so far received orders totaling over 2,800 buses, out of the total orders for 5,330 buses released under JNNURM. Out of over 14,000 buses sanctioned, tenders have been released for over 11,200 buses.

“For our country, the worst seems over. For the industry, demand for medium and heavy commercial vehicles can swing in single digits in the current year – the upward swing predicated upon a stable, progressive and responsive government at the Centre”, said Mr Seshasayee.