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Chairman's Speech 2007

Friday, July 20, 2007

Ladies Ladies and Gentlemen,

It is with great pleasure that I welcome you to this fifty-eighth Annual General Meeting of the Company. The Report of the Directors and the audited results for the year ended March 31, 2007 have been with you for sometime; with your permission, I shall take them as read.
In a presentation to be made by the Managing Director, the highlights of the Company’s performance during 2006-07 will be shared with you. It has been another year of all-round growth and new records, one of them being the two billion dollar mark in turnover. This accelerated rate of growth reflects both the potential of the industry segment that we are in and our ability to benefit from it. In this context, I am happy that in each of the last two years, our sales volume grew at rates higher than for the industry.
Commercial Vehicle Business
The demand for commercial vehicles during 2006-07 far exceeded all expectations and predictions. Even the continuing buoyancy in the Indian economy, with a high 9.4% GDP growth, does not adequately explain the high demand growth for commercial vehicles for the sixth consecutive growth year. In retrospect, it is evident that the Supreme Court’s directive of December 2005, on strict enforcement of payload restrictions, had brought out the dormant demand which spilt over to the financial year under review and weakened only in early 2007. Load generating sectors fared well collectively, including the construction of modern road network. It is significant that this mammoth and seminal infrastructure project has only reached one-third of the envisaged target and will continue to have a favourable influence on the commercial vehicle industry for many more years to come.
While India’s economic growth continues unabated, hardening of interest rates has started to impact demand for commercial vehicles. Total industry volume for medium and heavy duty vehicles is lower by 3% in the first three months of the current year, though your Company’s sales volume is up 6%. Indices such as load availability, freight rates and repayments on vehicle loans are healthy enough to suggest moderate growth in the current year. Sentiments have a great say in an industry such as ours – and interest rates have a great effect on sentiments and, therefore, need to be closely watched.
Three dimensions of growth 1.Capacity expansion
From under 30,000 vehicles in 2001-02, to over 83,000 vehicles in 2006-07, our operations have gained in size, supported by phased capacity expansion. One significant feature of this expansion phase has been that capacities have been added with incremental investments coupled with de-bottlenecking and improved productivity and efficiencies.
Looking beyond the current slowdown and confident of growing with the industry, the Company is on course to enhance production capacity from the present 84,000 to 100,000 vehicles in the current year itself.
To keep up with the pace of growth, work has begun for a state-of-the-art, integrated manufacturing plant near Pant Nagar in Uttarakhand. An investment of Rs 1,000 crores will create the assembly and cab facilities for 25,000 vehicles annually in the first phase, scheduled to go on stream in 2008-09. Phase II, scheduled to be operational before March 2010, will yield an enhanced total annual capacity of 50,000 vehicles at this location. There are also plans to put up yet another manufacturing unit in the next two years.
This is part of the expansion programme that has been drawn up in line with the Company’s vision to consolidate its presence in the domestic market. It also reflects the vision of the Hinduja Group for your Company – and the Group’s total, unstinted support to actualize it.
Concomitant with this growth agenda is the continuous strengthening of our in-house R&D capabilities through higher investments in infrastructure and manpower. Your Company’s R&D spend has been steadily on the rise and was 1.9% of turnover in 2006-07. You will be happy to know that the development centres for vehicles and engines, located near Chennai and at Hosur, have state-of-the-art facilities including the six poster indoor vehicle test facility and the transient cycle engine dynamometer, both being the first of their kind in the Indian commercial vehicle industry. The present talent-pool of 500 engineers will grow to 1,200 in three years. These are critical steps being taken by your Company towards self-sufficiency.
I am happy that such continuous focus on technology and development is already producing results in the form of products and aggregates that have given us a competitive edge. Through the Annual Report for 2006-07 you are aware of the unique front-engine semi-low-floor bus and the fuel-efficient BS 2 -compliant engine, both developed in-house and well received by the market.
The current year will see the launch of a range of application-specific trucks and buses which reflect our in-house development capabilities as well as the appropriateness of our technology partnerships. High performance capabilities and modern styling are common features of this range.
2.Globalization
At the last AGM, I had referred to the acquisition of IVECO’s stake in LRLIH by the Hinduja Group as a corollary to the Company’s strategic priorities in the changed global scenario. This change in ownership has given the Company the facility to pursue growth in what is best for the Company in terms of market and technology.
The first major step has been the acquisition of the Truck Business Unit of AVIA, since renamed AVIA Ashok Leyland Motors (AALM). The Prague-based manufacturing unit along with its popular AVIA brand opens for your Company a significant window to the developed markets of Europe besides access to modern, Euro 4 compliant vehicle technology. Organizational rebuilding, cost rationalization and development of marketing infrastructure are on course, so as to scale up the AALM operations to its full potential.
Your Company has traditionally enjoyed a dominant market share in the bus market in the Gulf region, with annual exports exceeding 1,000 vehicles. In a move that takes the Company closer to this growing market, work has commenced to set up an integrated chassis and bus assembly plant with a capacity to initially produce 1,000 buses annually. Backed by an investment of about Rs 40 crores, the activities are scheduled to commence by the end of the current financial year.
Globalization breaks the traditional barriers of national boundaries and allows the most competitive value addition, thus rewarding and enhancing efficiencies. The strengths of the Company in terms of its close and longstanding business relationship with India's auto component sector have been channelised into the Component Business Group, for sourcing out of India, to Europe, the Middle East and the North American after-market sector. Business prospects are good for cast-iron and die-cast aluminum products.
Even as we pursue global markets, the Company has been benefitting through global sourcing. To gain from the significant cost benefits in sourcing components and materials from China, your Company has already established an office in Shanghai.
3.Diversification into Knowledge Business
Your Company and its associate companies and businesses, collectively, are seeking to broaden the scope of operations in their traditional domains, increasingly occupying adjacent domains. The high potential of the automotive sector and the opportunities from globalization converge to offer tremendous opportunities as never before. Management's responses to these opportunities have been based on the available technical/managerial capabilities and the potential for increasing shareholder value.
One such response is your Company’s entry into the business of aluminum high-pressure die-casting (HPDC), in a joint venture with ALTEAMS of Finland. This complements the capacities for grey iron castings which Ennore Foundries are currently setting up, at a greenfield site, that will take their total annual capacity to over 120,000 tonnes. The joint venture recognises the already perceivable shift in favour of HPDC, in the auto sector. The expertise of ALTEAMS in the telecommunication industry, serving as it does the top cell phone manufacturers of the world who have set up operations in India, gives the joint venture the stability through a diversified portfolio serving two high growth sectors.
The new area of knowledge products has also been engaging the Company's attention. During the past decade, India has witnessed a high growth rate, thanks to investment flows attracted by cost advantages - a leadership position for the country and Indian Companies, based only on cost arbitrage, I believe cannot be sustainable. Technology self-sufficiency and leadership in creation of knowledge products are essential to sustain the competitive advantage of Indian industries in the global marketplace. Your Company has the advantage of domain knowledge including market insight and engineering capabilities. Two of the Company's strategic moves in recent months stem from our aspirations to seize global opportunities in knowledge products.
One of them is your Company’s recent agreement for Joint Venture collaboration with Siemens VDO Automotive (SVDO), a global leader in automotive infotronics. SVDO brings its formidable technology strength to this 50-50 joint venture which has been set up to design, develop and adapt infotronics products and services for automotive customers. This joint venture recognizes the global trend of increasing content of infotronics – the coming together of IT, electronics and communication – in vehicles, which is already being witnessed in the Indian car segment. With the introduction of computer-aided fuel injection in some of the vehicles last year, infotronics content is expected to also grow significantly in the commercial vehicle segment. This joint venture will cater to the requirements of Ashok Leyland vehicles and available opportunities with other vehicle manufactures in India and overseas.
This joint venture is a major high point in an initiative started by your Company five years ago with the formation of the Advanced Engineering Group, charged with the mission to develop new technologies and viable systems that would satisfy customer requirements and legislation standards.
Last week also witnessed the culmination of a strategic move by your Company to increase its presence – both geographically and in terms of service – in the high growth, high potential areas of Design Engineering. A few days back, your Company has completed the process of acquiring Detroit-based Defiance Testing and Engineering Services (DTE). A reputed name in the US testing services domain, this company serves most of the top names in the US auto industry. The insight into a first world market apart, DTE offers considerable synergies with Ashley Design and Engineering Services (ADES), a division of your Company. Offering a complete spectrum of services from design to engineering, prototyping, testing and validation, ADES has been enlarging its client list with OEMs both from the East and the West – and growing its operations by ramping up employee strength which is set to triple to 300 during the current year. Both these operations have huge headroom for growth in their respective domains, besides complementary skill sets.
Directors
Mr E A Kshirsagar, who had been the Chairman of the Audit Committee, ceased to be a Director on the completion of his term at the last Annual General Meeting. Mr P N Ghatalia has taken over as Chairman of the Audit Committee.
Mr Subir Raha, former Chairman of ONGC, was appointed by the Board as an Additional Director in January 2007. The resolution for his appointment as a Director at this Annual General Meeting is being placed before you for approval.
Mr A K Das, Mr F Sahami and Mr A Spare, Directors retire at this Annual General Meeting; resolutions proposing their reappointment are being placed before you for approval.
Acknowledgements I take this opportunity to express my thanks to all the shareholders for their continued trust in the Board and management of the Company. I would like to place on record our gratitude to our principal shareholders, the Hinduja Group, for their valued guidance and for nurturing the growth of the Company. I would like to conclude by commending the employee commitment and contribution which has been the cornerstone of the Company’s growth over the years.
Yours Sincerely,
Mr. R . J. Shahaney
Chairman, Ashok Leyland Limited
 

 

chairspeech07.pdf