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Chairman's Speech 2014

Thursday, May 22, 2014

Dear Shareholder,
 
I am glad to present to you the details of Ashok Leyland’s performance in 2013-14. As we all know, the Indian commercial vehicle industry has had an unprecedented two-year de-growth, fuelled by a subdued economy. Nonetheless, as I promised to you last year, Your Company was steadfast in further improving its operational and market excellence, through a number of restructuring initiatives during the year. As you will note, the positive results are showing, and I believe Your Company is now firmly placed on a growth path, as we look forward to buoyant economic activity in the country in the near future.
 
In a period of fierce competition, punctuated by unhealthy discounting practices, Your Company posted an overall sales volume of 89,337 vehicles (80,820 domestic, 8,517 exports), lower by 22% over the previous year. Recovery in exports is remarkable in the backdrop of a steep fall in the off-take from Sri Lanka, our traditional strong market.
 
The Power Solutions Business recorded revenues of ₹ 418 Cr, down from ₹ 483 Cr last year; whilst the Spare Parts and other business closed the year at ₹ 787 Cr down from ₹ 1,010 Cr in the previous year. Both businesses generally witnessed lower demand, tight liquidity and the need for optimising channel inventory. Sales to Defence stood at 1,589 kits (2,463 last year) and 342 vehicles (252 last year); potential higher volumes in this sector were impacted by government cutbacks.
 
Aggregate sales turnover was  9,943 Cr in 2013-14 (₹ 12,481 Cr) and net profit at ₹ 29 Cr ( ₹ 434 Cr) maintaining, despite the current formidable all-round business challenges, our unbroken track record of profitability.
 
I believe Your Company has deftly converted the slowdown of the previous years into an opportunity for introspection, strategic course correction and improving internal efficiencies. It would be worthwhile to take note of the actions initiated by Your Company, as also the results achieved; and more importantly, appreciate how the Company is positioned to face the future.
 
Medium Duty Segment ≤ 12T : On the truck side, the market fell by 28% over the previous year, while bus volume dropped marginally. Yet, Your Company was able to gain share in both trucks and buses, achieving significant levels of 12.5% and 21% respectively. Maintaining the primacy of a robust product portfolio as a strategic guideline, the 12T BOSS truck, launched last year, was adjudged 'ICV Cargo Carrier of the Year 2014' and 'Commercial Vehicle of the Year 2014’. Adding to our excitement, BOSS has helped double market share in the states it has been introduced in - an eloquent testimony to management vision and the teamwork in Your Company that is undeterred by current uncertainties in the market.
 
Heavy Duty Segment ≥ 12T : In line with general industry trends, the total industry volume was lower between 24% - 34% in each of the application segments in trucks, and was down by 27% in the bus category. Furthermore, in South and West, traditional bastions of Your Company, the decline was steeper. Nonetheless, overall market share was maintained, and this creditable performance, especially taking into account the fierce competition from existing and new players, has been made possible by focused and accelerated efforts by Your Company in network expansion (~28% increase), reorganisation of partners through performance orientation, special emphasis in the remote North-East region, greater customer engagement, and last but not least, taking a quantum leap in the quality of vehicles delivered to customers.
 
As a product extension, and to cement a perceived market gap, the 25T tipper CAPTAIN model was introduced and has been well received. Further models will follow in 2014-15 and beyond. The in-house developed Neptune engine has been launched in the 31T multi-axle model, demonstrating better fuel performance. In the bus sector, the uniquely engineered JANBUS has received a significant order of 1600 buses under the JnNURM programme.
Small Commercial Vehicles : Industry volume in the 2 - 3.5T range, in which Your Company participates, grew marginally by about 1.3% over the last year. However, market share dropped from 18% to 14%, but it was the result of a conscious and, you will agree, a correct management decision to balance volume and profitability. Maintaining momentum on the product side, Your Company introduced Stile, a multi-purpose vehicle, Partner 6T truck and MiTR 6-meter bus and these are globally competitive models with immense potential in exports and, when the market recovers, in the domestic segment as well.
 
Restructuring for growth : Improving organisational health and the immune system, and being ready to take-off when the market revives, was a clear and well-orchestrated strategy adopted by Your Company, and a special thrust was given in 2013-14 yielding satisfactory results. The cornerstones of this company-wide initiative include :
•  A renewed accent on the core business of commercial vehicles and divestment of non-core investments
• Reducing break-even volume significantly despite pressure on margins and high finance charges
• Actions for enhancement in manpower productivity
•  An order-of-magnitude improvement in vendor and in-plant quality
• Significant reduction in working capital and short-term debt, from peak levels observed earlier in the year
• Greater customer engagement and sharpening of market intelligence in an organised fashion
• Re-jigging the organisation for improved transparency of work flow processes, and better accountability for results.
In summary, looking at the scorecard of what Your Company set-out to perform in 2013-14, as articulated in my communication to you last year, I would like to extend our appreciation to the Management and the team for fulfilling the set objectives.
 
2014-15 : Getting closer to the Vision
Post-elections, the sense of anticipation of better tidings to come is palpable. Sentiments of business and industry for an early economic revival are buoyant. Your Company is well sensitised to these developments, and would take advantage of possible market upswings. Your Company will continue to focus in 2014-15 on further operational efficiencies, such as aggressive material cost reduction and value engineering, through a structured drive; a modular vehicle development programme that enhances flexibility; faster market response to dynamic customer needs; reduction in variety, and achieving accelerated new market footprints in emerging and growth markets world-wide. In short, Your Company will move faster and closer in 2014-15, towards the Vision to be a global player of substance keeping customers centre-stage, as always.
 
I would gratefully acknowledge the trust and confidence you have in the Board and the Management team, that constantly nudges us to strive for excellence in our strategies and actions relating to Your Company.
 
As you are aware, Dr V Sumantran has stepped down as Vice Chairman and Director, to pursue other interests closer to his heart. I would like to place on record his support and guidance for the growth of Your Company, and wish him the very best in his future pursuits.
 
The employees of Your Company deserve special commendation, for the remarkable tenacity demonstrated in these challenging times, and delivering against all odds. Co-operation and understanding of Your Company’s extended family of customers, dealers, suppliers, financial institutions and other partners is gratefully acknowledged.
 
Thanking you,
 
Yours sincerely,
 
Dheeraj G Hinduja
Chairman