Chairman's Speech - Ashok Leyland Corporate
Ladies and Gentlemen,
It gives me great pleasure to welcome you to the Forty Ninth Annual General Meeting of your Company. The Report of the Directors and the Audited Accounts for the year ended 31 March 1998 have been with you for some time and may I, with your permission, take them as read.
Mr Mantosh Sondhi who had been a Director since 1982 and Chairman of the Company from 1985 retired as a Director after the last Annual General Meeting in August 1997. As a widely respected professional of considerable stature and vision, Mr Sondhi has been a source of strength and guidance to our Company all these years. I deem it a privilege to have been appointed Chairman, in his place, and to continue to be associated with the affairs of your Company.
Review of Operations
As you know, during the year under review economic growth declined and market conditions turned adverse. Agricultural output registered a decline of 4 percent. Industrial growth decelerated to 8 percent. GDP growth which peaked to 7.5 percent in 1996-97 slowed down to 5 percent. Political uncertainty deepened and pace of reforms further slackened. Infrastructure projects on which higher economic growth was legislated did not fructify.
With the economic downturn, the road transport sector which was creating new capacity in anticipation of heightened economic activity was adversely affected. As freight offerings slumped and viability levels eroded, truckers postponed purchases triggering a deep slump in the off-take of commercial vehicles. The sale of trucks for the home market, which constitutes the bulk of medium and heavy commercial vehicle sale, fell by 51% in 1997-98 over 1996-97. For once, the resilience of road transport sector was shaken so badly that the decline in sale of commercial vehicles was far steeper than could be related to the slow-down in economic growth.
Given the adverse economic and market conditions, the domestic sale of medium and heavy duty vehicles by your Company declined from 40319 units in 1996-97 to 28,360 in 1997-98. The sale of premium Cargo range of vehicles was also affected. Total vehicle sales (including LCV and for export) declined from 43352 to 31547. Your Company could, however, achieve a higher domestic market share of 32.8% compared to 28% in 1996-97, validating the several product and marketing actions taken by your Company in the recent years. Also notable was the improved export of 2150 vehicles in 1997-98, compared to 1526 in 1996-97. Sale of spare parts was also higher at Rs 252 crores compared to Rs 203 crores in the previous year.
With the drop in volumes, your Company's overall turnover declined from Rs 2482.5 crores to Rs 2014.3 crores. Despite the unprecedented adverse business conditions, the Company could remain profitable albeit at sharply eroded levels. Profit before tax for 1997-98 stood at Rs 20.7 crores compared to Rs 157.0 crores in 1997-98.
Your Directors have recommended a dividend of 10%,maintaining the track record of unbroken dividend performance.
Outlook for 1998-99
The road transport sector, and the commercial vehicle industry in particular, is currently passing through one of the worst recessionary periods ever witnessed. Industry sale of medium and heavy commercial vehicles in the first quarter of 1998-99 declined by a further 39%, compared to the corresponding period of 1997-98, which in itself was a period of lower sale.
There does not appear to be an immediate reprieve to the industry as the economic slow-down is proving to be more severe and sustained than anticipated. The Union Budget 1998-99 has failed to enthuse the industry and investors. Shortfalls in revenue generation, delays in PSU dis-investment and growth of non-plan expenditure are likely to lead to a higher fiscal deficit. Interest rates remain high even as inflation rate has more than doubledover the past one year. In a scenario where several infrastructure projects in the private sector are yet to receive the required governmental clearances and achieve financial closure, the impact of post-nuclear sanctions on the economy can only be hurtful.
On the external front, the slow-down in exports and widening of trade gap have been worrisome. The collapse of East Asian economies and the distinct possibility of a prolonged recession in Japan point to a disconcerting external economic environment. Although the Indian economy has been relatively insulated so far, the steady depreciation of the Indian Rupee and its occasional volatility point to the vulnerability of individual economies in a networked world economic order. A structural readjustment of world economies and currencies with a cascading impact on developing countries must be reckoned as a distinct possibility.
The prolonged political uncertainties have taken a toll on the sentiments governing direct foreign and portfolio investments. A concerted and purposive plan for revival of the economy is essential if the Indian economy has to post robust recovery and growth. Ad-hoc or sectoral policy prescriptions need to be replaced by a general macro-economic formulation to stimulate growth. Substantial investments in infrastructure and supportive measures for industrial and agricultural development would hold the key for economic revival. Given the uncertain economic outlook,your Company has braced itself to face yet another year of intensely severe market conditions characterised by stagnant sales and pressure on margins. To cope with the challenge, your Company would continue to position a superior product range with wider application profile and back it up with enhanced after-sales and parts support to deliver total value-added transport solutions to its customers.
Your Company has also targeted to secure the utmost efficiencies across the entire spectrum of operationsincluding manufacturing, in-bound and out-bound logistics and material procurement to reduce costs and sustain viability even under difficult market conditions.
With the various steps taken for market share improvement and cost control already paying off, your Company can look forward with confidence to distinctly superior physical and financial performance once the market environment improves hopefully, in the not too distant future!
The Shape of Transport
In the present difficult period, it would be tempting to re-focus only on the immediate and short term and roll over any thoughts for the long term. However, situations such as these must compel the policy makers and industrial managers to look at the structural issues facing the transport sector and develop strategic correctives.
Given the state of underdevelopment in our country,several sectors of social and economic infrastructure compete for scarce resources. However, it is evident that the road network and transport infrastructure suffer from virtual neglect in comparison with the other infrastructure sectors. It is noteworthy that successive business outlook surveys point to road network as the second dominant infrastructural constraint, after power, in the country.
While public investments on road transport have been dwindling, private or foreign investments have not been forthcoming either due to lack of attractive policies or on account of the existing formidable legal hurdles. The Governments, Central and State, should review their role in road development in a more proactive framework and commit the needed resources. It would be appropriate to make a bold departure and allocate tax revenues from road transport sector including those from automobile and ancillary industries to road development. A compressed road development plan which is anchored on such recycling of Central and State tax revenues, at least for the next five years, would address to someextent the weaknesses in the road network.
Simultaneously, there is a need to address the quality of vehicles on roads with a view to promote road safety and reduce pollution. Regulations to weed out overaged, gas guzzling and unsafe vehicles at least from major cities and urban centres is urgently called for. The recent order by the Honourable Supreme Court with regard to plying of overaged vehicles in Delhi is a welcome move. It would, no doubt, be politically and socially difficult to rush in legislation to weed out overaged vehicles, however progressive the measure may be. Proactive policies that enhance the user and operator awareness of the benefits of modern transport fleet and a financing infrastructure that mitigates the hardship of vehicle replacement would generate broad based public support for such socially relevant regulations.
The commercial vehicle industry and the Government are moving towards introduction of tighter emission regulations from April 2000 onwards. It is only appropriate that the benefits of these superior environment friendly technologies are made affordable and accessible to the vast population of users operating overaged vehicles. The twin policies of regulation of overaged vehicles and incentivisation of new vehicles would go a long way in this direction. Governments can play a role in this process by liberalising intra-sate and inter-state regulations on resale and registration of vehicles upto 10 years of age to facilitate use of vehicles of different ages in relevant applications. The governments should also encourage retrofitting of vehicles with fuel-efficient and environment friendly engines by exempting such activities, if carried out by automobile manufacturers or their authorised dealers, from excise duty, sales tax and any other statutory levies.
Long Term Product Direction
Difficult situations such as these do pose difficult dilemas to the industry as well. You are not unaware that your Company has weathered many a recession in the past and eventually emerged stronger each time. Your Company has never relaxed its policies of technological upgradation even in the face of adverse market conditions. In the mid-eighties your Company despite recessionary trends, invested aggressively in fuel efficient diesel engine technology, which has provided an unsurpassed competitive edge to its products. Your Company's investments in the Nineties for manufacture of a new range of Cargo trucks also reflect a similar commitment to induct world class technologies notwithstanding the vicissitudes of the markets.
Focussing on the passenger sector, your Company is developing a new range of low floor chassis for more convenient urban transportation. Relevant improvements are also being made to the already popular intercity chassis for better ride comfort. Your Company has developed passenger buses which run on CNG as a corporate contribution to eco-friendly transport systems.
In the goods sector, your Company has introduced the RHINO series of high performance trucks in the higher GVW /GTW segment to meet the requirements of special categories of operators and fleet owners.Powered by fuel-efficient engines with a new matching drive line and ergonomic cab, these vehicles would secure your Company's dominant position in long haul, high density goods movement, and provide cost-effective and optimal alternatives to discerning customers.
You will be happy to know that your Company's all-wheel drive vehicle, Stallion is playing a much appreciated role in Indian defence services. Your Company is also supporting the Indian army through Vehicle Factory Jabalpur to assemble and progressively manufacture Stallion vehicles based on transfer of technology from Ashok Leyland.
As you are aware, Mr J Joseph who had been associated with the Company from 1980 and who had been Deputy Managing Director from March 1993, retired from the services in March 1998. Mr Joseph has rendered valuable contribution to the growth and profitability of your Company, particularly through his management of operations of Ennore. I am happy to mention that his counsel would continue to be available to the Board as a Director.
Over the last two years, your Company has put in place a smooth plan of succession, culminating in the appointment of Mr R Seshasayee as Managing Director of the Company with effect from 1stApril 1998. Mr Seshasayee has been with Ashok Leyland from 1976 and has grown through several responsible senior level positions held with aplomb and versatility. I am confident that he would guide the Company through this difficult period successfully with a continued focus on technological excellence and operational efficiency.
Mr G Boschetti, Chief Executive Officer of IVECO has been a Director on the Board since August 1997. Association with IVECO has been singularly responsible for AL taking a decisive lead in product technology through the new Cargo range of trucks. The presence of Mr Boschetti on the Board will be invaluable in the context of competitive pressures that would emerge in future. The notices and resolutions with regard to the Directors have already been circulated to you and are being placed before you for necessary approvals.
I wish to thank the Central and State Governments, the Banks, Financial Institutions and various quasi-governmental and private agencies for supporting your Company in its operations. My special thanks are also due to our customers, the road transport community, dealers and suppliers for their support in these trying times.
I am thankful to our shareholders for their continued trust in the management of the Company. A special word of thanks is due to Hinduja Group and IVECO, who through LRLIH Ltd. are the principal overseas shareholders of your Company,for their encouragement and unstinted support to your management in navigating through this period of difficulty.
The employees have responded, as always with dedication and sacrifice, to the adverse business situation - our sincere thanks to all of them. I am confident that with the continued support from all quarters, your Company would continue to reinforce its standing, despite the current major slowdown in the market place.
Mr. R . J. Shahaney
Chairman, Ashok Leyland Limited