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Chairman's Speech 2005

Tuesday, July 26, 2005

Ladies and Gentlemen,
I have pleasure in extending to you a warm welcome to this fifty-sixth Annual General Meeting of the Company. The Report of the Directors and the audited results for the year ended March 31, 2005 have been with you for sometime, and with your permission I shall take them as read.
The Tsunami that hit India’s east coast and the Andaman and Nicobar Islands was one of the worst calamities that India has ever faced. Your Company donated Rs. 1 crore to the Chief Minister’s Relief Fund together with a voluntary contribution of Rs. 27 lakhs from the employees to provide succour to the victims.
Please join me in a moment of prayer for the departed souls.
Commercial Vehicle Business
With robust growth in the commercial vehicle market for the fourth consecutive year, your Company has set many new records of performance. The year has also been significant in crossing of the billion-dollar mark in sales turnover. Highlights of the Company’s performance will be shared with you through a presentation immediately after my address. In the last three years, sale of our vehicles has grown by 84% while turnover grew by 83% and profit after tax nearly trebled in the same period.
The close link between economic growth and demand for commercial vehicles is well known - the sustained momentum in commercial vehicle demand stems, no doubt, from the new highs of GDP growth the country has maintained. In the second decade of economic reforms, the all-round benefits from these reforms are being realized. Of these, the single most significant factor that is qualitatively impacting the commercial vehicle is the new focus on – and an all-round quest for – efficiency, which brings in its wake a domino effect. The modern highway network that is getting built, facilitates faster turnaround and permits modern vehicles to perform to their potential, in the process improving efficiency of road transportation. What has translated the demand into high sales has been the easy availability of cost efficient funds, which lowers overall cost of ownership. Industry has benefited from that in its own quest for enhanced internal efficiencies as a means to become globally competitive.
The accent on efficiency has altered the profile of the Indian commercial vehicle and the composition of the vehicle population. The commercial vehicle sector is both the beneficiary of this efficiency cycle as also a contributor.
There is general consensus that during the current year, demand growth for commercial vehicles cannot match the high rates we have witnessed over the past three years. Historical patterns in what has undoubtedly been a highly cyclical industry support this sentiment. Additionally, higher vehicle acquisition cost is inevitable, mainly on account of technology upgradation mandated by emission, noise and safety norms. There is also the cost-push from overall input cost increases, with international material prices continuing to rule high. At the same time, continuing investments in infrastructure development and the overall GDP growth rates remain positive factors. How the monsoon and the international oil prices play out are the unknown dimensions.
Partly hampered by supply constraints, total industry volume of M&HCV in the domestic market in the first quarter of the current year is down by 4.8% compared to the first quarter of the last fiscal. Your Company has registered a 27% growth in this segment with a sale of 12,310 vehicles while total sales, at 13,320 nos, has improved by 20%. This reflects the very positive market response to the Company’s new models incorporating BS II compliant engines. Incremental volumes have also resulted from recent product introductions in intermediary commercial vehicles such as Stag / Lynx minibuses and new models in the ecomet truck range.
Your Company is augmenting its annual production capacity from 55,000 to 77,000 vehicles to be able to react to the market demand. The diversity of our product portfolio, which caters to different sectors of the economy, will help us de-risk our business, in case of a slowdown. We also have a relatively stronger presence in the bus market as also in the high growth truck segments of multi-axle vehicles, tippers and tractors.
Two major challenges
The major challenges for the year are two control on costs and speedy product development / launches.
The on-going battle on costs is fought on different fronts. In the past few years, your Company has managed to partly mitigate input cost increases through internal efficiencies. This will continue with even greater vigour. Building on successful initiatives in the recent past, a company-wide programme for greater employee empowerment and involvement is planned. Major gains are expected in line with stiff targets set, also through e-sourcing and value engineering.
The war on costs starts effectively at the design stage. Our R&D engineers are increasingly partnering their colleagues in Marketing to map the customer’s current and future requirements. They use this insight to design appropriate products with reduced life cycle costs – products that can be built cost effectively and used at lower operating costs.
Your Company has done well to ready products to meet the BS II and BS III emission timelines covering the entire country. Engine development has been successfully undertaken indigenously and cost effectively. Among the over 20 new models set for launch this year are InterCentury, the intercity luxury coach and 4026 J tractors from the Newgen range. Indigenous manufacture of the 8 litre J engine and an indigenously designed cab will commence this year. Further strengthening of the engineering talent pool and use of contemporary technology and state-of-the-art infrastructure are already in hand. As you would have noticed, in recent years, your Company has significantly stepped up resources to pursue in-house research and development with a view to enhancing its product development capabilities. The objective is to be able to respond to customer needs with products and services that maximize his profitability – this has always been the key to our success in the market place.
The rapid and irreversible strides made by the Indian commercial vehicle industry enroute to modernization have been aided by technology upgradation and improvements in road infrastructure, with much in traffic management to follow. While all of these are important, the results will be sub-optimal so long as the human factor is not given its due. The Namakkal Driver Training Centre set up by your Company ten years back was born out of this realization. You would be happy to know that based on the success of this institution, and at the invitation of the Government of Delhi, your Company has set up a Driver Training Institute at Burari, near Delhi and hopes to replicate its successful experience at Namakkal.
During the year, Mr F J Colon Martinez, Global Manufacturing Manager of IVECO has been appointed as a Director in place of Mr M Bianchi. Your Directors have appointed Mr P N Ghatalia, an eminent Chartered Accountant and a former Senior Partner of Price Waterhouse, as an independent Director on your Board. The proposal for his appointment, and for the reappointment of other Directors retiring by rotation at this meeting, are being placed before you for your approval.
I am grateful to all our shareholders for their continued trust in and support of the management of the Company. I would also like to thank our principal shareholders, the Hinduja Group and IVECO acting through LRLIH Limited, for their valued guidance and support. I am sure you will join me in acknowledging the dedication and the creditable contribution of the employees of your Company in making the year under review a record year.
Yours Sincerely,
Mr. R . J. Shahaney
Chairman, Ashok Leyland Limited