Defence orders, exports to be growth drivers of Ashok Leyland

Mumbai: Defence orders, exports and the replacement market are going to be the growth drivers for Ashok Leyland Ltd (ALL), India's leading truck manufacturer.

Continued economic recovery and growth in key markets are set to buoy ALL's fortunes, senior company officials said at a conference organised by ICICI Securities in the US. "Recovery in the industrial sector also bodes well for the freight industry as movement of intermediate and primary goods increase."

The increased emphasis on road building has a manifold impact on demand — initial demand of tippers for construction, followed by demand for multi-axle vehicles (MAV), and large air-conditioned buses. The pace of road building in India can be gauged from the next year's government target of paving 11 kms of highways daily compared with that of 11 kms annually five years ago.

With the economics of road transportation improving due to the introduction of MAV, the shift to roads from railways is expected to continue. Railways accounted for as much as 88 per cent of freight movement in 1950-51 compared with 37 per cent in FY03, which indicates the magnitude of the shift. The shift to MAV is expected to enhance freight economics in favour of roads, and this is expected to enhance demand further for ALL's vehicles, the officials said.

ALL is also well poised to take advantage of emerging market. The company's strategic technical agreements with ZF Steering for gearboxes, Hino for engines and Arvin Meritor for axles has ensured that it has the among the best aggregates in the industry.

ALL has also entered into technical collaboration to manufacture the J-series of engines, which enables the company to manufacture Euro IV-compliant engines from 80-260bhp on a common platform. ALL is also increasing its marketing presence especially in north India, with 1,476 workbays and 1,226 spare parts outlets, and is targeting to have an authorised service outlet every 75 km.

The company is also increasing its presence in the export markets. By focusing on reducing costs and assets deployed, ALL has been able to increase its return ratios consistently.

The debt-equity ratio is now at a comfortable 0.57x, and ALL has adequate reserves and cash accruals to fund capital expenditure and expansion plans. Manpower at 11,700 has been consistently reduced, and is lower by 23 per cent from 1996-97 levels.

ALL has also reduced receivables and total assets employed. With standardisation of the engine facilities and shift to the Hino platform, cost-efficiency is expected to improve.