Ashok Leyland plans investments worth Rs 550 crore

Commercial vehicles major Ashok Leyland is planning to invest over Rs 550 crore over the next two years. The company will be investing Rs 300 crore in the financial year 2005 and it will be putting in Rs 250 crore in FY06 for capital expansion. It is set to ramp-up production capacity from its current 63,000 to 77,000 and launch the J-series engine platform by December 2005.

The first phase of increased capacity to 67,000 vehicles will be operational from October 2004, which will help to catch-up with demand momentum. Ashok Leyland is continuing its focus on aggregate and component supply. The group plans to leverage its technology edge and manufacturing capability to set-up 50,000 tons per annum casting facility at an investment of Rs 150 crore. The group is yet to decide on whether the investment will be in joint venture with Ennore Foundary or directly by Ennore Foundary or as a subsidiary of ALL.

The venture will be focused on tapping export potential for castings from the country. Ennore Foundary is a 50,000 tons per annum casting manufacturer with a focus to service ALL and south-based customers. The company turned around its financials in FY04. According analysts, for aggregate supplies the increased capacity on H-series engines and ZF gearboxes provide good scope in the medium-term. Considering higher return on investments in these tier-1 vendor businesses, the company will be benefited in the medium-term. Considering sharp increase in input material costs like steel, rubber and rising employee costs from wage negotiations at four of its five plants in the current year, margins may come under pressure, say analysts.

The company plans to focus on commercial vehicles in the 4 to 50 tonnage GVW segments only. On higher tonnage it has already sourced technology from Hino J-series engines and ZF Steering 9 speed gearbox. With regard to new emission norms to be made applicable across the country from April 2005, the company is confident of meeting the demand from its increased capacity. Further the Leyland engine is upgraded to meet BS-II norms, which may help to continue the product line. ALL is focusing on export markets in Sri Lanka, Bangladesh,Middle East, Egypt and Iraq. The orders are on a strong wicket.