Ashok Leyland raise $100 FCCB to fund expansion

Ashok Leyland Limited (ALL), the second largest domestic commercial vehicle manufacturer, has moblised $100 million (Rs 450 crore) through a foreign currency convertible bond (FCCB) issue to funding its expansion plans.

The company has lined up investments worth Rs 550 crore towards capacity expansion. It plans to increase vehicle capacity by almost 50 per cent to 75,000 in the next two years. The Hinduja Group-owned ALL is a leading player in the medium and heavy commercial vehicles segment, with a manufacturing capacity of 56,000 vehicles per annum. Besides commercial vehicles, ALL supplies defence vehicles, industrial engines and spares, which account for nearly 11 per cent of the revenues.

ALL has tie-ups with foreign players like Hino, Iveco and Leyland for engine technology and ZF Steering for gearboxes.

With demand for high-powered trucks likely to rise in the country after the completion of the new highway projects, ALL is planning to unveil a new range of trucks and buses - the NewGen Series. The NewGen platform would be fitted with the newly developed Hino's J Series engine. The company plans to have a capacity of 10,000 vehicles for the series.

Many analysts feel that the commercial vehicle industry will be seeing only moderate volume growth in the coming months as it will be difficult to replicate the same pace of growth witnessed last year. Industry growth over the last two years was driven by structural changes like road development projects, replacement demand due to stricter scrapping and emission norms and strong economic growth, said an analyst from a leading broking firm.

It is expected that volumes will grow by 15 per cent in FY05 and nine per cent in FY06. Besides the conventional 16-tonne truck segment, demand for multi-axles and trailers continue to drive growth. The company is also looking to the export market to hedge against demand fluctuations in the domestic market. Contribution from exports is estimated to increase to 11 per cent by FY06, up from seven per cent from FY04. Export volumes are expected to be good in FY05 on account of the execution of a large order from Iraq. ALL is also seeking to enter the Chinese and South African markets.