Potential business areas being further explored
The year 2011-12 was one of continuing consolidation for Ashok Leyland. The key challenge was to concurrently lay emphasis on the short-term actions to restore the market position and the long-term initiatives for growth. The company is pursuing the vision to be, in volume terms, among the Top 10 truck manufacturers and Top 5 bus players globally. In that journey, the year goneby witnessed a series of steps taken by Ashok Leyland that bolstered the confidence of realising its goals.
As was predicted last year, the commercial vehicle industry grew well, albeit at a slower pace, compared to the previous year, having recovered to higher base volumes. The industry also saw a substantial amount of competitive activity and recorded 18 per cent growth during 2011-12 to post its highest-ever volume of 8,09,532 units. Medium and heavy commercial vehicles (M&HCVs) grew by eight per cent, posting volume of 3,48,701, again recording highest-ever sales. Light commercial vehicles (LCVs) posted a growth of 27.4 per cent and reached a volume of 4,60,831 units.
The contribution of M&HCVs declined to about 43 per cent of the overall CV segment, compared to 47 per cent the previous year. The LCV segment continued to grow steadily. It has, in fact, been one of the strongest growing segments in the entire automobile space. The small commercial vehicle segment (trucks of less than 3.5 tonnes GVW within LCVs), which accounts for over three-fourth of the LCV market, is driving growth on the back of strong demand for transportation of consumer goods within cities and replacement demand from upper-end three-wheelers.
Medium and heavy commercial vehicles
Ashok Leyland delivered mixed results in 2011-12. It registered its highest-ever sales of 94,397 vehicles, with a marginal growth of 0.3 per cent compared to the previous year.
In the domestic market, the company sold 81,147 M&HCVs, two per cent less than the previous year. These included 20,635 M&HCV buses and 60,512 M&HCV trucks, one per cent more and 3.5 per cent less respectively, compared to the previous year. The company lost 2.4 per cent market share in the Indian medium and heavy CV market during the year.
Sales of multi-axle vehicles, the largest segment in trucks, contracted by 13 per cent in southern India. On the other hand, the intermediate commercial vehicles (ICV) goods segment grew nationwide by nearly 21 per cent and Ashok Leyland did gain market share in ICV goods, a fast-growing segment in which the company has its nascent presence. To sum up, contraction of the company strongholds and rapid growth of segments where it has limited presence resulted in a mixed outcome in the domestic market. However, it demonstrated substantial growth in exports, clocking 12,852 vehicles in 2011-12, a 25 per cent growth compared to the previous year. Besides performance in the SAARC markets, it benefited through strategic expansion into several new geographies. Sales in the Middle-East grew substantially, despite the overall uncertainty in the region, bolstered by the company’s capability to locally manufacture buses at Ras-al-Khaimah.
Ashok Leyland has lined up several ground-breaking products for core segments in the upcoming fiscal. Three such new products – the Jan Bus, 10×4 multi-axle truck and the 8m ICV bus named ‘Solo’ – will be launched shortly. While the Jan Bus is the world’s first single step, front engine, fully flat floor bus, the 10×2 will be a pioneering product for the Indian CV industry. The 10×2 MAV represents a significant product introduction into the largest truck segment, indicating further movement towards higher tonnage vehicles.
The launch of Solo is further evidence of the company’s capability to bring world-class passenger transport products to the growing Indian market. The company’s continued investments in Research and Development through 2011-12 will also result in several launches in the next fiscal. The New Generation Cab and the Neptune Engine programmes will see market introductions. ICV, the fastest growing segment in the M&HCV range, will see the company come up with a brand new product with inputs from AVIA Ashok Leyland Motors in the Czech Republic.
The company has fixed challenging targets in all focus areas and has kicked off a host of ambitious banner projects. In summary, it has prepared well for the challenging economic scenario expected in future, as well as the upcoming competition in the M&HCV space.
Light commercial vehicles
Taking advantage of the proliferation of the hub-and spoke model and the strong demand originating from the rural segment, Ashok Leyland entered the LCV segment with the launch of DOST last year. The product has been well accepted by customers, with 7,593 vehicles having been sold in the last fiscal and a total of 14,841 vehicles sold from launch till June 2012.
Within six months of launch, DOST is already the second highest selling model in the 2-3.5T GVW segment and has achieved a pan-India market share of 16.6 per cent. This is despite DOST having been launched in only six States (Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Maharashtra and Gujarat). The vehicle, being sold through an all-new dedicated distribution network, continues to enjoy tremendous pull, particularly for its high end variants that offer extra features such as power steering, air-conditioning, etc. The company is ramping up production at its Hosur facility to meet the rising demand for DOST. The dealer network will also be expanded and the product will be launched in other States this fiscal. Further variants of DOST are in the pipeline.
Group companies and JVs
Hinduja Leyland Finance Ltd. (HLFL) promoted by Ashok Leyland commenced its operations in March 2010. HLFL now has operations in 440 locations with an employee strength of 1,199 (588 in 2010). In 2011-12, HLFL continued to grow rapidly and made a disbursement of Rs. 2,107 crores, a rise of over 70 per cent from the previous year, across a wide range of segments, including medium and heavy commercial vehicles, light commercial vehicles and three-wheelers.
Ashok Leyland John Deere Construction Equipment Company Private Ltd., the 50:50 joint venture with John Deere Construction & Forestry company of the US, successfully launched its first product, the 435 Backhoe Loader in November 2011. It sold 221 units in four months in the current fiscal. Its product has been well accepted by customers due to its superior positioning as compared to its competitors.
Development of the distribution system is apace, starting with the southern market. As many as 18 dealerships have already been rolled out and another 27 are planned in the coming year. New service benchmarks are being set with 100 per cent achievement of completing running repairs on the same day and 100 per cent parts availability within 24 hours. The JV company is planning to launch the wheel loader this year.
Automotive Infotronics Ltd., the 50:50 joint venture with Continental AG, aims to become an innovation centre for delivering automotive infotronics solutions at value price points. The JV showcased its capability and products like the Telematics OBU (On-Board Unit) at the Continental booth at Auto Expo 2012 in Delhi to fleet operators, IT/BPO personnel, transporters, etc. The company is working with several OEMs for both OEM and aftermarket solutions.
Albonair GmbH, Germany, was established with the vision of being a complete SCR solution provider for reducing automotive emissions. The company is actively marketing its products to global automotive and construction equipment OEMs and holding business discussions with various global OEMs. With increase in demand due to stricter emission norms, Albonair is expanding its production base in Germany and India. In Germany, it has received the quality certificate ISO 14001.
Ashok Leyland Defence Systems Ltd. (ALDS), the newly-formed associate company, will have greater focus on addressing the opportunities in the Indian and overseas defence markets. ALDS participated in DEFEXPO’12, and the vehicles displayed were well received by customers. ALDS which exhibited a Light Tactical Vehicle on the new COLT platform is in discussion for technical collaboration with overseas producers of equipment.
Ashley Alteams India Ltd. (AAIL), the 50:50 JV partnership between Ashok Leyland and Alteams OY, Finland, aims to be a world-class aluminium die-casting manufacturer and become a ‘partner of choice’ for a customers by providing innovative product solutions. AAIL has set up an electroplating facility which is now ready and under evaluation. Its surface coating facility was inaugurated in August 2011, and TS 16949, ISO 9001 and ISO 14001 Surveillance Audits have been successfully completed.
AVIA Ashok Leyland Motors (AALM) in Prague has been producing trucks in the total weight class of 6.5 to 12 tonnes. In 2011, the Letòany manufacturing plant produced 600 trucks for the markets of Europe, the US, and Asia. The company recorded a growth of 34 per cent during this year. This increase was primarily attributable to recovery in Eastern Europe, expansion into the Commonwealth of Independent States and the Middle East. Avia is expanding the market reach further to Latin America and the US.
Defiance Technologies Ltd. is a leading provider of engineering, ERP and IT services to global customers leveraging the Global Delivery Model. Headquartered in Chennai, Defiance has world-class development centres in Chennai and Bangalore in India and state-of-the-art testing facilities at Troy and Westland, Michigan. Apart from serving many global MNCs in India and abroad, the company is also pursuing many significant opportunities from leading companies, including multi-country, multi-lingual Web Content Management System migration.
The way forward
Though the Indian CV market continues to grow, reduction in load availability due to industrial slowdown, increase in interest rates and fuel price increases could dampen demand. Ashok Leyland is addressing this through continued thrust on international markets and on non-cyclical businesses such as spares, defence and engines. Further, its entry into the relatively less volatile LCV business will further de-risk the business. The company is also continually optimising fixed costs as well as working capital, to stay protected in case of a downturn. In case of surge in demand, it has adequate capacity to manufacture the vehicles and engines required for the business.
Further, Ashok Leyland is reviewing the production plan at regular intervals and has the ability to add modules of capacity at short cycle times to meet demand increases. To mitigate any risks due to material cost increase, the company continues to work on material cost optimisation through deep dives, value engineering and alternate sourcing to sustain profitability to the extent feasible.
Legislation would continue to put pressure on improving the technology resulting in higher investment and product cost. To address this issue, its associate company Albonair is working on a competitive emission treatment system. In addition, the company has proactively launched programmes with its strategic partners to develop powertrains to meet upcoming emissions norms such as Euro 5.
Ashok Leyland has also ensured that all its upcoming products meet all norms expected in the near future, such as the bus body code safety norms for trucks and upcoming requirements for on-board diagnostics.
To capture, measure and address strategic as well as operational risks, the company has created an Enterprise Risk Management function. Having completed the first round of risk assessment, it has prepared a dashboard to track movement on these risks. Measures to be taken have been identified for risk mitigation and incorporated into the company’s operating plans. Going forward, quantified risk metrics will be tracked by the risk management function and the Audit Committee and action taken based on it.
The tepid economic environment, as well as the high base, is bound to have an impact on TIV in 2012-13. Several industry analysts have projected growth rates at 3-8 per cent, while SIAM has projected an annual growth rate of 5-7 per cent for medium & heavy duty vehicles and about 14-16 per cent for light commercial vehicles.
Ashok Leyland seems to have the right balance to keep up its growth curve with its presence in various business areas. However, in the coming years, all eyes will be on the M&HCV business which is the company’s primary focus area. The domestic market in the segment is going through a massive global invasion with nearly half-a-dozen new players coming in.
Ashok Leyland has been a long-time No.2 in the Indian commercial vehicle segment, and it will be interesting to watch how the company adapts its approach to survive the growing market competition.