Ashok Leyland plans expanding into African, Southeast Asian markets

Commercial vehicle maker Ashok Leyland is looking to expand into African and Southeast Asian markets as part of strengthening its international presence, a senior company official said on Friday.

A day after reporting narrowing of June quarter losses to Rs 282 crore, the Chennai-based company’s CFO Gopal Mahadevan also expressed hope that once COVID fears subside, the industry will see a sharp pick up in demand.

Ashok Leyland, the flagship company of diversified Hinduja Group, had posted a net loss of Rs 389 crore in the June quarter of 2020.

In the three months ended June this year, the company saw a significant growth in volumes of domestic MHCVs (Medium and Heavy Commercial Vehicles) and LCVs (Light Commercial Vehicles)

Total exports during the latest quarter under review jumped 254 per cent to 1,437 units compared to the year-ago period when the same was at just 405 units. The year-ago period was also the time when there was a nationwide lockdown for many weeks and many countries had also put in place restrictions to curb the spreading of coronavirus infections.

“We are definitely looking to expand into Africa. The African market is going through a churn but we are also now looking at appointing much large dealers there who can make inroads into the market instead of doing it ourself. That is a change that we are going to make in our strategy,” Mahadevan said during a post-earnings virtual media conference on Friday.

He also said that if the company was able to make some breakthrough, it will also look at select markets in Southeast Asia as part of the international expansion plans.

“These are the markets very close to us in terms of fit and finish and vehicle performance. These are, in a way, very high level opportunities that we see on the international side,” he noted.

Currently, Nepal, Bangladesh and the Middle East are the traditional markets for the domestic company. Exports account for about 8-10 per cent of the total volumes and is expected to be higher going forward.

The company is “reasonably positive” that the second half of this financial year will be much better than the first quarter, during which there were lockdowns for around 45-50 days resulting in lower volumes.

In the latest June quarter, total industry volumes were 29,158 units, both trucks and buses, while the volumes stood at 4,403 units in the year-ago period.

“We will have to wait for demand to pick up and we are seeing that happening. July has been a decent month,” Mahadevan said, adding that once the COVID uncertainty subsides, there might be a sharp increase in demand.

On the supply side, he said the company needs to continue supporting small vendors, who have been impacted badly by the pandemic, and it is already doing so. “Otherwise, the recovery has been very sharp, we have been able to get our supplies in reasonable time”.

“We should see quite a sharp turn in demand if things were to slowly improve on the COVID front and if that happens, we will see performance of the CV makers improving. Once the international market opens up, we believe that we will see an improvement there as well,” Mahadevan said.

According to him, the company is seeing lots of inquiries and August volumes are expected to be better.

“Once that happens, we see we have skirted the third wave… we believe that from September onwards, demand will be actually going up… with that, the pricing will become more efficient, freight rates will improve and overall the truck demand should go up,” he said.

On the reported Rs 750 crore capital expenditure (capex) plan, Mahadevan said, “we have already invested sufficiently in plants and we will now invest further in debottling capacity only when we see further rise in demand. Otherwise, we will not”.

“So, we will see if it will be Rs 750 crore or not. Further, capaex will be growth capex in segments which are growing like LCV segment,” he added.

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