Ashok Leyland will focus on expanding its product portfolio and increase market share in the domestic light commercial vehicle (LCV) business, spare parts or after market business, exports and defense business in the current and coming financial years in order to reduce the its dependence on the domestic heavy commercial vehicles business.
In the LCV segment the company is a smaller player compared to its rival Tata Motors and Mahindra and Mahindra (M&M) and is likely to introduce three new products during the fiscal to increase its revenues from the segment. In FY17, the volumes in the LCV segment grew by just 4% to 31,770 units on a very low base. In the first quarter of the current fiscal the volumes increased by 21% y-o-y to 8,168 units. As of now Leyland has just one product in the LCV segment called Dost.
In FY17, Ashok Leyland bought out all the shares of its joint venture with Nissan and took full control of the LCV business and according to the management this will help expedite new product development and broaden the product offerings to cover the full LCV range.
“The Company also has plans to introduce new models in the LCV segment in the immediate future. LCV segment is expected to grow at around 7-8% in FY2018 driven by replacement demand and stronger demand from consumption-driven sectors and e-commerce companies would remain growth drivers,” the company said in its latest annual report.
In order to reduce its dependence on the M&HCV which grew by just 3% last fiscal year due to demonetization, Supreme Court’s ban on BS-III vehicle and uncertainties due to GST roll out, the company will focus on increasing revenue from the spare part and defense business.
“Ashok Leyland is targeting 7-10% growth in LCVs given the robust product pipeline – it expects one product launch per quarter in FY18. ‘Dost’ has maintained a share of 15% in the 2-3.5t GVW segment in FY17,” said analysts of brokerage firm Motilal Oswal in a report.
In FY17 the revenues in the aftermarket or spare parts business registered a growth of 31% as a result of the expansion of dealerships and service centres in the northern and eastern states. The Chennai-based company also won 19 defence projects in the last fiscal and is expected to out-perform in the current fiscal as well.
“The aftermarket business will target market penetration, service delivery and profitability,” the company has said in the report.
Though Ashok Leyland’s market share increased to an all time high of 37% in trucks and 33.2% in overall M&HCVs in FY 17 the management wants to reduce the contribution of the domestic M&HCV business to 50% of the total revenues from 70-72% at present due to the cyclical nature of the domestic business.
“ALL is focused on making its business acyclical by reducing India truck business revenues to 50% in five years (from 68% now) by growing the share of LCVs, exports, spare parts and defence. This will not only reduce dependence on domestic trucks, but also drive strong revenue growth,” said analysts of Motilal Oswal in a report.