Ashok Leyland’s (AL) FY17 annual report highlights the company’s increasing focus on the LCV, exports, spare parts and defense segments with an aim to reduce dependence on domestic M&HCVs. Network expansion in non-traditional regions, such as north, central and east, is helping AL gain share in the domestic market.
In FY17, the CV industry was impacted by regulatory measures like demonetisation, shift from BS-3 to BS-4 emission standards, and looming GST implementation. However, during the same year, AL’s domestic M&HCV volumes grew 4.6% (v/s flat CV industry growth). AL launched various products in FY17, due to which its market share in M&HCV increased to 33.9% from 32.7% in FY16. Its market share in the bus segment, however, declined to 37.5% due to the strategic move to exit unprofitable segments and work with progressive STUs.
According to AL, the government’s thrust on infrastructure/rural sector, resumption of mining activities in select states, higher demand for consumption-driven sectors and e-commerce logistics providers, potential implementation of scrappage policy, bus body code, and phasing out of old diesel vehicles in line with fleet modernisation programme should drive its future growth. However, growth in H1FY18 is expected to be subdued due to pre-buying on account of BS-4 emission norms. AL guided for CV segment growth of 10%, led by M&HCV and LCV growth of 7-10%.
AL is focused on making its business acyclical by reducing India truck business revenues to 50% in five years 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. Although we find merit in this strategy, the results are expected to play out only over the medium term.
AL has been increasing its R&D spends over the last two-three fiscals to 1.8% of sales in FY17, v/s 1.41% in FY16 and 1.36% in FY15. Some of the major achievements in terms of product portfolio are development of Euro-VI-compliant engine for N6 platform, next-gen sunshine bus with unique kid-friendly features, launch of fully electric bus (Circuit), introduction of iEGR technology for BS-IV vehicles and development of telematics systems.