Ashok Leyland: back in the fast lane

: In the six months up to June 2009, truck and bus maker, the Rs 5,981-crore Ashok Leyland Limited (ALL) lost market share. Although the northern and western parts of the country were bouncing back from the downturn, the Chennai-headquartered firm’s turf, the southern market, wasn’t seeing as much action. Moreover, at the time buyers seemed to be less focused on the bigger multi-axle vehicles and trailers, which are among ALL’s best-selling products. But since then, the south, ALL’s biggest market has joined the rest of the country in the industrial revival. And that has helped the firm regain most of its lost market share. ALL now has about a fourth of the Rs 30,000 crore-plus commercial vehicles (CV) market in the country. And the newly-commissioned Uttarakhand plant should help it tap markets in the eastern and northern parts of the country where it doesn’t have such a strong presence.

The Uttarakhand plant is set to roll out around 25,000 vehicles this year, putting ALL in a good position to tap increasing demand. In a move aimed at increasing sales, the auto major has set up a non-banking finance company (NBFC) Hinduja Leyland Finance—a captive financing arm. India Infoline observes that the NBFC can kick off operations across 130 centres in 16 cities and plans to expand the business to 300 centres and believes it could be a useful tool for ALL to grow market share.

The Street seems to be pricing in the good news and more. While the ALL stock had slipped to levels of Rs 46 in mid-February in line with the weak sentiment in the market, it has more than bounced back, from its early December levels of Rs 52-53 to almost Rs 57, somewhere near its 52-week high. The move is not too surprising since the stock is a play on a reviving economy. And ALL’s volumes reflect the revival in demand. In the December 2009 quarter, ALL’s revenues were up 81% year-on-year to Rs 1,820 crore on the back of a 100% growth in volumes. Operating margins, which gained from better operating leverage, moved up to 11.4%, a gain of 300 basis points year-on-year, though they were also partly driven by lower other expenditure. Of course, the strong numbers must be read in the context of the December 2008 quarter, which created huge disappointment in the wake of the global financial crisis.

But ALL’s volumes for...