Ashok Leyland (ALL) faced a double whammy: slowing sales due to a slowing economy and having to sell one of its brands at below cost. However, the country?s second-largest truck maker got around this roadblock thanks to its non-core businesses. ALL said the company is facing under-recoveries of R30,000 to R1 lakh per vehicle on its U-Truck platform as it did not pass on the input cost pressures to the customers.

This was compensated by the better performance in its non-core business. In fact, non-cyclical businesses such as passenger vehicles, spare parts, power solutions, and defence systems/vehicles, among other businesses, have been steadily contributing to a larger chunk of the Hinduja flagship?s growth.

The contribution from these businesses to the company?s overall turnover has increased to around 33% from 25-28% in the previous financial year, and is expected to contribute around 40% in the current financial year?s turnover, said K Sridharan, chief financial officer, ALL.

?It would not have been possible for ALL to maintain its growth momentum and profits even during the global financial crisis time of 2008-09 when the whole industry affected but with the support from these non-cyclical businesses,? Sridharan said. ?It is important for us to strengthen these businesses simultaneously with that of core business ? commercial vehicles ? and we will ensure these businesses will continue to play a major role going forward.?

In an investor call on Friday, Sridharan said, ?We are selling U-Truck in two states at the moment and plan to take the product pan-India during this financial year. We would be expanding our range under the U-Truck including the multi-axle and haulage segment.?

The company expects the U-Truck range to make up to 25% of its total sales this financial year. In a bid to meet its aim, the company has set aside an investment of around Rs 1,100 crore that include Neptune engine facility creation, pan-India launch of U-Truck, expansion at Pantnagar plant and NV200 multipurpose vehicle with Nissan (that is scheduled for launch in 2012).

Indicating that the margins will remain under pressure as the company is not keen on passing on the input cost burden on the U-Truck to the customers yet, Sridharan said, ?It is the time to build the U-Truck brand.? The company is aiming at an operating profit margin of 10.5% for 2011-12.

The company said that will look another pricing action in next few months if the input costs continue to attain pressure on the margins. ?On the cost front, we are facing pressure from tyre and steel makers and we expect that the pressure will be managed but if not we would consider a price hike.? The company raised prices by 11% in the last financial year.

What could help the company from raising prices is the improved performance of its other businesses. According to Vinod K Dasari, MD, revenue from the spare parts business went up from R573 crore in 2008-09 to R712 crore in 2010-11 and is set to grow further. Similarly, revenues from the defence business rose from R248 crore in 2008-09 to R363 crore. After transforming its model, the power solutions business has improved dramatically, posting a revenue of R331 crore revenue and will do better in the current year with its diversified focus, said Dasari.

In the defence systems vertical, ALL signed a memorandum of understanding with Krauss-Maffei Wegmann, a German injection moulding machine and defence company, to develop advanced defence systems to retain the company?s status of being the largest supplier of logistics vehicles to the Indian army as well as to address opportunities in overseas defence markets for tactical vehicles, Dasari said.