Ashok Leyland’s Pantnagar plant production down due to weak sales

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Published: July 16, 2019 4:44:35 AM

In a communication to the stock exchanges on Monday, the company stated that its plant situated at Pantnagar will remain closed from July 16 to July 24 (both days inclusive), owning to weak demand and outlook for the industry.

Ashok Leyland, Pantnagar plant, SIAM, SIAM data, industry news, Ashok Leyland share, Ashok Leyland newsThe Pantnagar plant has a capacity to produce around 100,000 units per annum, sources said. None of the company officials were available for comments. (File)

Dwindling sales, coupled with subdued market sentiments, have hit Ashok Leyland (ALL) hard, so much so that the Hinduja Group flagship has decided to keep its Pantnagar (Uttarakhand) plant shut for nine days from July 16. This is the second time in two months that the company decided to shut operations of this particular plant for short periods. Earlier, the company had opted for six days’ closure effective June 24. The move is aimed at avoiding any further inventory build-up on its factory premises.

In a communication to the stock exchanges on Monday, the company stated that its plant situated at Pantnagar will remain closed from July 16 to July 24 (both days inclusive), owning to weak demand and outlook for the industry. The Pantnagar plant has a capacity to produce around 100,000 units per annum, sources said. None of the company officials were available for comments.

According to the SIAM data, for the quarter ended June 30, the company has reported a 9% drop in its overall sales to 43,660 units. The company data says medium and heavy commercial vehicles (M&HCVs) sales for the quarter declined by 13% to 30, 647 units, with the truck segment alone falling 15%. Caught up in the new axle norms (announced in last leg of 2018) coupled with the lack of availability of liquidity in the market, the commercial vehicle sector has been witnessing declining growth in the second half of the last financial year.

Lack of cargo availability, poor freight rates, fear of poor monsoon, yet-to-improve liquidity availability, and introduction of BS VI norms by the end of this financial year have caused the slowdown blues to continue haunting the commercial vehicle sector. The latest SIAM data further shows that the overall CV sales for the first quarter declined sharply by 14.47% to 232,769 units. Of which, the M&HCV segment alone saw a sharpest fall of 17.52% to 89,142 units. It may be noted that market leader Tata Motors, too, announced closure of its Pantnagar plant for a few days recently.

According to IFTRT, the truck rentals have been witnessing a slide over the past few months due to new axle norms (which help truckers carry more loads), as well lack of freight from markets. The fleet owners have also decided to postpone their new purchase owing to lack of financing and freight offerings. NBFCs are still going through liquidity constraints, which affected vehicle financing as majority of the new truck sales are being funded by them, said IFTRT sources.

Motilal Oswal, in its recent report, said CVs are expected to be impacted due to high cost inflation. The impact on CVs will be determined by economic viability and freight availability. It needs to be seen whether BS VI and proposed scrap policy will bring in any stimulus to this sector. According to Reliance Securities, the CV segment has been hit due to higher axle load norms, which led to additional system capacity and temporary halt on construction projects.

“The global demand is also witnessing slowdown at this point of time. This coupled with intense competition from among the players will result in higher discounting to clear the inventory if any. It will also put pressure on the margins. We expect companies like Ashok Leyland to deliver highly subdued performance with significant year-on-year drop in its net profit,” the market analyst added.

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