The Hindu Business Line : Chinese engines push up Ashok Leyland volumes

Chennai, April 7 Ashok Leyland on Monday announced that it ended 2007-08 with a 27 per cent increase in volume terms — thanks mainly to the buoyancy in the passenger vehicles market, which helped it offset the 11 per cent drop in truck sales. But that is one side of the story.

What the figures do not capture is the successful experiment that the company did with imported Chinese engines — a success that the company believes could be replicated and be made a key part of its strategy to bring in stability in sales.

Last year, Ashok Leyland sold about 12,000 engines, of which some 1,500 were low-power engines imported from YD Engines of China. These were of 30 hp to 80 hp in capacity and go mainly for powering telecommunications towers. The engines are sold for about Rs 2 lakh each, so the ballpark estimate for revenues is about Rs 30 crore.

Targets

Mr K. Sridharan, Executive Director (Finance), Ashok Leyland, is confident that in the current financial year, around 10,000 such engines could be imported and sold. Then, engine sales of the company will double, with half the sales coming from imported products.

Today, engines contribute only around 2.5 per cent of Ashok Leyland sales (of around Rs 8,300 crore). Over the next few years, this figure will rise to around 10 per cent, Mr Sridharan told Business Line.

While there is profit to be made by selling imported engines, Ashok Leyland looks at this business as a counter-weight to the intrinsically cyclical business of selling goods-carrying vehicles. “Next year, sales of engines, exports, (sales to) Defence and spare parts will account for close to a third of sales,” says Mr Sridharan.

Sales of buses are also not cyclical. Adding this, non-cyclical business will come to about 45 per cent of next year’s turnover, notes Mr Sridharan.

Capacity build-up

But the 11 per cent dip in goods vehicles sales last year was caused by more than just the cyclical nature of business. It was the “base effect” in the ‘multi-axle vehicles’. In the previous three years, total industry sales of Multi-Axle Vehicles doubled. Adding to the capacity-build-up were issues such as high interest rates and hesitant lending because of difficulty in recovering loans.

On the other hand, some segments such as the ‘Tippers’ did well, as did exports and intermediate duty commercial vehicles.

Ashok Leyland has addressed some capacity constraints as regards the Intermediate Commercial Vehicles, with new lines for engines and gear-boxes at its Ennore plant.

“The only dark cloud on the horizon is the rise in commodity prices which could affect cargo,” says Mr Sridharan. But it is against this context that the non-cyclical businesses gain significance.

More Stories on : HCV/LCV/Tractors | Performance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page