Ashok Leyland (ALL) held conference call on 29th Jan 09 to discuss its results for the quarter ended Dec ’08.
The meeting was addressed by Mr K Sridharan, Chief Financial Officer
Highlights of the Discussion
- In the quarter ended Dec ’08, Ashok Leyland the Hinduja Group’s flagship company in India and a leading commercial vehicle player recorded notable downfall of 44% in its topline to Rs 1000.85 crore largely owing 58% crash in its total sales volume. However the downfall in net sales was restricted due to growth in its engine business, spare parts business and exports. With 90 bps decline in its OPM, its operating profit crashed by 50% to Rs 83.14 crore. The profits further dwindled on decline in other income and increase in interest cost. However, as a boon, write back of tax in quarter ended Dec ’08 (against tax provision in corresponding pervious period), partially offset the degrowth in its net profit. Its net profit crashed by 84% to Rs 18.87 crore.
- The company expects reduction in raw material cost in Mar ’09 quarter due to softening of commodity prices though it depends on the current negotiation with suppliers.
- The company expects the demand to remain subdued in the quarter ended Mar ’09. It expects signs of revival in 1st quarter of FY10 after the elections.
- On basis of subdued demand outlook, the company is functioning on 3 day work week in Jan ’09 and plans to continue the same in Feb ’08. With regard to production plan in Mar ’09, it would review the market situation in mid Feb ’09.
- At the production front, it plans to produce total 6000 vehicle in quarter ended Mar ’09. Out of this, 1500 vehicles would be produced in Jan ’09 and balance 4500 vehicles between Feb ’09 and Mar ’09.
- Currently, the company has domestic order book of over 2000 buses and export order book of 2200 vehicle. They need to be supplied by end of Mar ’09.
- The company is facing pressure to reduce vehicle price by Rs 15000 to Rs 20000.
- The company has revised total capex for the financial year 2009 to Rs 900 crore max against Rs 950 crore previously. It has spent capex of Rs 825 crore upto nine month ended Dec ’08. Out of spent capex, it has spent Rs 800 crore towards the Uttranchal plant.
- The Uttranchal plant would commence operations by Mar 10. Its capacity has been reduced from 70,000 vehicles to 40,000 – 50,000 vehicles. The total capex for the Uttranchal plant across the years would be Rs 1300 crore.
- With regard to its Nissan JV, companies are revising the capacity and capex plan depending on the outlook on India and exports.
- The employee cost is anticipated to be lower by 20% in financial year 2009. The various measures undertaken to reduce staff cost are: cut in the 6 day work allowance, voluntary reduction in salaries of executives and reduction in production incentives.
- The various cost cutting measures undertaken by the company are (1) carrying out work that were previously outsourced especially on the engine side (2) cut in no. of working days (3) reduction in salary of the employees and reducing the media and travel expenses (4) reduction in the raw material prices which is in the negotiation stage with the suppliers.
- With the stimulus package 2, the finance availability for trucks has improved in Jan ’09.
- ALL has bagged order worth Rs 480 crore to manufacture 875 ultra high end low entry buses by Delhi STC. Besides the Delhi STC, the company has not received order from any other government.
- With regard to fuel price reduction by Rs 5 in petrol prices and Rs 2 in diesel prices, the company is wait and watch mode.
- Its domestic sales volume declined by whopping 64% from 17134 units in quarter ended Dec 07 to 6184 units in quarter ended Dec 08. It is attributed to high marketshare held by the company in Southern and Western area that declined by almost 65%. In contrast, the Eastern area, where the company holds low marketshare, declined by 10%.
- Its exports managed to achieve flat growth of 1% y-o-y from 1831 units in quarter ended Dec 07 to 1841 units in quarter ended Dec 08. It is attributed to 400 vehicle export to Angola and entry into new export markets such as Chile, Thailand, Libya etc.
- In revenue growth terms, its engine business grew by 60% in quarter ended Dec ’08 and 90% in nine month ended Dec ’08. Its spare parts business grew by 5 to 6% in quarter ended Dec ’08 and 25% in nine month ended Dec ’08.
- The contribution of the engine business’s revenue to total revenue increased from 8% – 9% in quarter ended Dec ’07 to 18% in quarter ended Dec ’08.
- The contribution from spare parts revenue to total revenue is 12% to 15% in quarter ended Dec ’08.
- The staff cost reduced on account of 700 to 800 employee reduction, 3 day work week and voluntary salary cut for executives.
- Its other income crashed by 76% to Rs 10.58 crore owing to the sale of its shares in IndusInd Bank in quarter ended Dec ’07 against none in the quarter ended Dec ’08.
- The interest cost grew by 158% to Rs 39.41 crore owing to higher working capital. Higher working capital is being held due to current inventory of 10000 vehicles.
- Its long term debt stands at less than Rs 1600 crore. Its short term debt is close to Rs 1000 crore. The short term debt is expected to reduce by end of Mar ’09. It expects its debt (net of cash) to stand close to Rs 2000 crore end of FY09.