Leyland sees sales rising 40% to 89,000 units, up from earlier estimates of 85,000

Ashok Leyland, the country’s second-largest maker of buses and trucks, saw unprecedented margin boost last quarter, despite commodity price hikes and other factors impacting overall costs. Quite unlike the situation in passenger car industry, robust volume growth coupled with shifting some manufacturing to tax havens and a judicious reduction in interest costs led operating margins for Ashok Leyland to 10% level in the first quarter of this fiscal. The company sold 63,926 vehicles last fiscal.

Despite a significant increase in material costs, overall costs for Ashok Leyland increased only 3-4%. But now that the company has already effected its second price increase - of Rs 23,500 per vehicle in June - the pressure on bottomline should abate further as this positive impact is factored in.

Capital expenditure of Rs 12,000 crore earmarked for the next 2 years would be spent on manufacturing the new range of Neptune engines, next generation cabs and on the joint venture with Nissan Motor Co for LCVs.

Ashok Leyland also plans to raise Rs 400-600 crore this fiscal to increase the capacity at its Pantnagar factory in Uttarakhand. The ramp-up at Pantnagar has not happened according to plan. It has produced only 800 vehicles in Pantnagar during the first quarter. But its target remains intact and is expected to produce 1,700-1,800 more vehicles in the remaining nine months of this fiscal. The cash incentive per vehicle being made at Pantnagar came to Rs 35,000. The cost disadvantage of Rs 5,000-7,000 per vehicle was being borne by the company in transporting vehicles made in other factories (located in South India, not from Pantnagar) to northern markets. The Pantnagar factory will reach its peak output of 4,000 vehicles per month by March.