Ashok Leyland continues to make and sell LCVs, despite row with JV partner Nissan

Two days after sending a notice to Nissan, its partner in the LCV business, accusing it of misusing equipment belonging to the joint venture, Ashok Leyland today said that the manufacturing and sale of the LCV products will not be impacted.

The commercial vehicle major also said it will start setting up assembling facilities in key regions of Africa, a geography it expects will contribute to nearly 40 per cent of the company's total export volume in 3-5 years. In the next phase, the company would look at South America and South East Asian countries.

Confirming that Ashok Leyland has sent a notice to Nissan, the company's CFO, Gopal Mahadevan, told reporters that it is not stopping the production and marketing of LCV vehicles Dost, Partner and MiTR for now.

Mahadevan said, "Manufacturing and sales are happening and will continue to happen for now," and refused to comment further on the issue stating that the matter is subjudice.

Ashok Leyland has slapped a notice on Nissan, alleging that it is using the equipment, installed at Nissan's factory at Oragadam, to manufacture cars, while it is actually meant for producing LCVs. Ashok Leyland and Nissan are partners in a JV to manufacture Light Commercial Vehicles (LCVs). Ashok Leylands want these assets siezed.

Mahadevan said that company's decision to form a JV with Nissan to manufacture and sell LCVs was a strategic one and the company continues to see good potential as the market is also reviving. He said Ashok Leyland has a market share of 15 per cent and the LCV segment continues to be strategically important for the company, as it delivers 8-8.5 per cent of the company's revenue.

Ashok Leyland's LCV sales, predominantly driven by Dost, were up 14 per cent to 21,950 units during April-December 2015, from 19,349 units a year ago.

In 2007, Ashok Leyland and Nissan announced a JV to develop and manufacture LCVs under both the Ashok Leyland and Nissan brands, in the 2.5-7.5 tonne segment. The JV was named Ashok Leyland Nissan Vehicles, in which Ashok Leyland holds 51 per cent. However the JV had a rough ride in the Indian market.

Mahadevan also confirmed that the company is working on exit plan from its construction equipment business JV with US-based John Deere.

"The manufacturing and sales (of construction equipment) is significantly lower, at only 3-4 units a month," said Mahadevan.

Betting big on Africa

In accordance with its plans to expand its global foot print, Ashok Leyland is planning to set up assembling units in Africa, South America and South East Asia.

Mahadevan said that the company plans to set up three or four assembling facilities in Africa with an investment of around Rs 30 crore each. These units will help the company take advantage of cheap labour, avail tax incentives and save logistics cost.

Plans are in the final stage and the company wants to joint hands with a local partner who will bring local expertise, including marketing, to set up these units. Currently exports contribute around 10-11 per cent of Ashok Leyland's revenue, and the company's target is to increase this to 25-30 per cent in 3-5 years. Mahadevan said around 40 per cent of export volumes would be generated from Africa alone.

Ashok Leyland's net profit during the third quarter ended December 31, 2015 rose to Rs 198.63 crore from Rs 32.09 crore during the same period last year. Mahadevan attributed the better profit number to increase in turnover, savings in material cost by around 100-125 basis point, favourable product mix and other factors.

"It has been reasonably a satisfying quarter and we expect Q4 will also be good," said Mahadevan, adding that company's new ICV, MDV and bus products, unveiled at the recent Auto Expo, will be launched within two months.