Commercial vehicle (CV) major Ashok Leyland is planning to invest around Rs 1 billion in the electric vehicle (EV) technology over the next two-three years. The company is also planning to showcase the prototype of its first EV product at the upcoming Auto Expo 2018, scheduled to start this week in New Delhi.
Ashok Leyland’s total planned capital expenditure for the 2018-19 financial year, including the expense of expanding its cabin facility, debottlenecking and investment in technologies, would be Rs 5-7 billion, said Chief Financial Officer Gopal Mahadevan.
In the EV technology, the company will focus on three segments – swappable technology, for which it has tied up with Chetan Maini-promoted SUN Mobility for short-distance services like the State Transport Undertakings (STU), long-range, and long-range fast vehicles. It will develop battery and solutions in collaboration with partners. It would also work with agencies to set up charging infrastructure.
Around three-four STUs are planning to come up with tenders for 50-100 buses in a phased manner, and the company would participate in some of these bids. Apart from STUs, the other focus would be on private and school buses.
Mahadevan said the government subsidy was important for price-competitive in the EV segment.
Ashok Leyland’s market share in the bus segment was 38 per cent in the third quarter of 2017-18, against 38.1 per cent the previous year. The industry volume for buses dropped by 27 per cent to 24,452 units during the third quarter, against 33,532 units a year earlier. The company’s bus volume dropped by 27 per cent to 9,291 units from 12,773 units in 2016-17.
It may be noted that the company has decided to stay away from a few STU tenders which it feels are not profitable.
Smooth road ahead
Aided by technological advancements and regulatory changes, Ashok Leyland’s net profit jumped almost three times over to Rs 4.49 billion in Q3 from Rs 1.61 billion in the same period a year earlier, beating analysts’ estimates of Rs 4 billion.
Despite an increase in raw material costs, which surged 58 per cent to Rs 54.06 billion from Rs 34.02 billion a year earlier, and high discounts on vehicles continuing, the company improved its operating profit margin by 100 basis points, both year-on-year and sequentially, to 11.1 per cent in the third quarter.
An improved mix of products (vehicle sales), increasing demand, and hike in prices led to better profitability. Higher export volumes (up 46 per cent) and domestic sales (up 41 per cent) of medium and heavy commercial vehicles (M&HCV) also helped Ashok Leyland.
Managing Director Vinod K Dasari said the growth demonstrated the company’s technological leadership. “What we focus on is net sales realisation. Prices have increased and discounts have also gone up. Net-net prices are higher than before, and realisation is also better when compared with the previous quarter,” he added.
Mahadevan said: “Ashok Leyland’s revenue growth and the focus on cost efficiencies helped profitability.”
The key factors driving volumes for the industry and the company include rules related to the rated load of goods that trucks can carry. In the northern states, especially Rajasthan and Uttar Pradesh, regulations are coming in and fleet operators will need to invest in new vehicles. The goods and services tax (GST) has also had a positive effect since the productivity of vehicles is going up.
This year, the company is cash positive, at Rs 5.43 billion, for the first time yet.