Q1 Results: Ashok Leyland Says It Will Cut Production To Ease Dealers’ Woes 

Shares of Ashok Leyland Ltd. fell to their lowest in four years after the commercial vehicle maker said it will cut production to ease stress on dealers who are grappling with an inventory pile-up as sales haven’t picked up since the festival season last year.

“There are challenges across the supply chain as far as the dealership profitability is concerned,” said Chief Financial Officer Gopal Mahadevan said. “We will be taking some corrections in inventory in the second quarter both at the factory and dealership levels to ease the pressures (liquidity crunch and inventory pile up) of dealers.” Ashok Leyland has shut few factories for seven days as a part of this strategy, he told BloombergQuint during an interaction.

Ashok Leyland’s sales fell 28 percent over last year to 10,927 units in July. That was led by a nearly 50 percent year-on-year slump in sales of medium and heavy commercial trucks.

Sales of Indian automakers have been falling since the Diwali festival last year, leading to a pile up of inventory at dealerships. The slowdown—the worst in a decade—led to job losses and shutdown of showrooms across the country.

While Mahadevan said it was unique to see sales of heavy commercial vehicles, cars and two-wheelers getting affected, he expects pre-buying of vehicles in the wake of implementation of the new emission standards to boost the company’s margin.

“As we make a transition to the new norms next year, we expect pre-buys (for vehicles of non-Bharat Stage-VI emission norms) happening between September and January,” Mahadevan said. “If that happens, it will be good for us and (help us) start improving margin.”

Moreover, since the slowdown is less pronounced in the light commercial vehicle space, the automaker is contemplating introducing new models in the segment. “We have gained market share in the light commercial vehicle space and are looking forward to the launch of the Phoenix range of vehicles,” said Mahadevan.

He expects the government’s infrastructure initiatives to boost sentiments. “If they (initiatives) start paying off, then you could see sentiment improving at the end of the second quarter or in early-third quarter.”

Ashok Leyland’s stock tumbled as much as 11.6 percent during the day compared with a 0.63 percent drop in the benchmark Nifty 50 Index.

Key Earnings Highlights

(Year-on-year)

• Revenue down 9.2 percent to Rs 5,683.9 crore.
• Net profit down 45.4 percent to Rs 230.2 crore.
• Ebitda down 20 percent to Rs 537 crore.
• Margin stood at 9.4 percent compared with 10.7 percent.

Here’s what brokerage Nomura had to say about the results:

• Maintained ‘Neutral’ with a price target of Rs 91 apiece.
• Ebitda was above consensus estimates.
• Decent margin show in challenging environment was positive.
• Demand outlook for medium and heavy commercial vehicles worsened further.

Watch the full interview here: