Home Ashok Leyland: Gaining Share in a Falling Market

Ashok Leyland: Gaining Share in a Falling Market

The overall growth in domestic automobile sales during April-March 2013 was 2.61 % over the same period last year. The overall commercial vehicles segment registered de-growth of (2.02) % in FY 2013 as compared to the same period last year. While Medium & Heavy Commercial Vehicles (M&HCVs) declined by 22.18 %, Light Commercial Vehicles (“LCV”) grew at 14.04 %. In March 2013, M&HCVs sales further declined by 22.16 % over March 2012.

Annual Domestic Growth in Medium & Heavy Commercial Vehicles

This slowdown can be attributed mainly to (i) uncertainties in infrastructure projects which are a major demand driver of commercial vehicle sales; (ii) 5-7 % drop in truck freight rates on key routes; oversupply of commercial vehicles in the system in previous years; and, (iii) a young commercial vehicle fleet plying in the country as compared to 3-4 years ago. Until segments like infrastructure, agri-commodities and industrial growth revive, truck sales are likely to remain sluggish.

Against the backdrop of a sluggish economy and weak macro-economic indicators, Ashok Leyland Limited (“AL or “Company”) has been able to quickly corner a sizeable market share. In commercial vehicle segment, AL stands second to Tata Motors, which is the largest commercial and passenger vehicle manufacturer in India. The Company closed the year at 70,917 vehicles (81,545 vehicles) in the domestic market with a market share of 26.5% translating into a gain of 3% in a falling M&HCV market.  In FY 2012, AL forayed into the Light Commercial Vehicle segment partnering with Nissan in a 50-50 joint venture, launching ‘DOST’. The Company’s successful LCV – ‘Dost’ – contributed 34,917 vehicles (7,593 vehicles).

As is evident from the figures below, despite a general slowdown in the auto industry, AL registered a healthy growth in FY 2013 (i.e.  compared to the same period in previous year, on the back of strong sales numbers for its new LCV ‘DOST’. In comparison, its biggest competitor in the M&HCV space (i.e. Tata Motors), registered a sharp fall in its market share for the same period(s). Ashok Leyland’s ‘Dost’ continue its successful run with 19 % market share even though it is in ramp up mode with presence in 12 states.

Ashok Leyland Limited

With the help of an entirely new dealership network equipped with modern infrastructure, the Company plans to progressively offer ‘Dost’ pan India as well as feed the overseas markets. At the same time, AL is planning to enhance its LCV portfolio with the introduction of variants both in the goods and passenger segments.

Growing competition from domestic and foreign automobile manufacturers and rising fuel prices have a negative impact on the sales of M&HCVs and consequently on the profitability and results of operations of the Company. While the commercial vehicle market is largely tied to the general economy, the imminent release of funds for several infrastructure projects and a reduction in interest rates promise well for the M&HCV market.

Recommended for you:

–  Future Prospects of Apollo Tyres

–  Tata Motors – JLR Sales Contribution