Ashok Leyland may raise prices in October, January, says MD

Ashok Leyland has been adopting various strategies to cut the debt in its books, from reducing working capital to reducing manpower, selling off non-core assets, however, the best way to do is perhaps by increasing profits.

Vinod Dasari, managing director of the Hinduja Group company hopes that as the market turns around, the company would make some profits. He adds that while there is a huge pricing game played by competitors, Ashok Leyland is not keen to offer discounts, instead, they have actually raised prices by 4.5 per cent in the last four months, and has plans to further raise prices in October and January. At the sidelines of launching its 'truck-car' Boss in Ahmedabad, Vinod Dasari, managing director, Ashok Leyland, chats up with Sohini Das, edited excerpts:

We have tried all ways to reduce debt, reducing working capital, exiting some businesses, selling of non-core assets like land etc. We had tied up a lot of money in working capital (around Rs 1400 crore), we have reduced that to Rs 400 crore, we did sell off some assets like land which were not getting utilised. Yesterday only we have sold off a land parcel in Chennai. We have also raised Rs 660 crore last month through qualified institutional placement (QIP). While all these ways were contributing, there was only one way that was not yet contributing to reducing debt, which is making profits.

But, as the market turns around, we hope that the company makes some profits, and I am confident about the market turnaround, and with that I hope that we would be hoping to reduce our debt even further. We are hoping to bring it (debt equity ratio) down to below 1:1 levels by the end of this fiscal. From a debt of around Rs 6,600 crore our debt is now around Rs 4,000 crore. Last year was only a Rs 29 crore profit, it was actually more close to a loss. But, we continued to maintain our 65 year old tradition of making profits. We have been profitable since inception, and last year was a real struggle, we came very close (to making a loss).

Our operating margins have come back. In Q4 last year we had sold nearly 18,000 vehicles, and had a 6 per cent operating margin. In Q1 this year, we actually sold 20 per cent less on a quarter on quarter basis, which is usually the case, as the fourth quarter is traditionally the best. But, nevertheless, our margins were substantially better than last year.

In Q1 last year, our operating margin was 1.1 per cent, and this year it is 4.5 per cent. That is proof that things are picking up. This is margin improvement on like-to-like sales on a year on year basis.

We are growing in exports, we were selling only in the SAARC region, but we are now growing outside the SAARC region, in Middle East, Africa and so on. I think compared to last year, we should do 25-30 per cent better in exports. The share of exports in our turnover last year was around 10-12 per cent, and this year it should be around 12-15 per cent and in the long run I would like it to be somewhere around 30-35 per cent.

Although, I see a more than 30 per cent growth in exports this year, the overall share in revenues will not see that kind of growth as the domestic market would also grow.

Our market share in the intermediate commercial vehicle (ICV) segment (which ranges between 7.5 to 15 tonne gross vehicle weight) has actually trebled in the last five years, from 4.5 per cent to 15 per cent.

In the heavy commercial vehicle (HCV) segment there has been a lot of competition, and there has been a huge pricing game being played by some competition, we don't play that game. We know that commodity costs are going up, steel costs etc, and we have raised prices by 4.5 per cent in the last four months. So, the results are showing in our profitability.

We have just increased prices in July. May be there could be a price increase in October and will do another one in January. Usually price increases are in the range of 1-2 per cent.