Analysts wary as Ashok Leyland aims to double export revenue

Chennai: Ashok Leyland Ltd, the country’s second largest commercial vehicle manufacturer, expects to double its revenue from exports in the next five years.

A week ago, soon after the company announced better-than-expected earnings in the June quarter, Gopal Mahadevan, its chief financial officer, said the firm will improve its revenue from exports to one-third of total revenue from the current 15% in the next three-five years.

Analysts, however, foresee challenges, given that earlier attempts fell short of expectations.

In 2007, Dheeraj Hinduja, then vice-chairman of the company, said 15-20% revenue will come from overseas (exports) in five years. Exports accounted for 8% of the company’s revenue of Rs.5,247 crore in 2005-06.

In 2012, Anthony Lobo, then special director of international operations, said the firm planned to export 25,000 trucks in the next two years.

However, the Chennai-based company missed both milestones, and in terms of volumes, the Hinduja group company exported 11,200 trucks in 2014-15, compared with 8,500 trucks in 2013-14 and 8,700 units in 2012-13. Five years later, in 2012-13, exports’ contribution to revenue was just 11%.

To its credit, Ashok Leyland made the shift from being an opportunistic exporter in 2010. It embarked on a path of understanding key international markets, analysing market trends and requirements, and customizing vehicles to suit the needs of various markets.

“Since then, our strategy has been consistent and is also yielding results,” said managing director Vinod Dasari.

A combination of factors, including political volatility, resulted in exports shrinking in 2012. This lasted two years, said Dasari.

Sri Lanka and Bangladesh, two important markets, saw a dramatic fall in volumes. Nigeria and Kenya had elections, and the Commonwealth of Independent States descended into deep political instability.

“The deviation from our target curve occurred due to external factors, and not due to incorrect strategy,” said Dasari. Given this, the strategy will continue to be the same, only with greater managerial bandwidth and focus invested in it, he added.

“It is difficult to expand revenue from exports to a third in five years’ time as trucks as a brand take longer to establish,” said Bharat Gianani, an auto analyst at Angel Broking Pvt. Ltd.

Also, currency fluctuations and foreign government policy heavily determine the quantum of exports, he added.

Currently, the contribution of exports to revenue is about Rs.2,000 crore, largely from buses rather than trucks. The bus business is easier since it is largely based on government orders. In June, the company won an order worth $82 million from the Senegal government to supply 472 buses.

On the other hand, trucks need good after-market services—in case of a breakdown, they need quick attention so they can be back on the road at the earliest.

Realizing that after-market support is critical, Ashok Leyland has set up 26 such touch-points in Africa and 17 in West Asia.

In Africa, Ashok Leyland has found a local partner in Nigeria and set up an assembly facility that will cater to the West African market. It plans to set up a similar assembly facility to cater to the East African market as well. These will be chassis-assembly and body-building facilities capable of localization and value addition, with capacities ranging from 2,000 to 4,000 units per annum.

The firm expects to ramp up truck exports using its Boss and Captain lines, which have cabs engineered to suit most global emerging markets, said Dasari.

The stress on exports is a good de-risking strategy as the firm has been heavily dependent on the domestic market, where the demand for heavy trucks has only recently seen an uptick after three years of sluggishness, said a Mumbai-based analyst who tracks the company but did not want to be identified.

However, Ashok Leyland has a lot of catching up to do, said the analyst. Its competitors—Tata Motors Ltd and Mahindra and Mahindra Ltd—export larger volumes of trucks, predominantly light commercial vehicles, which do not require a well-established after-market service network.