Ashok Leyland's Kenya & Bangladesh assembly facilities will be ready in 8-12 months

Ashok Leyland (ALL) has said that its new assembling facility in Kenya will be ready in the next 8-12 months. ALL is investing around $5 million in the facility. It is also setting up a facility in Bangladesh and expanding its unit at UAE.

Gopal Mahadevan, chief financial officer, Ashok Leyland said that the assembly facility at Kenya will be for trucks and buses.

The Bangladesh facility, which will be set along with a local partner who will also be an investor, will be ready in 4-5 months and it will be more for trucks.

Capacity of these two plants would be around 3,000 units each.

Besides, ALL is also planning to increase its capacity at UAE to around 6,000 units from the current 4,000.

These plants will not only help the company to reduce logistics cost, enjoy tax incentives, it will also increase credibility among consumers, said Mahadevan.

Most of these markets, especially, Africa is catered by Chinese companies and in the recent years Indian companies are making good inroads.

While the Kenya market is estimated to be around 3,000-4,000 units a year, the other adjacent markets in Africa is estimated to be around 12,000-13,000 units.

The new facilities come on the backdrop of achieving its vision of becoming Global Top 10 in M&HCV.

In the medium term, which would be the next three years, the company targets one third of its revenue from exports.

On performance, ALL's results for the quarter ended June 2016 beat the Street's expectations across all parameters, with the performance on the margins front standing out.

While revenues, riding on a 11% increase in volumes, grew 10% year-on-year (y-o-y) to Rs 4,258 crore in the quarter, Ebitda (earnings before interest, taxes, depreciation and amortisation) margins at 11.2% were higher by 110 basis points (bps) y-o-y and about 120 bps above consensus estimates.

Increased sales, product mix, reduced material, finance and overhead costs, higher other income, profit from currency and interest rate swap are some of the key reasons for the increase in profit, said Mahadevan.

The company's debt level came down to around Rs 1,300 crore in the June quarter from Rs 3,600 crore, a year ago. Finance cost was reduced to around Rs 33 crore from Rs 70 crore. ALL's debt equity was at 0.3:1.

Overall market share rose to 31% from 30% and it came mainly from non-Southern markets, said Mahadevan.

Outlook

While refusing to share any guidance for growth, Mahadevan said the company would outpace the industry's growth as it did in the past.

ALL's domestic volume grew by about 18.5% as against the market growth of 14.5%. He expects the industry to grow at about 15-20% and industry growth was about 15% in Q1. ALL expects growth in the second half to be stronger since there is going to be a certain amount of pre-buy that is going to happen for Euro-IV vehicles, which will become mandatory from April 1, 2017. So the industry is expecting Q4 to be a very healthy quarter.