Ashok Leyland plans Rs 4,000 cr expansion

Hinduja Group firm heavy commercial vehicle maker Ashok Leyland has drawn up a Rs 4,000 crore (Rs 40 billion) capital expenditure plan for building capacity, developing products and upgrading technology, a top official said.

"Our capex for capacity build-up planned at Rs 4,000 crore over three years includes product development and technology upgradation," Ashok Leyland managing director R Seshasayee told analysts at a meet.

"The company plans to spend around Rs 1,000 crore (Rs 10 billion) in 2007-08, of which we have already spent 35 per cent in first half of this fiscal. The balance will be spent equally over the next two years," Seshasayee said.

The company's capacity as at FY07 stood at 84,000 vehicles per annum. By June 2008, the Ennore facility will add 50,000 vehicles per annum and by September 2009, its Uttarakhand facility is also expected to add 50,000 vehicles per annum. This will take the company's total capacity to 1,84,000 units a year over the next three years, he said.

"The Uttarakhand facility will commence Phase I by H2 of FY09 and full 50,000 vehicles per annum capacity production by March FY10. The fiscal incentives will repay the cost of the project over 4 years," Ashok Leyland's CFO K Sridharan said.

Despite the slowdown in automobile industry, Ashok Leyland managed to retain its volumes and was also proceeding with its capex and product upgradation plans in anticipation of market recovery, Sridharan said.
Ashok Leyland is targeting to sell around 90,000 units in 2007-08, including 53,000 units in the second half of this fiscal. In the domestic market, the order book of the state transport unit is comfortable.

The private passenger TIV registered a 20 per cent growth in H1 and the trend is expected to continue over the remaining quarters. In the export market, the volume is expected to grow by 40 per cent in FY08 due to enhanced delivery capabilities.

"We have identified thrust markets in ASEAN and African countries, using a mix of European and Indian design. With the availability of factory-fitted cabins and high power/weight ratio product offerings, export volumes are expected to double in three years time," Sridharan said.

Commenting on the prospect for shareholder value enhancements, Seshasayee said debt infusion would be made to maximise financial leverage.

"The strategic investments made in Ennore Foundries (EFL) is expected to appreciate in value and existing shareholders of the company would be participating in many of the new ventures," Seshasayee stated.