Key to growth is opening up of the economy: Gopal Mahadevan

Key to growth is opening up of the economy: Gopal Mahadevan

Q1 and Q2 were washed out but in Q3 and especially Q4, the total industry volume grew quite phenomenally and that is how we were able to grow as much, says Gopal Mahadevan, CFO, Ashok Leyland during an interview with ET Now. Edited excerpts:

What are the projections for FY22? How will you work towards regaining some of the lost market shares?
As far as FY22 growth is concerned, a lot is going to depend on the opening up of the lockdown. We are encouraged by what the government has been doing now and hopefully, this opening up will continue. If that happens, we will see the demand coming up and this is exactly what happened last year as well. If you notice Q1 and Q2 were pretty much washed out but you could see that in Q3 and especially Q4, the total industry volume grew quite phenomenally and that is how we were able to grow as much.

We continue to grow our share, which was extremely low in Q1 because the lockdown was unfavourable and we are located down south but then we quickly caught up in Q3 and Q4. For us, if the lockdown were to ease out methodically we should see quite a bit of growth in the second half so we are positive about it. Even the revised growth rate has been forecasted at 9.5%. I think it should augur well for the industry because the whole economy has been pretty much button-down for quite a while and we should see the manufacturing sectors also opening up.

As far as our plans for the current year or the future is concerned we will continue to ensure that we have the new products that we launched last year which is AVTR and Bada Dost. They have been very well received by the customer community. They have found that AVTR has got a best in class fuel efficiency or fluid efficiency as we call it and Bada Dost has been recognised as the commercial vehicle of the year.

We will continue to monitor our cost, this is something that we have been doing over the last five to six years and we will continue to do that. Digital is another very large initiative that the company has taken so this is not just for this self or speak, but we are seeing how to use digital in every aspect of the business not only to build productivity but also to reach out to customers more efficiently.

Are these margins sustainable? Do you see yourself catching up to those numbers soon?
We have grown our revenues, market share, margins and kept our capital employed including our working capital intact all at the same time. We are not going to change the tone and tenor of that performance. I think a lot of this margin also depends first off on all your location, the second one is also on the mix of the products that we sell. As we move forward you are going to see that LCV is becoming a very important portfolio and LCV margins are definitely above the mean and we are looking at further growth in this business. This is not to say that MHCV is not important, MHCV is a very crucial segment for us, it is the one that has actually accounted for nearly 65% of the revenues for the company and we would be happy to see getting into that level as we move forward once the economy starts to open up.

The focus is not just on pure margins for the sake of cost or just increasing prices, it is about productivity – how do we do the same thing more efficiently at a lesser cost but with much more reach to the customer. While it may sound very wholesome, our aspiration and our goal are to be in the global top 10 in commercial vehicle manufacturers so we will do everything that it takes to reach there including investing further into exports, growing the other businesses that have done exceedingly well.

The compliments to the team if you look at it our aftermarket has been doing record numbers so has our past solutions business and of course our defence business also. Our idea is two or three-pronged – one is to keep getting the reach of the existing businesses, keep introducing products and also grow the non-MHCV business and step up their revenues as well.

How is your product pipeline looking like going forward? What are the new launches which are lined up?
The big launches have happened last year which is the AVTR range of products which was not only for the BS-VI but also the modular trucks that we are building, we possibly are the fully modular manufacturer in India for commercial vehicles and then the second one was Bada Dost which was into a new segment by itself so these are two very large launches but what we have been doing over the past, if you look at it from 2013 onwards or even earlier, has been that we do not make this huge launches of particular ranges. What we do is we launch variants that will fell to fill in slots in the products so we will continue to do that, we will keep tweaking with the tonnage, we will keep tweaking with the talk of the vehicle, the application we call it as hub application and segment. So we will continue to keep doing that because as customer needs changes, we also need to ensure that products are launched for those making those changes and those variants will keep, what we will continue to do and we believe that with these two products which are there in LCV which is Dost and now Bada Dost, I think a share of the customer will start to grow significantly as we plan to reach out to the rest of India’s wealth.

Today possibly the advantage and disadvantage of LCV are that we are more south focussed, the opportunity lies there, as we actually go on a PAN India basis we actually will see much significantly higher volumes coming out of it and that is also the plan and of course, the third one is international. International is going to be crucial, where we are today, we are well-positioned, much better positioned than we have been maybe five years ago because we have the right type of products and the range both LHD and RHD and that should help us to scale up international as well once the international markets open but the key to all of this, the key to margins, the key to growth is going to be the opening up of the economy. If we actually start growing revenues the team is very confident that the operating leverage will kick in and the margins will improve.

How the price trajectory and raw material cost pressure trajectory is going to pan out in the near term?
Our expectation and hope are that the steel price hikes will start to cool off in the second half of the year. Hopefully, if that happens that will ease the pressure on commodity cost on commercial vehicles. If cost increase we will have no other choice but at the same time let me assure you that we would not be kind of defocus on growth and market share, what we would focus on is to grow, continue to grow, and try to grow the share of the business even as we try to grow it profitably so this should be the mantra of Leyland as we move forward and see one way to look at it today is prices.

The second one is to take out the unwanted cost in the product or in the operations that is another way you keep neutralising inflation. So we are working on both sides to ensure that we are able to improve the margins as well.

What is going to be the growth strategy when it comes to the export markets? Which are the markets that are going to be on the company’s focus list? Do you think we can expect to see more launches happening?
We will continue to launch products in the export markets. As the export market start to improve in the terms of opening up we are well-positioned to capture it whether it is in the middle east or in Africa or in other parts of the world including Sri Lanka, Bangladesh, Nepal. These are very important countries for us and as I mentioned earlier, I think we have the right products today to address these markets, what we are also working on is actually deepening and widening the network so we are ensuring that we have the necessary reach in these markets to roll out the products so you will hear more about us on the exports front as we move into the year.

What about the capex as well as your investment outlook for FY22?
We have been pretty tight on the capex. Last year itself it was hardly about 620 or 630 crore. This year again what we have shared with others that we possibly would invest about 750 crores in capex, we will tell you the numbers as we come to the end of the year. Predominantly it is going to be on debottlenecking of certain facilities, some additional investments in LCV to actually ramp up the volumes, some investments into safety and productivity and it is a pretty large company so it has spread across several plants so we need to ensure that these plants stay productive and we would need to do some residual capex also in the AVTR range. We will continue to do that but we are continuing to hem in the capex very tightly, monitoring it very closely and we will share the numbers with you at the end of the year but at the moment it looks like about 750 crores.

Read more on News source- Economic Times

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