>Ashok Leyland (ICICI Securities)

ASHOK LEYLAND

Recovery path still hazy

* Spate of new product launches include: i) cost effective & fuel efficient 40.19 and 25.16 vehicles iii) Neptune engine (being co-developed with Avia) to be introduced in April ’10 (Euro IV-compliant; can be scaled-up to meet Euro V norms). Neptune would be at least 20% more fuel-efficient vis-à-vis existing engine iv) modular platform for cabs (mid ’10) v) Unitruck (mid ’10), similar to Tata Motors’ world truck.

* Cost reduction initiatives. ALL is aggressively focusing on cost reduction on all fronts: i) Has realised 25-30% reduction in raw material in Q4FY09, with FY10 likely to witness full benefit of commodities softening; ii) Salary cut via reduction of 2,000 casual workers, working days from six days per week to three and executive salaries, thereby leading to 20% lower salary bill in FY09; iii) Reducing admin costs. However, discounts are substantially high and could, thereby, impact profitability in the short term. Post inventory correction, ALL would discontinue the discounts.

* Cash conservation – Reduction in capex and WC. ALL has scaled-back its capex plans to Rs28.5bn from Rs42bn over FY09-12E. Capex is expected to be Rs8.5bn in FY09 (versus Rs10bn earlier) and Rs20bn over the next three years (versus Rs32bn earlier). ALL plans reducing Rs6bn from WC in Q4FY09 to payoff short-term debt and reduce interest costs.

To see full report: Ashok Leyland