Ashok Leyland Ltd. (AL), India’s second- biggest truckmaker, is adding small goods carriers and expanding overseas to claw back market share lost to Eicher Motors Ltd. (EIM) and Tata Motors Ltd. (TTMT)
Nissan Motor Co. (7201)’s Indian partner, which reported its smallest gain in sales in three years in the 12 months ended March 31, plans to add 25 models in the year that began April 1, Vinod Dasari, the company’s managing director said in an e- mailed response to questions. The company last year began selling the small carrier Dost, which means friend in Hindi.
“We have a three-month waiting period,” for the Dost, said Dasari. “By entering the light-commercial vehicle market with Nissan, we have filled a very critical gap in our product range.”
Ashok Leyland, set up in 1948 to assemble Austin Motor Co.’s A40 cars, is betting more products in India’s fastest growing automotive category will help it regain lost market share. Partnering with Japan’s second-biggest automaker will help the Chennai-based company accelerate development of cargo vehicles of maximum weight of 7.5 tons after lagging behind Tata Motors and Mahindra & Mahindra Ltd. (MM) in entering the market.
“Light-commercial vehicles will be the growth driver in the commercial vehicle space,” said Abhishek Banerjee, an analyst at Asian Markets Securities Pvt. in Mumbai. “Had Ashok Leyland not come up with the Dost, it would have been in a tough spot.” He has a sell recommendation on the stock.
Ashok Leyland, which has hired Mahendra Singh Dhoni, captain of India’s cricket team, to endorse its products, has risen 9 percent this year, lagging behind a 38 percent gain in Tata Motors. Ashok Leyland rose 0.4 percent to 24.95 rupees at the close in Mumbai.
India’s light-commercial goods carrier segment grew 30 percent in the year ended March 31, led by Tata Motors’ Ace. Ashok Leyland sold 7,593 units of its 2.5-ton Dost vehicle in the period, after starting sales last year, while Mahindra sold 127,029 units including its Maxximo and Genio models.
Nissan and Ashok Leyland’s equal venture plans to spend 11.5 billion rupees ($203 million) to introduce three small trucks, the first of which was the Dost, in India to tap demand for smaller vehicles used for deliveries within cities and for rural transportation, Andy Palmer, Nissan’s senior vice president said in March 2011. The venture will have a capacity to produce 150,000 vehicles a year by March 2014, Palmer said.
Light goods carriers have become popular as a second year of record food grain harvest and unprecedented government prices for crops boosts rural income and demand. India raised the minimum price of paddy by 16 percent to a record 1,250 rupees per 100 kilograms for the 2012-2013 crop season.
“LCVs have replaced 3-wheelers and pickup trucks for the last mile connectivity,” said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India Ltd. in Mumbai. “It’s much more economical to use an LCV over a pickup as the fuel economy is better.”
Competition is increasing for Ashok Leyland in its main business as overseas rivals lured by rising demand build local factories. Sales of medium and heavy trucks are forecast to almost double to 500,000 vehicles by 2020 from 270,000 last year, according to IHS Automotive.
Deliveries of the company’s heavy and medium trucks declined 3.5 percent to 60,480 units in the year ended March 31, compared with the industrywide increase of 8.8 percent, a trade group’s data show. The company has seven truck and bus factories in India and sells through more than 400 outlets.
Daimler, the world’s biggest truckmaker, this year opened a factory to build carriers ranging from six tons to 49 tons in India. Daimler will unveil 17 models by 2014, and the factory will be able to initially produce 36,000 trucks a year, Daimler said in April.
Mahindra partnered Navistar International Corp. (NAV:US) in 2005 to build trucks, while Volvo AB, the world’s No. 2 truck maker, invested $275 million in a venture with Eicher to make vehicles in India in 2008.
Tata Motors, the owner of Jaguar Land Rover, controls 62 percent of the large and medium truck market, according to data from the Society of Indian Automobile Manufacturers. Ashok Leyland’s share dropped to 20 percent in the year to March 31, compared with 23 percent in the year-ago period. Eicher’s share rose 1 percentage point to 11 percent, data show.
“The times are tough for Ashok Leyland,” said Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai. “For the last one year, the Indian commercial vehicles market has been under pressure.”
Among the 25 products planned for this year include Ashok Leyland’s first front-engine, flat bus and a 37-ton truck both described as “game changing products,” by Dasari.
The company also plans to export trucks to South America, Southeast Asia and west Africa to boost revenue, Dasari said. Sales overseas contributed about 11 percent of total in the year ended March 31.
“We believe that with the light commercial vehicles and growth in exports, Ashok Leyland will be able to grow market share,” said Sabarad of Fortune Equity, who advises buying the shares. “A set of new products and better marketing spend will help them.”
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