Lanka Ashok Leyland, following last week’s budgetary allocations to different Ministries by the Treasury, believes the liquidity in the market will improve prompting vehicle sales, officials said. “As an example, this year’s budget has allocated Rs 1,000 million to the Ministry of Transport for their capital expenditure. This will prompt them to kick-start their activities. [...]

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Lanka Ashok Leyland expects sales boost with improved liquidity

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Lanka Ashok Leyland, following last week’s budgetary allocations to different Ministries by the Treasury, believes the liquidity in the market will improve prompting vehicle sales, officials said.

“As an example, this year’s budget has allocated Rs 1,000 million to the Ministry of Transport for their capital expenditure. This will prompt them to kick-start their activities. This will be the case with other entities as well, which in turn will boost the economic climate, easing the high interest rates scenario that we are witnessing now. In that context we feel that the conditions for vehicle sales will pick up,” Umesh Gautam, CEO, Lanka Ashok Leyland told the Business Times.

The company posted a net profit for the first six months of this year (ending 30th September 2012) with Rs 473.9 million, down 49 per cent over the corresponding period in 2011/2012. This is despite total revenue remaining at Rs 7 billion for the same period similar to the previous corresponding period. “The main proponents to the sluggish performance are the severe cost pressures stemming from large foreign exchange losses and finance costs. The currency depreciation earlier this year and the high interest rates at present continue to adversely affect the bottom line going into the third quarter of the fiscal year,” Mr Gautam said.

In a company statement, he has said that Lanka Ashok Leyland had forecasted things getting worse before they began to improve at the start of our fiscal year, adding that “so as much as it is not surprising, we can’t avail ourselves of the magnitude of our economic position.” He has further said that the demand for their product has and continues to be strong. “That position has not changed, however what has affected is the high interest rates and the general dearth in liquidity in the market that has become a stumbling block for customers. With regard to the exchange rate, we are still taking on losses despite the currency losing some of the volatility that plagued it earlier in the year. There is a limit to how frequently price can be revised of our product to reflect currency fluctuations. Combine this with the fact that funding has become harder and costlier for our customers and most of them have had to wait to receive their products; it would not have been fair on them. Despite further exchange rate losses, this will be mitigated over time if the currency finds a sustainable equilibrium to the dollar.”

Mr. Gautam has noted that he’s very confident and maintains that their finance cost is a matter of temporary concern that they foresaw earlier. “And we will be able retire our short term borrowings at an accelerated pace once availability of money in the economy improves and interest rates start to drop. As demand or our product continues to be strong and we have further improve our market share in depressed market conditions, however we are not immune to the economic cycle and our performance reflects that fact.”

Operating profit was down 42 per cent to Rs 546 million from Rs 942.9 million for the same period in 2011.




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