Ashok

Leyland
Industries
Annual Report 2013-2014
Financial analysis of Ashok Leyland Part 1
Rushin Mehta
MMS - B - 128

Content

Ashok Leyland Industries Annual Report 2013-2014 2

1. Industry Overview
2. Historical performance of the company (page 4)
3. Directors Report (page 5-6)
4. Annexure A to Director Report (Page 7)
5. Annexure B to directors report (Page 8-18)
6. Annexure C to directors report (Page 19)
7. Annexure D to directors report (Page 20-24)
8. Annexure E to Directors report
(Page 25)
9. Annexure F to Directors report
(Page 26)
10. Independent Auditors Report (Page 27)
11. Annexure to Independent Auditors Report (Page 28-29)

1. Industry Overview
India Commercial Vehicle Market Analysis:
Two decades ago, under then PM P V Narasimha Rao and then Finance

Ashok Leyland Industries Annual Report 2013-2014 3

Minister Dr. Manmohan singh opened Indias doors for Multinational
Automobile companies, allowing them to enter the market, thus bringing
into picture modernization of Indian transportation system and making it
beneficial for the end-users. Since then, several companies have started
and established their production units in the country, offering a wide
range of vehicles to vast Indias population. Since then the Indian
commercial vehicle market has been growing by leaps and bounds due
to economic liberalization, and the Indian economy which has gone
strength to strength backed by strong finance facilities would lead to
strong growth of Indian Automobile sector in the time to come.
Medium & Heavy Commercial vehicle (MHCV) is the fastest growth in the
automobile sector with growth around 20% expected this FY 2014-2015
with improvement in agricultural output, industrial activities and speedy
infrastructure execution.
Light Commercial Vehicles (LCV) sales is set to recover against the
background of slowdown of in previous Financial year and it is poised for
a growth of 7-9 % with increased in financial availability and
improvement in consumption.
Domestic commercial vehicle sales to decline by 13 per cent Y-o-Y in
2014-15 as light commercial vehicle (LCV) sales continue to falter. LCV
sales are expected to decline, owing to a weakness in consumption
spending (measured by GDPPFCE) and tightening of financing norms for
SFOs (small fleet operators)/first time users (FTUs). Increased credit
defaults had forced lenders to tighten advances to smaller players. In
201314, LCV sales had declined owing to the factors listed above.
Industry interactions suggest that loans extended by captive financiers
(who were the most aggressive over the past two years) have turned
sour, with the outstanding (for over 90 days) is as high as 1015 per cent.
Consequently, financiers to continue to focus on loan recollections rather
than fresh disbursals during the year.
On the other hand, sales of medium and heavy commercial vehicles are
expected to rise in 2014-15, owing to an expected improvement in GDP
and IIP growth. Resumption of stalled infrastructure projects, a recovery
in mining activities, and improvement in EXIM trade and a pickup in
replacement demand (especially from large transporters).
In the Union Budget 2014-15, Rs 2.1 trillion was allocated for
infrastructure projects, a sharp increase of 24 per cent over the
allocation in the previous budget. In 201314, MHCV sales had declined
as freight availability plummeted to a decadal low, as a result of sluggish
industrial GDP growth (mere 0.4 per cent). Bus sales are expected to
decline by 24 per cent yoy in 201415. Demand from the unorganized
sector is expected to remain muted as corporate and intercity bus
transport is expected to remain subdued. Growth will be driven by state
transport undertaking (STUs), as 35004000 bus sales (of 6,5007,000

Ashok Leyland Industries Annual Report 2013-2014 4

orders placed) under phase II of the Jawaharlal Nehru National Urban
Renewal Mission (JNNURM) scheme are likely to be booked in
201415.However, STUs are likely to postpone orders (that have been
placed outside the JNNURM II scheme), thus moderating overall demand
growth.
In 201314, bus sales had declined as a slowdown in the services sector
and a sharp hike in diesel prices and high interest rates pulled down
demand. Demand from STUs too remained subdued owing to their weak
financial position and concerns with regards to delayed payments to
OEMs.
MHCVs experienced a negative sales growth of 27%, while LCVs
experienced a negative sales growth of 18.3%, whereas Bus experienced
a negative sales growth of 14% in last financial year. This year Things
are on a positive note.

2. Historical performance of the

company (page 4)

Ashok Leyland Industries Annual Report 2013-2014 5

In this section of the annual report historical performance of Ashok
Leyland is given over the past 10 years.
Sales of Vehicles in 2004-05 were 54,740 and in 2013-2014 were
89,337 thus increasing of 63% over the last decade.
The highest increase was in the year 06-07 from 05-06 which was 34%
however the slump in sales of 34% happened in 08-09 when the world
and India were going through tough economic slowdown.
Revenue in 2004-05 was INR 4810 cr and in 2013-2014 was INR10560
cr. thus increases of 120% over the last decade.
The highest increase in revenue was in the year 10-11 from 09-10 which
was 55% however the highest decrease of revenue of 25% happened in
08-09 when the world and India were going through tough economic
slowdown.
Profit after tax in 2004-05 was INR 271 cr and in 2013-2014 was INR
29.4 cr. thus decreases of 89 % over the last decade.
The highest increase in PAT was in the year 09-10 from 08-09 which was
122% however the highest decrease of PAT of 93% happened in 13-14 i.e
the current financial year, one needs to carefully see this decrease of
Profit into the company, drop of 93% Profit after tax is alarming and it is
a wind of cautious.
Current Assets grew at 8.1% Y-o-Y during the last decade from 04-13.
Current Liabilities grew at 28% Y-o-Y during the last decade from 0413.
Basic Earnings per Share has eroded 93% from 12-13 to 13-14.
Employees are also decreases in the FY 13-14 and thus seeing overall
scenario we can say 13-14 was not a great year for the company and
PAT falling as high as 93%, company needs to look at the operations.

3. Directors Report (page 5-6)

Financial result:

Ashok Leyland Industries Annual Report 2013-2014 6

The brief financial result is given compared to the previous year and the
figures are not so encouraging one. Even the company has not declared
any dividend.
Company Performance:
The director explains the reason of slowdown and it is explained the
slowdown was overall the industry and commercial vehicles decline at
20% over previous year whereas MHCV had a steeper decline of 25.3%.
The market share of Ashok Leyland 26.1% is still maintained.
In LCV segment, a well know model of Ashok Leyland Dost suffered
declined in sales due to discounts and financial schemes by Competitors.
It also introduced couple of new models to
strive hard and gain
market share. Power Availability and financial availability affected the
demand.
MHCV export volumes didnt see any growth despite seeing a drop of
export nos in Sri-lanka.
Dividend:
The company did not declare any dividend in the F.Y. 2013-2014.
Research and Development, technology absorption and energy
conservation:
Company is continuously working on R&D aspect and it is striving to
improve Efficiency on various aspects of the automobile functions. They
have developed various types of engines and cabin an achievement in
R7D of its own sense.
Long Term Borrowings
Secured Non-Convertible Debentures:
During the F.Y. 13-14 company secured Non-Convertible Debentures of
Rs 300 cr. They also redeemed 70cr in July 2013.
Rupee Term Loan:
The company took a secured loan of 500cr from financial institutions for
tenure of 5 years.
Debentures/ Term loan were taken for general purpose, Capital
Expenditure and loan repayment.
Part II Corporate Matters
Human Resource:

Ashok Leyland Industries Annual Report 2013-2014 7

The company believes that Humans are the most important assets and
view of this they have started Chairmans award and would be given to
individual teams/ Teams who performed well. They have also started
internal leadership programme. They have started various activities on
shop floor. Improve is an initiative has made sure various crossfunctional teams participate and it has led improvement of
product/process/quality/cost thus contributing to profit. 15th edition of
IMPROVE witnessed
11,000 innovative ideas, with participation on of about 45% of
employees, leading to bottom line impact of INR 264 lakhs in one time
savings and INR 518 lakhs in recurring savings.
Corporate Governance:
The company is fully compliant with the corporate governance
guidelines.
Consolidated financial statement:
The company has disclosed the accounting policy it has followed to
make the financial statements.
Accounting standards have been followed and explained wherever
necessary
Accounting policies have been followed consistently so as to give
fair and true picture of companys financial state.
Sufficient care has been taken for the maintenance of adequate
records and preventing any irregularities.
Subsidiaries:
The subsidiaries company financial has not been included in the annual
report and will only be available on request.
Directors:
During the year two directors stepped down of the position. Director is
eligible for reappointment. Notice for the same will be given Annual
General Meeting.

Cost Auditors & Auditors:

The name of the auditors has been given who carry cost audits.
Acknowledgment:

Ashok Leyland Industries Annual Report 2013-2014 8

The director acknowledges work and corporation of all those who has
helped in the financial year.

4. Annexure A to Director Report

(Page 7)
Conservation of energy:
Manufacturing plants do efforts in saving energy. They have save 41%
from last F.Y. thus saving higher energy and money. This was done using

Ashok Leyland Industries Annual Report 2013-2014 9

awareness and implementing avenues through Mission Gemba Cost
Management and Go Green initiatives. Besides saving of energy of 41%
as mentioned about INR 4.02 cr were also saved.
Significant Initiatives:
Company made use of non-conventional source of energy i.e wind
energy & Bio gas which resulted in saving of Rs. 23cr appx., use of IEX
also resulted in saving of Rs.2.01cr. Plant power load was optimized.
Awards & Recognition:
The plants of the company were awarded with various recognitions in its
effort of saving energy.
B) TECHNOLOGY ABSORPTION
1. Specific areas in which R&D carried out by the Company
Engines & Aggregates
Company developed several engines, they developed cost effective SCR
after treatment system to meet BS-IV emission norms.
Vehicles
They launched few new variants of vehicles and also developed CNG of
model DOST its famous model. It has readiness for a type of Bus and it
developed U-truck tractor and specialized application.
2. Benefits derived as a result of R&D
The R&D is the roots of the company and better the R&D better it is for
the company. Due to R&D it could launch new types of engines with
improved performance and fuel economy. Thus new product with
improved operation efficiency and improved price performance
proposition was developed. It also filled 95 patents in 13-14.
3. Future Plan of action
Launch of Captain tractor and even export oriented vehicle named
Boss

4. Expenditure on R&D
The expenditure on R&D is INR 256 cr which is 2.43% of turnover.
Looking at the benefit of R&D and the company needs to counter
competition the amount is justified.

Ashok Leyland Industries Annual Report 2013-2014 10

5. Annexure B to directors report

(Page 8-18)
1. Philosophy on Corporate Governance
The company corporate governance philosophy is to do the business in
the right spirit and through values. The have adopted code of conduct
for board of Members.

2. Board of Directors

Ashok Leyland Industries Annual Report 2013-2014 11

Mr Vinod K. Dasari is the Managing Director of Ashok Leyland Limited
and Director on the Board of Ashok Leyland. He has work experience of
over 26 years and did MBA in 1992 from USA.
Mr. Dheeraj G. Hinduja(Chairman) holds a B.Sc. (Hons.) degree in
Economics & History from the University College, London, 1993. He
has completed his
Masters in Business Administration with
specialization in Project Management from the Imperial College, London
University, 1994
Mr. R. Seshasayee is the Non-Executive Vice Chairman of Ashok Leyland
after having been its Managing Director of Ashok Leyland for 13 years till
2011.He is the member of CII and honors in BA from university of
California.
Mr. D J Balaji Rao is an Independent Director of the Company who joined
the Board in March 2002. Mr. Balaji Rao is a member of Audit Committee,
Stakeholders Relationship Committee, Risk Management Committee and
Chairman of Nomination and Remuneration Committee.
He is mechanical engineering with work span of over 4 decades.
Mrs. Manisha Girotra is a graduate of the Delhi School of Economics.
She use the country head for India of Moelis & Company and CEO of
Mindtree before joning Ashok Leyland.
b) Attendance
Attendance of all directors at the Meetings has been given, also the
siting fees and no of shares held by the director has been disclosed.

3. Audit Committee
The Audit committee had been set up in the year 1987 and it provides
direction to audit function and monitors scope of audit. The committee
reviews quarterly/ half yearly/ annually when needed. It communicates
with external auditors.

4. Risk Management Committee

Review and recommend changes to the Enterprise Risk Management
System and / or associated frameworks, processes and practices of the
Company.

5. Nomination and Compensation Committee

This committee searches and recommends the position of Managing
director and directors. The remuneration of the directors is also decided
by this committee.
The remuneration and compensation details of Managing director are
given and sitting fees of each director for board meetings has been
given. This is according SEBI rules and regulations.

Ashok Leyland Industries Annual Report 2013-2014 12

The company doesnt have any ESOP option.

6. Shareholders/Investors Grievance Committee

This committee is formed to solve Shareholders/Investors Grievance if
any. Last year 2047 complaints/ correspondence had come and all were
dealt satisfactorily.

7. General Body Meetings

The details of the Annual General Meetings have been mentioned, since
the company is registered in Chennai, the meeting held is in Chennai.
Shareholders approval is required for remuneration of Managing
director; the approval has been taken via postal ballot.

8. Disclosures
This head is for the disclosure if any director or any person has any
conflict of interest with the company, as expected, they dont have. Also
the company doesnt have any non-compliance on any matters in capital
markets and imposed fine by SEBI. The merger of Ashley Holdings
Limited (AHL), Ashley Investments Limited (AIL) and Ashok Leyland
Project Services Limited (ALPS) with Ashley Services Limited (ASL), ASL
had become a wholly owned subsidiary of the Company with effective
date of merger being August 19, 2013 and Appointed Date being April 1,
2013.

9. Means of Communication
The company published the result in English business newspaper and in
Tamil in one newspaper. The company also updates the result on its
website regularly.

10. General shareholder information

General information about the company, annual general meeting,
financial calendar, book closure date, Stock which in which exchanges,
stock code, details of debenture Trustee, stock market data, Registrar
and Transfer agent, share Transfer system, unclaimed shares,
Distribution of shareholders pattern, Dematerialization of shares and
Liquidity, Outstanding GDR/ Warrants and Convertible Notes, Conversion
date and likely impact on the equity, Plant Locations, Address for
Correspondence has been given, so the shareholder has general
information about the company.
The things to note in the above is the stock price of high 24.60 touched
in May 2013 and low of 11.75 touched in Aug 2013.
When one analyses the share holding pattern of the company, the
promoter has highest share of 54%, followed by residents clearing
member i.e 12.30%.

Ashok Leyland Industries Annual Report 2013-2014 13

No GDR was outstanding as on March 31, 2014 thus having no impact on
equity.

Code of Conduct
The code of conduct is given on how the members of the board and
senior management shall have, the code of conduct doesnt have any
financial impact on the shareholder but the brand equity gets enhance
when one reads.

6. Annexure C to directors report

(Page 19)
This annexure is an auditors certificate on compliance with the
conditions of corporate governance under clause 49 of the listing
agreements.

Ashok Leyland Industries Annual Report 2013-2014 14

7. Annexure D to directors report

(Page 20-24)
A. Market trends
Economy India:
The director talks about world economy and Indian economy, The Indian
economy grew at 4.7% in FY 13-14, which is low compared to last 10
year trends, as there was contraception of industrial sector.
In F.Y. 14-15, world GDP is poised to grow higher of about 0.3% due to
improvement in living standards and infrastructure growth. Overall
numbers indicate that the global slowdown has bottomed out and 2014
appears to be better than 2013 for most global economies.

Ashok Leyland Industries Annual Report 2013-2014 15

It is also forecasted, Indias GDP to improve in the FY 14-15. However,
economists also point out some risks, viz. stuff pressure by RBI to keep
policy rates high, possible impact of El Nino in Agriculture sector,
uncertainty over the seeing of minimum support prices for agricultural
commodities and
Administered prices of fuel, fertilizer and electricity that could
Dampen the GDP growth rate.
However the overall picture looks brighter with change in government at
center and favorable demographics

Commercial vehicle industry:

Continued economic slowdown in India has severely affected the
domestic commercial vehicle industry. The industry is currently going
through one of its longest down cycles in recent periods. Having declined
by 2% in 2012-13; the market experienced a much sharper (20.2%) drop
in volumes in 2013-14.
Medium and Heavy Commercial Vehicles (M&HCV) were most severely
impacted, with a drop of 25% in 2013-14, on top of a 23% drop in
volumes in 2012-13. While Light Commercial Vehicles (LCV) had grown
14% in 2012-13, this segment also slowed down by 17.6% in 2013-14.
Exports of Commercial
Vehicles in 2013-14 decreased marginally by 3.7%, and stood at 77,056
vehicles.

B. Ashok Leyland The year (2013-14) in brief

The market was in decline in the year however Ashok Leyland
maintained its market share. The 27% drop in volumes is directly
attributable to the steep drop in total industry volume.
M&HCV export remained flat despite drop of Sri-lankan market of about
50%.
The company is investing heavily on M&HCV product development in
order to meet customer expectation.
Company placed significant thrust in expanding its presence across all
geographies. Network presence in North East had been nearly doubled.
Company also upgraded its dealerships to serve its customers more
efficiently and has deployed low cost service formats to expand its
presence.
In 2014, companys flagship model Dost recorded decent sales figure of
about 29,000. Also the companys JV with Nissan Motors continues to go
strong.
Power Solutions Business earned revenues of 417.8 crore in FY 2013-14,
13.6% lower than the previous year. Improved power availability, tight
liquidity, lack of clarity from Government on transition from CPCB I to

Ashok Leyland Industries Annual Report 2013-2014 16

CPCB II and slowdown in projects due to low economic activity had a
negative impact on overall demand.
Revenues from the Spare Parts Business declined 22%, due to lower
utilization of transport fleets. In 2013-14, Spare Parts Business registered
revenue of 787.7 Crore.
The Defense business was impacted by production and budget
Constraints in the government, resulting in lower sales.

C. Risk Management
This year the company faced low demands of truck due to economic
slowdown, the management has tried to mitigate the risk by enhancing
the network availability and expanding to north east in particular. Also
the management has tried to explore other than SAARC nation.
The management efforts in Working capital and CAPEX control has been
successful and the company has been able to save substantial amount
in interest cost.
In case, the demand surges, company has sufficient install capacity to
meet the demand.
Impending legislation of emission norms continues to put pressure on
improving the technology level resulting in higher investment and
product cost. To address this specific risk, Company has proactively
launched programs to develop BS IV vehicles that are required by the
current non-BS IV markets in India where BS IV is expected in the near
future.

D. Internal Control Systems and their Adequacy

The internal control systems have been set up and the policy/guidelines
are well documented, all suggestions by Audit committee have been
implemented and efforts are made to improve continuously.

E. Information Security and IPR protection initiatives

Ashok Leyland, among the first auto majors in India to be certified under
BS7799 in 2005 (for its Data Centre at Ennore), strategically decided to
expand the scope in a modular manner to critical areas, particularly
handling IPR and / or sensitive information. The company is also ISO
27001 certified.

F. Financial Review
Total sales decline 20.2 Y-O-Y, Basic Earing per share eroded 93.2%.
Revenue from various sources is listed with Vehicles being maximum,
followed by Engines and least revenue is by service.

Ashok Leyland Industries Annual Report 2013-2014 17

Costs incurred from various heads have been listed. Material cost, Staff
cost, depreciation, finance cost, capital employed are the main head
under which expenses have occurred.
There was a 2.2% decline in application of fund compared to previous
year.

Capital Expenditure and Investments

During the year, company incurred 160 Cr towards capital expenditure,
predominantly towards sustenance of existing capacity, product
development activities and improvement in post product on storage
facilities.
Current assets decreased by over 10% from previous year due decrease
in production and finished vehicle inventories. Trade receivable also
decreased 90%.

Liquidity
Company continued cash and carry model so that it manages to
enhance liquidity. Company raised US65mn unsecured loan, short term
loan of Rs 500cr & placed NCDs to the tune of INR 300 Cr.

Profitability
Companys profitability remained subdued due to lower volumes for
second consecutive F.Y. The general economic slowdown adversely
impacted the volumes.

Results of Operations
Profit after tax in 2004-05 was INR 271 cr and in 2013-2014 was INR
29.4 cr. thus decreases of 89 % over the last decade.
Cash outflow for acquisition of assets and investing activities for 2013-14
dropped by over 50%.
Loss before tax and exceptional items stood at INR 597 Cr.

Dividend
The company has not declared any dividend for the current F.Y.

The Year Ahead/Outlook

The year ahead of 2014-2015 is looking bright for Indian economy and
so for the Commercial vehicle industry. Implementation of key projects
by the government will be a top driver and will revive growth.
New product launches backed by R&D, reinforce market share in
domestic market and increase export sales.
The sales and marketing process will enable the Company to penetrate
new markets and face fierce competition actions in the years to come.

Ashok Leyland Industries Annual Report 2013-2014 18

8. Annexure E to directors report

(Page 25)
Responsibility in relation to financial statements
It is the declaration of the director that the financial reports of the
company has been prepared in conformity with generally accepted
accounting principles in India and the Accounting Standards prescribed
by the Institute of Chartered Accountants of India in a consistent manner
and supported by reasonable and prudent judgments and estimates. The
report is best to his knowledge and in fair view.

Going Concern
In the opinion of the Directors, the Company will be in a position to carry
on its existing commercial vehicles / engines business and accordingly it
is considered appropriate to prepare the financial statements on a going
concern basis.

Ashok Leyland Industries Annual Report 2013-2014 19

Maintenance of accounting records, internal controls

and Compliances
All the accounting records are documented and
companys internal responsibility of control system.

directors

have

The system of Internal Control is monitored by the Internal Audit

Function.
The Statutory Auditors, the Internal Auditors and the Audit Committee
have full and free access to all the information and records as
considered necessary to carry out their responsibilities. All the issues
raised by them have been suitably acted upon and followed up.

9. Annexure F to directors report

(Page 26)
This annexure is Certification by Managing Director and Chief Financial
Officer to the board that the financial statements are true and best of
their knowledge.
They also take responsibility for establishing and monitoring internal
control system.
They have communicated with audit team about change in internal
control system, changes in accounting policy, instances of fraud which
they were aware.
This annexure is Declaration and signed by MD & CFO on 22 nd May 14 in
Chennai.

Ashok Leyland Industries Annual Report 2013-2014 20

10. Independent Auditors Report

(Page 27)
Report on the Financial Statements
The auditors have audited the financial statements in accordance with
standard practices.

Managements
Statements

Responsibility

for

the

Financial

The Companys Management is responsible for the preparation of these

financial statements that give a true and fair view of the financial
position, financial performance and cash flows of the Company.

Auditors Responsibility
Auditors responsibility is to express opinion on these statements based
on their scrutiny and they have conducted in accordance with standards
followed.
Auditors have tried to do best of their information and according to the
explanations given to auditors, the aforesaid financial statements given
the information required by the act in the manner required and given a

Ashok Leyland Industries Annual Report 2013-2014 21

true and fair view in conformity with the accounting principles generally
accepted in India.

Report on Other Legal and Regulatory Requirements

The report is in accordance with legal and regulatory requirements.

11. Annexure to Independent

Auditors Report (Page 28-29)
1. The auditors report that in case of fixed asset, it has maintained
proper documentation and the management has physically verified.
2. In respect of inventories, the inventories have been physically verified
during the year by the Management at reasonable intervals.
The explanation
satisfactory.

given

by

the

management

in

the

above

was

3. Company has not taken any loan or given under section 301 of the
act.
4. Auditors feel that there is sufficient internal control system in placed
in the company.
5. The company doesnt have any accumulated losses during FY 13-14.
6. Company has not defaulted in any payment from financial institution
or bank, debenture holders during the year.

Ashok Leyland Industries Annual Report 2013-2014 22

7. No loans and advances have been granted by the Company on the
basis of security by way of pledge of shares, debentures and other
securities.
8. Funds raised during the year on short-term basis have, prima facie,
not been used for long-term investment.
9. During the period covered by our audit report, the Company has
created securities / charges in respect of debentures issued.
10. No fraud of material significance on or by the Company has been
noticed or reported during the year.

References
Annual report of Ashok Leyland
www.crisilresearch.com
www.moneycontrol.com
www.hdfcsecurities.com
www.ashokleyland.com