Lanka Ashok Leyland’s unique model pays off

Chennai: Last year, Lanka Ashok Leyland began a unique selling proposition that was meant as much to help a growing economy as to enhance sales.

The company, a joint venture of Ashok Leyland Ltd. in Sri Lanka, volunteered to support the Government of Sri Lanka by offering 500 buses to the Sri Lanka Transport Board without upfront payment. Instead, the Board would pay Lanka Ashok Leyland out of its daily collections.

“This program has revived the sinking SLTB,” Umesh Gautam, CEO, Lanka Ashok Leyland, told Business Line. Today, SLTB’s operations are profitable and “all the daily payments are on time”.

Broadly, the Board earns Indian Rs. 9,000 a day on a non-AC bus and pays Lanka Ashok Leyland (LAL) Rs. 4,000. On air-conditioned buses, it earns Rs. 25,000 and pays LAL Rs. 15,000.

Gautam points out that six months ago, the first expressway in Sri Lanka, connecting Colombo with the South, was opened up. Only 22 air-conditioned luxury coaches were allowed to operate and all were funded by LAL.  Ashok Leyland has been present in Sri Lanka for a long time, and today holds 86 per cent market share in the passenger segment. But 2011-12 was its best year ever. The company achieved a turnover of Rs. 950 crore and made a pre-tax profit of Rs. 76 crore.

The last two years were the best period for Ashok Leyland operations in Sri Lanka and exports touched 7,000 numbers a year, Gautam said.  “Fundamentally, the business is still very strong and we are seeing a lot of demand, though the increase in our finance costs is placing downward pressure on our margins,” Gautam said.

Even as there is continued demand, customers find it difficult to finalise orders due to the devaluation of the Sri Lankan rupee by 26 per cent, increase in interest rate from 12 per cent to 22 per cent and restriction on credit facilities.  This is resulting in piling up of the inventory of vehicles for which customers have made advance deposit.

“As per our past experience, the slowdown is temporary as Sri Lanka is moving forward with major infrastructure development projects, which will definitely maintain continuity of the demand,” Gautam said.