Light commecial vechiles (LCV) business is highly profitable for Ashok Leyland and is growing very well, says its chief financial officer Gopal Mahadevan in an interview with Swati Khandelwal. Also, the company will be launching a new product under project Phoenix by 2020.

The results for the March quarter represent the merger of three subsidiaries. Update us on the performance.

I think the merger has been very good. LCV business was merged as it turned operationally efficient for us. It is highly profitable today and is growing very well, and has a market share of about 18%. We are also investing a lot in it and will be launching a new product under the project name 'Phoenix'. The project will be launched in 2020, where our vehicles will weigh in the bracket of 5 to 7.5 tonnes. It will help us gain volumes and market share. Overall, I think that the medium and heavy commercial vehicle (MHCV) industry has grown 15% in the last year. But we have seen some amount of de-growth in Q3 and Q4, which was expected because that was a base effect of the Q3 and Q4 of the financial year 2017-18, which was significantly high. And, we also had axle norms. As we move forward, we are expecting a much stable environment due to the presence of a good atmosphere for demand revival. I expect that Q2 and Q3 are going to see some good demand and then we will have a smooth transition to BS-VI.

Tell us about the impact of the raw material cost on margins and provide an outlook?

I think that the raw material cost in 2018-19 was pretty high, especially in the case of steel. The prices were growing month on month despite the full year impact. We also had a challenge in terms of the pricing because discounting is prevalent in this industry. So, the twin issues of lower pricing and high input prices put pressure on operating margins but we were able to take cost out of the system. It helped us maintain a margin for the full year at 11.1%.

Update us on the current demand scenario in the CV segment. Do you expect any near-term defence orders from the government?

I hope the orders are good. More importantly, we have won a lot of tenders and Ashok Leyland has assured its capabilities in supplying defence orders. The number of tenders and orders that we have won are quite significant. What we want now is that these tenders convert into orders and hopefully, that will happen in the next couple of years and the Ministry of Defence will start placing orders. As far as other aspects are concerned, we would want the government to step up infrastructure spending and are expecting that road construction will also continue, and it will have a positive impact on sectors like cement and steel. Possibly, real estate will start growing, if all this happens. If the core sectors start growing, then it is going to be very important for the commercial vehicle industry to grow.

What's your capex guidance for this fiscal?

I think we can have about Rs 1,000-1,500 crore of capex coming in because it is necessary as we have an electric vehicle, BS-VI and modular vehicle programme in our kitty. Then we have a normal capex that has to come because we have to augment capacity as well. Plus, we have some investments in some of the subsidiaries. So we expect the number to be about anywhere between Rs 1,000 crore and Rs 1,500 crore.