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‘Vehicle Scrappage Policy To Drive Faster Growth For Ashok Leyland’

Ashok Leyland is likely to report net profit of 19 per cent in fiscal 2018 to Rs 2,075 crore mainly due to improvement in replacement demand

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One of the largest commercial vehicle manufacturers in India Ashok Leyland is going to ride its growth story on the back of government’s vehicle scrappage policy. As per a research by Angel Broking, the scrappage policy will drive faster growth for the company.

Overall, the research expects Ashok Leyland to report net profit of 19 per cent in fiscal 2018 to Rs 2,075 crore over financial year 2017 mainly due to improvement in replacement demand.

The Indian government has introduced scrapping of commercial vehicles older than 15 years of age. The ministry is considering to incentivise fleet operators for scrapping old vehicles in the form of reduced tax rate on new vehicles.

About 11 lakh MHCVs (Medium & Heavy Commercial Vehicles) would qualify for scrappage. Ashok Leyland, being a leading player in the MHCV industry, is set to capture the additional growth opportunity going ahead.

However, delay in implementation of vehicle scrappage policy could restrict the additional sales growth for company.

Ashok Leyland has recently announced its sales performance for the month of February 2018 and financial report for third quarter of fiscal 2018 (October-December, 2017).

In February 2018, the company has overall sold 18,181 commercial vehicles, registering year-on-year growth of 29 per cent. Its MHCV sales increased 21 per cent, and LCV (Light Commercial Vehicle) sales surged 63 per cent.

For Q3, the Chennai based company’s revenues increased by 58 per cent to Rs 7,113.16 crore, export volumes improved by 46 per cent to 4,289 units, and net profit rose by 178 per cent at Rs 449.71 crore.

The company said, “The thrust to introduce new products, expand network, connect with customers and customers and deliver superior solutions should help us pursue profitable growth.”

The research report by Angel Broking said it is not just the scrappage policy that will help Ashok Leyland, but also the strong momentum in LCV business. Post GST (Goods and Services Tax) rollout, LCV demand is picking up strongly due to consolidation of warehouses (hub and spoke model). Moreover, improved rural demand coupled with boom in e-commerce will drive LCV demand.

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