MUMBAI – Nissan Motor Co Ltd.’s recent preliminary partnership agreement with local medium- and heavy-commercial vehicle maker Ashok Leyland Ltd. points out the direction the two truck makers are headed with their upcoming cross-branded light commercial vehicles made in India.
The first step is a 2-month feasibility study on technology and products and a strategy for working together. The partners then will sign a memorandum of understanding and finally will form three joint ventures.
The preliminary deal gives Nissan access to Ashok Leyland’s Indian dealer network and manufacturing efficiencies. In turn, the Indian truck maker will have access to Nissan’s technology, LCV expertise and emerging markets’ network.
Ashok Leyland, which does not have any LCV products that compete with Nissan, only has a nominal presence in the 225,000-unit-strong Indian market.
However, the Indian truck maker does hold a hefty 28.2% share of the 294,000-unit medium- and heavy-vehicle segment. In the fiscal year ended March 31, sales jumped 28.3% to 83,124 vehicles and revenues increased 27.9% to Rs71.68 billion ($1.79 billion).
Ashok Leyland has improved both margins and performance at all six of its manufacturing plants, currently using 98% of its total 84,000-unit capacity and increasing that to 100,000 units annually by the end of the year.
The Indian truck maker also has joint tie-ups in Sri Lanka, Bangladesh, Czech Republic and the United Arab Emirates. In all, Ashok Leyland exports to more than 20 countries.
Nissan has the credentials to plug the gaps in Ashok Leyland’s market standing, as well as an opportunity to participate in India’s LCV market that has experienced a 12.5% compound annual growth rate over last five years, analysts here say.
Ashok Leyland is the flagship of the Hinduja Group, whose president, Gopichand Hinduja, says in a statement the partnership with Nissan seeks “to fulfill…aspirations by leveraging mutual strengths.”
The deal will bring together “Nissan’s tradition of engineering excellence with AL’s intimate knowledge of the market and cost-efficient value addition,” Ashok Leyland Chairman Dhiraj Hinduja adds.
All three JVs will be located in India and are expected to launch by 2009. Ownership will be related to the capabilities of the parties, the companies say.
The vehicle-production venture will give exclusive rights for LCV products to both the partners, although Ashok Leyland will have the majority holding. Initial capacity will be 100,000 units annually.
The powertrain JV, which will manufacture and assemble engines and drivetrains, will be majority-owned by Nissan.
The technology-development venture will be equally owned by the partners and will develop products and powertrains for the Indian and emerging markets.
Nissan already has a presence in India. The Renault Nissan Alliance in the last two years has formed passenger-car JVs in India with Mahindra & Mahindra Ltd. and Maruti Udyog Ltd. to enhance its global presence.
“Our LCV business and overall expansion into India represent two of (our) biggest growth opportunities,” Alliance Chairman and CEO Carlos Ghosn says in a statement.
“By fiscal 2007, we plan to have an operating margin of 8% and a 40% in volume to 434,000 (light commercial vehicle) units. That will bring us into the top rank of LCV producers and to the top in profitability.”
