Ashok Leyland has launched a cost-reduction programme targeting savings of around ₹2,000 crore over the next 18-24 months, as rising commodity prices put pressure on the commercial vehicle maker's margins.
The Chennai-based automaker has formed a separate team for the programme, with a large part of the effort focused on material costs. The initiative comes on top of Ashok Leyland's existing cost-saving measures, which management said have yielded around ₹500-600 crore of savings annually over the past few years.
“Primarily on the material cost side, we have set up a separate team with a separate mission of targeting to reduce the cost of about 2,000 crores in the next 18 to 24 months,” K. M. Balaji, CFO of Ashok Leyland said during the company's Q1 FY27 media interaction.
The push comes as Ashok Leyland's profitability faces pressure from higher input costs. While its standalone revenue grew more than 10% in the June quarter, EBITDA remained flat at ₹970 crore and the EBITDA margin contracted by 100 basis points to 10.1% from 11.1% a year earlier. Ashok Leyland attributed the decline to rising material costs.
The company is also using price increases to recover some of the inflation. It has taken two price hikes so far in FY27, one at the start of the first quarter and another recently in the second quarter, translating into a cumulative increase of around 2-2.25%.
Ashok Leyland could take another price increase or reduce discounts if commodity costs remain elevated, said Shenu Agarwal, Managing Director and CEO, Ashok Leyland.
The cost programme will not be limited to negotiating lower prices with suppliers. Ashok Leyland said it is looking again at its material costs, removing waste and using value engineering. The company is also examining features that can increase the value of a vehicle and allow customers to pay more for the product.
Ashok Leyland MD and CEO Shenu Agarwal said rising material costs remain a concern and the company is working on better price realisation, cost savings and improvements in product and business mix.
India's automotive industry has been dealing with a sharp rise in raw material costs following the escalation of the conflict in West Asia earlier this year.
The conflict pushed up oil and gas prices and increased the cost of metals such as aluminium, copper and steel used extensively in vehicle manufacturing. Aluminium has been particularly volatile. Benchmark aluminium on the London Metal Exchange touched $3,707.50 a tonne in June, its highest level in more than four years, as supply risks in the Middle East intensified. India's aluminium scrap prices had also jumped nearly 30% since the Iran conflict began, as disruptions hit supplies from the region.
Ashok Leyland Q1 Standalone Performance
On a standalone basis, Ashok Leyland reported its highest-ever first-quarter revenue and net profit in Q1 FY27, although expenses grew faster than revenue and margins narrowed.
In the quarter ended June, the company’s Revenue from operations rose 10.4% year-on-year to ₹9,634.35 crore, from ₹8,724.51 crore in Q1 FY26. However, its total expenses increased 11.4% to ₹8,889.27 crore, compared with ₹7,979.63 crore a year earlier. Cost of materials and services consumed increased to ₹6,920.64 crore from ₹6,386.63 crore, while employee expenses rose to ₹692.71 crore from ₹612.19 crore. Other expenses increased to ₹1,079.72 crore from ₹979.94 crore.
During the quarter, the commercial vehicle maker’s standalone net profit increased 2.6% to ₹609.11 crore from ₹593.73 crore in the corresponding quarter last year.
The company’s EBITDA margin contracted to 10.1% from 11.1% in Q1 FY26, a decline of around 100 basis points. Despite the margin compression, Q1 marked Ashok Leyland's 14th consecutive quarter of double-digit EBITDA margin, according to Chairman Dheeraj Hinduja.
The company's operating performance was supported by higher domestic volumes. Commercial vehicle volumes rose 10% year-on-year to 48,763 units. Domestic MHCV truck volumes increased around 15%, while LCV domestic volumes reached a record first-quarter level of 18,874 units.
International operations, however, were affected by the West Asia crisis. Ashok Leyland's international CV volumes declined to 2,461 units from 3,011 units, although growth in SAARC and Africa partly offset the decline in the Middle East. Management said momentum had started improving from June and expects a recovery in the Middle East during the rest of FY27.