Why temporary closure of Ashok Leyland's Uttarakhand unit is not just another plant shutdown

Ashok Leyland share price slipped in early trade today after the firm announced it would shut its Pantnagar plant for nine days. Ashok Leyland share price fell up to 3.98% to 82.10 compared to the previous close of 85.50 on BSE.  Ashok Leyland share price   has lost 33.96%  during the last one year and fallen 19.02% since the beginning  of this year. The large cap stock logged a market capitalisation of Rs 24,423 crore on BSE.

18 of 41 brokerages rate the stock "buy" or 'outperform', 12 "hold", three "underperform" and eight sell, according to analysts' recommendations tracked by Reuters.

Ashok Leyland share price was trading below its 50-day and 200-day moving averages of 87.93 and 88.66 levels, respectively.

This is not yet another plant shutdown by an auto company. Ashok Leyland said the company's plant situated at Pantnagar will remain closed from July 16, 2019 to July 24,2019 (both days inclusive), owing to weak demand and outlook for the industry.

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Companies such as Tata Motors, Mahindra and Maruti Suzuki have already announced their plant shut down schedules between May and June.

The commercial vehicles sector has been demand falling for the past several months. Since the second half of FY19, sales have been falling and continuing in the current year as well. Production and consumption are becoming slow as well as the execution of the infrastructure projects.

Moreover, due to the poor cargo availability and deteriorating freight rates, fleet operators have been delaying purchases. NBFCs are going through liquidity constraints, which have also affected vehicle financing as half of the new truck sales are funded by them.

Commercial vehicle sales fell 12 per cent in June at 70,771 units. Medium and heavy duty trucks reached 21,512 units after a 19 per cent decline. For the first quarter of the current fiscal year, overall CV volume came to 2.08 lakh units, another 10 per cent decline. Medium and heavy CV segment depreciated to 64,000 units after a 19 per cent decrease.

With another steep double digit decline in sales in June this year, sale of cars, SUVs, MUVs and vans in India have now declined for eight straight months in a run that stretches as far back as October last year. Worse, sales have now declined in 11 of the last 12 months.

Market leader Maruti Suzuki that accounts for one of every two passenger vehicles sold in the country posted a 17.2 per cent dip in its tally in June at 111,014 units. The decline at 19.1 per cent was the steepest in its ubiquitous small car segment that includes bestsellers like the Alto, Wagon R, Swift, Dzire, Baleno and Celerio.

Edited by Aseem Thapliyal