Ashok Leyland, the countrys second-largest maker of buses and trucks, saw unprecedented margin boost last quarter, despite commodity price hikes and other factors impacting overall costs.

Quite unlike the situation in passenger car industry, robust volume growth coupled with shifting some manufacturing to tax havens and a judicious reduction in interest costs led operating margins for Ashok Leyland to 10% level in the first quarter of this fiscal.

And CFO K Sridharan is hopeful that this number will be further improved in the coming quarters. In an analyst conference call, he said, We managed to contain cost increases in the first quarter substantially despite rising stock costs and wage costs...(going forward) we should be able to improve the 10% operating margin figure.

He said the company was eyeing total vehicle sales of 89,000 units this fiscal against earlier forecast of 85,000 and with a bit of luck we could even touch the 90,000 mark. This includes 1,000 light commercial vehicles (LCVs) and about 8,000 units of exports. The company sold 63,926 vehicles last fiscal.

Despite a significant increase in material costs, overall costs for Ashok Leyland increased only 3-4%. But now that the company has already effected its second price increase - of Rs 23,500 per vehicle in June - the pressure on bottomline should abate further as this positive impact is factored in.

Sridharan said that the capital expenditure of Rs 12,000 crore earmarked for the next 2 years would be spent on manufacturing the new range of Neptune engines, next generation cabs and on the joint venture with Nissan Motor Co for LCVs. Ashok Leyland also plans to raise Rs 400-600 crore this fiscal to increase the capacity at its Pantnagar factory in Uttarakhand.

Admitting that the ramp-up at Pantnagar has not happened according to plan, Sridharan said, We produced only 800 vehicles in Pantnagar during the first quarter. But our target remains intact and we intend to produce 1,700-1,800 more vehicles in the remaining nine months of this fiscal.

He said the cash incentive per vehicle being made at Pantnagar came to Rs 35,000. In reply to a separate question, he said that cost disadvantage of Rs 5,000-7,000 per vehicle was being borne by the company in transporting vehicles made in other factories (located in South India, not from Pantnagar) to northern markets. The Pantnagar factory will reach its peak output of 4,000 vehicles per month by March.