Ashok Leyland offers VRS to senior officials to cut costs

Written by fe Bureau | Chennai | Updated: Nov 9 2013, 10:48am hrs
Hit hard by a 21% decline in growth in the seven-month period from April to October, Ashok Leyland on Friday announced a voluntary retirement scheme in a move aimed at cutting down costs.

The first two quarters of the fiscal saw the company posting losses R142 crore in Q1 and R25 crore in Q2. The company has already decided to sell its non-core assets as well as investments in other areas to bring down its huge debt.

The company hopes to bring down its debt by R1,000 crore during the fiscal, Ashok Leyland MD Vinod K Dasari said. This could be achieved by selling land and non-crore assets.

In response to a FE query, Dasari said, The VRS scheme is open only for senior management executives and we have to wait and see for the response from our staff.

We are targeting a reduction of R1,000 crore in our debt levels by the end of the current fiscal. We are working towards reducing working capital, improving operating efficiencies and divesting some of our non-core investments, he said.

Though Dasari declined to comment on the overall debt, market sources put it at around R5,500 crore.

Conceived as a response to the continuing slowdown, the scheme aims to reduce manpower costs and align fixed costs to reduced activity levels. To offset the losses in the first two quarters, the company is seriously considering increasing prices of products during the month and may go for one more hike in the new year, he said.

While the company maintained market share in the last quarter, volume pressures continue and we need to take some definite steps to manage the slowdown. The VRS package would provide adequate compensation to any employee who opts for it, Dasari added.

Though we believe that there will be some improvement in the fourth quarter, we do not expect any significant change. As an opportunity the company has decided to use this to restructure and will remain focused on core areas and create better value for customers through new products, improving operating efficiency and divesting some of the non-core investments, he said.

Our recent sale of Defiance Testing & Engineering Services to a US company is part of our cost cutting exercise, he added. The company made R48 crore out of the sale. The market continues to contract, with the total industry volume for medium and heavy CVs down by 25% domestically. Part of the discounts will be offset by price increase of trucks, which the company has done on two occasions.

Yaresh Kothari, an analyst with Angel Broking, said: It is inevitable for the company to cut costs at all levels. Given the current situation in the truck industry and the high discounts the industry offers to customers, it is imperative for company like Ashok Leyland to bring down its total debt by cutting costs across all levels. Even next quarter too will be a challenging one and one may not surprise the company again report a loss. It is believed that Q4 would be better and the company may return to profits.