Course correction at Ashok Leyland

The CV player has sold non-core assets and cut costs even as it has launched new trucks…

SLOWING economic growth over the last few years has impacted the fortunes of commercial vehicle (CV) manufacturers, forcing them to re-think their strategy. One such CV maker, Ashok Leyland, has used its experience of recent challenges to insulate itself against similar headwinds in the future, even as it strives to pare debt.

While monetisation of non-core assets is a big part of Ashok Leyland’s plans to repay debt, the flagship firm of the Hinduja Group has also taken key business decisions to revive its sales and earnings. Some of these measures have included new product launches and doing away with discounts, increasing focus on exports and the defence business, and improving operational efficiency.

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The Chennai-based manufacturer of trucks and buses has sold non-core assets and cut working capital needs  to pare its net debt to Rs 4,200 crore as on September 30, down from a peak of Rs 6,600 crore in August 2013. Some of the cost cutting measures included reducing manpower and inventory levels.

Its debt to equity ratio has improved to 1.1 from a high of 2.2 in FY14, and it is looking at a further debt reduction of around Rs 400 crore by the end of FY15.

Some of the assets Ashok Leyland has put on the block include its international business, Albonair GmbH,  along with the German firm’s India unit, and Avia Ashok Leyland Motors, the Czech manufacturer of trucks it had acquired in 2006. It has already appointed a merchant banker to carry out the sales of these businesses and hopes to conclude these transactions by the end of the current fiscal. In November, Ashok Leyland announced the sale of its 38% stake in IT arm Hinduja Tech to Nissan International Holdings, an investment arm of Japanese carmaker Nissan, for an undisclosed sum. It also sold immovable assets and some long-term investments to garner around R600 crore.

“Today, Ashok Leyland has a much lower breakeven point than it did in the past. It can make profits even if sales are lower,” Vinod K Dasari, Ashok Leyland’s managing director, told FE. “With the initiatives taken over the last one-and-a-half years, the company is ready to exploit opportunities when the market revives, and yet remain healthy if the market turns more volatile.”

Dasari says that the company’s  leaner production model has led to Rs 750 croresavings in working capital needs.

Despite the turbulence in the CV market, it has launched new trucks such as Boss, Captain and Partner with different tonnage capacities. It also launched new trailers and tippers in the medium and heavy duty segments, and two new buses called MiTR and Janbus. But there are worries, especially for light commercial vehicles (LCV) such as Dost and the construction equipment areas, along with a couple of its passenger vehicles—Stile and Evalia—made in collaboration with Nissan. “We need to work out our strategy in these areas,” said Dasari.

Still, a revival in the medium and heavy vehicles segment, coupled with the number of offerings at different tonnage levels, has helped Ashok Leyland return to profitability in the July-September quarter.

Total sales grew 27% and it managed to improve its Ebitda (earnings before interest, tax, depreciation and amortisation) margin from 4.7% in the April-June period to 7.28% in the September quarter.

Dasari said that Ashok Leyland had also grown its market share at the end of the September quarter to 27.1%, as compared to the 25% share year earlier, due to “a wider sales network and better coverage across the country”. “While the industry grew at 8.5% in the July-September period, we grew at 10.5%,” Dasari said.

By R Ravichandran

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