Ashok Leyland shifts focus to non-truck biz

With the road for medium and heavy commercial vehicles (CV) bumpy, Ashok Leyland, the Hinduja Group CV maker, is expecting a drop of 30% in its sales this fiscal.

To derisk its portfolio, the company is now planning to focus on its non-cyclical business, that is, the non-truck segment. K Sridharan, chief financial officer, Ashok Leyland, said the company’s response to the downturn is to adopt a multi-pronged strategy to ensure stability in its topline.

“We hope to do this by maintaining revenues from our non-cyclical business, which includes engines for powering telecom towers, power generators, spare parts sales and also supply of parts and fully-built vehicles to the defence sector,” he said.

Leyland is looking to increase the contribution of its non-cyclical business to revenues to 45-50% next fiscal from 39% now.

Another segment the company is expecting a boost from is buses.

Leyland has a 48% market share in this segment, which it wants to grow by 3-5%. The company has Delhi Transport Corporation contracts as also those with some State Transport Undertakings.

Leyland is aggressively looking to reduce its material and operational costs. The company’s margins are under pressure and it wants to achieve earnings before interest, depreciation, taxes and amortisation (Ebidta) margins of 10% by the next fiscal.

“We are conserving cash by downsizing our capital expenditure for FY09 from Rs 1,000 crore to Rs 850 crore. For the next three years, the capex will be Rs 2,000 crore and not Rs 3,300 crore as planned earlier. The production capacity has been reduced from 1.84 lakh units to 1.5 lakh units over the next 4-5 years. We are trying to extend the life of our equipment instead of replacing them,” Sridharan said.

Besides, Leyland is aiming to lower its inventory to 4,000 vehicles by April from 9,000 now. This will save it Rs 400 crore. Another Rs 400-crore savings are envisaged from investment and debt reduction.

Through an austerity drive, the company saved Rs 30 crore in the December quarter. In the current quarter, it hopes to scale its savings up to Rs 50 crore. Its plants are operational three days a week and the company has cut wages by 20% across the board.

However, Leyland will not reduce its research and development expenditure. On the anvil are the launches of Neptune engines, a new-generation modular cab and a Unitruck.

Sridharan said currently, the company has additional borrowings of Rs 600-800 crore but from March, it doesn’t see any negative cash flow. “The ideal time to raise funds for our new ventures will be when the interest rates are down,” he said.

Meanwhile, Leyland’s joint venture with Nissan has been delayed by six months as the government is yet to allot the company 380 acres. “We are both going back to the drawing board to revise the initial outlay of Rs 2,500 crore and also to consider revision in production,” he said.