Bloomberg News

Billionaires to Sell Leyland Assets to Cut Debt: Corporate India

July 19, 2013

Billionaires to Sell Leyland Assets to Cut Debt

A man walks between two Ashok Leyland Ltd. goods-carrier trucks parked at a toll plaza in Mumbai. Photographer: Abhijit Bhatlekar/Bloomberg

Ashok Leyland Ltd. (AL), India’s third-most indebted automaker, plans to raise 5 billion rupees ($84 million) selling assets to pare liabilities after reporting its first loss in 12 years.

India’s third-largest truckmaker will also cut wages to lower costs, said Chief Financial Officer K. Sridharan. Ashok Leyland controlled by the billionaire Hinduja brothers sold 4.3 billion rupees of investments last year, he said.

“We have created enterprises in the recent past which have blossomed into profit making entities,” said Sridharan in an interview in an eighth floor conference room at Ashok Leyland’s steel and glass office tower in Chennai. That will help the company “generate funds from the assets we have created. Call it, in a way, downsizing the balance sheet.”

The measures may help Ashok Leyland, which reported a record loss in the three months ended June, cut debt by about 23 percent. That will give Managing Director Vinod K. Dasari space to focus on defending the company’s share in Asia’s second-largest truck market as rivals Daimler AG (DAI) to Volvo AB (VOLVA) offer discounts and add products to lure customers.

“Ashok Leyland’s costs have been rising and while they want to be a pan-India focused truckmaker, they haven’t” managed to win the market share they expected, said Mahantesh Sabarad, an analyst with Fortune Financial Services Ltd., who cut his recommendation on the stock to sell citing its debt burden. “There will be an erosion in market share whenever new players come in.”

Quarterly Loss

Ashok Leyland, set up in 1948 to assemble Austin Motor Co.’s A40 cars, had 43.6 billion rupees of debt as of March 31, according to data compiled by Bloomberg. Sridharan is targeting to reduce liabilities by 10 billion rupees in the year that started April 1.

The company reported a loss of 1.4 billion rupees in the three months to June 30, its first unprofitable quarter since the same period in 2001, according to data compiled by Bloomberg.

The company’s shares have declined 44 percent this year making it the worst performing stock in the S&P BSE Auto index. They fell 1 percent to 15.2 rupees at close in Mumbai.

The maker of trucks, buses and tractors, which has hired Mahendra Singh Dhoni, India’s most successful cricket captain, to endorse its products, is close to selling its U.S.-based unit Defiance Testing & Engineering, Sridharan said. It’s also looking for buyers for its warehouses and regional sales yards, he said.

Working Hours

Ashok Leyland is paring its proposed expansion by 20 percent to 4 billion rupees in the year that started April 1, Sridharan said. It is also cutting salaries by 5 percent for executives starting with Managing Director Dasari and reducing working hours, he said.

The company, which also runs equal ventures with Nissan Motor Co. and Deere & Co. to make light commercial vehicles and construction equipment, took on debt to acquire the truck unit of Czech Republic’s Avia AS in 2006 and Optare (OPE) Plc in 2010.

Avia will stop making trucks at its Letnany plant in Prague from July 31, according to a statement on the company’s website. Optare has posted losses for five straight years to the 12 months ended March 31, 2012.

“These investments are dragging down the balance sheet,” said Surjit Singh Arora, an analyst with Prabhudas Lilladher Pvt. in Mumbai. “Given the global economic slowdown, the foreign ventures haven’t worked out. They need to reduce their their debt or it will further reduce returns for shareholders.”

Market Share

At home, Ashok Leyland’s market share narrowed to 13.3 percent in March, from 16 percent in 2008, as growth in Asia’s third-largest economy slowed. Industrywide commercial vehicle sales have declined 8.1 percent in the first three months of the year that began April 1, after falling 2 percent in the year ended March 31.

Tata Motors Ltd. (TTMT), India’s biggest truckmaker, controls 56 percent of the market, while second-ranked Mahindra & Mahindra Ltd. (MM) has 18 percent.

Daimler, the world’s biggest truckmaker, is investing about $800 million in a factory it opened last year to build carriers ranging from 6 tons to 49 tons in India. Daimler will unveil 17 models by 2014, and the factory will be able to initially produce 36,000 trucks a year, Daimler said then.

Mahindra partnered Navistar International Corp. (NAV:US) in 2005 to build trucks, while Volvo AB, the world’s No. 2 truck maker, invested $275 million in a venture with Eicher Motors Ltd. to make vehicles in India in 2008. Mahindra agreed to buy out Navistar’s stake in the venture in 2012.

Hinduja’s Wealth

To attract customers, Ashok Leyland was offering discounts averaging 169,000 rupees on its trucks, Sridharan said, before it decided to slash them to 50,000 rupees, and then increase them back to 140,000 rupees.

Ashok Leyland will add new models including intermediate goods carriers in the 7.5-ton to 16-ton space, Sridharan said. There is demand for these vehicles as more hub-and-spoke freight movement occurs, he said.

The company, acquired in 1987 by the Hinduja brothers, whose wealth is valued at $8.3 billion, is also awaiting government contracts under a federally funded urban renewal program to sell its low-cost, low-floor bus called “Janbus,” or people’s bus, Sridharan said.

India will buy 10,000 buses as part of the 148.7-billion rupee Jawarharlal Nehru National Urban Renewal Mission, Finance Minister P. Chidambaram announced in the federal budget in February 28.

“This is probably one of the longest down cycles that we’ve seen,” Dasari said on an earnings call on July 17. “We are using this opportunity to look at it as a blessing in disguise, use this opportunity to fix things structurally so that we’re protected for the long run.”

To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Ganesh Nagarajan in Chennai at gnagarajan1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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