Ashok Leyland plans to halve debt level in 3 years

Company says it will continue to sell non-core assets and will continue other cost saving initiatives

After bringing down the debt level by nearly 36 per cent, commercial vehicle major Ashok Leyland is now looking to reducing by 50 per cent from the current level in the medium term. The company has been selling its non-core assets, and has taken measures to reduce working capital and optimise costs, which it said it will continue.

Gopal Mahadevan, chief financial officer, Ashok Leyland said that the company had set a target to bring down the debt-equity ratio to 1:1, by end of March 2015, but was able to achieve it by December 31, 2014 itself.

"Our medium-term (around three years) plan is to bring down the debt:equity ratio to 0.5:1," he said.

The company's debt was reduced to around Rs 4,000 crore from a peak of Rs 6,280 crore in August 2013. This was done through working capital reduction, selling non-core assets, improving profitability, funding through QIP, cost optimisation, cost reduction, reducing material cost and other steps that the company would continue to take, said Mahadevan, adding that the firm had reduced the finance cost to Rs 98 crore during the third quarter, from Rs 115 crore a year ago.

As part of its move to sell its non-core assets, the company already placed its Albonair GmbH and Avia for sale, partially or fully.

Ashok Leyland has posted a net profit of Rs 32 crore for the quarter ended December 31, 2014, compared to net loss of Rs 167.2 crore for the quarter ended December 31, 2013. Total income rose by 72 per cent to Rs 3,380.3 crore for the quarter ended December 31, 2014, from Rs 1,968.6 crore for the quarter ended December 31, 2013.

During the third quarter the company increased its market share to 26.6 per cent from 22.7 per cent, a year ago in M&HCV segment. Mahadevan attributed this to expansion in network and introduction of new products.

"Fourth quarter looks positive for the industry and for the company," said Mahadevan, maintaining that the company would outperform the industry.

Overseas business & exports

Ashok Leyland is planning to set up assembling facilities in two or three locations outside India and said the medium-term target is to get about one third from exports.

Gopal Mahadevan, chief financial officer, Ashok Leyland said "in the next 6-12 months we will start the process (setting up assembling facilities) in two or three locations". The company is looking at Middle East and African countries.

Exports currently contributes around 20 per cent of the total revenue and company's one third of the volume should be from exports in the next 3-5 years.

Mahadevan added that its UK subsidiary Optare, which manufacture buses, will turn cash positive next year.

In addition to company's export orders from Sri Lanka and Africa the company is hopeful of making inroads into newer markets, maintaining network expansion and opening assembly centres in overseas markets, like its experience in UAE.