Ashok Leyland plans pain relief via K54 II, hope to save Rs 500 crore

Ashok Leyland has implemented a cost-cutting programme, called K54 II, that it hopes will help it save around Rs 500 crore during the current financial year (FY20) and another Rs 650 crore next fiscal. 

“…what we are saying is, why don’t we resize the organisation to the level it was, say, possibly three years ago,” said Gopal Mahadevan, whole-time director and chief financial officer at the firm, during a recent call with investors. “So, what I told the management was, let's go back to when we were Rs 18,000 crore last, let us look at what were the resources we are deploying and let us take a 20 per cent cut on that,” he added.

Through K54, Ashok Leyland’s fixed cost reduction programme, it aims to ensure that the firm will not go through any pain in the future by controlling costs and ensure the cost structure will not inflate again. The company is restructuring the organisation by driving productivity using analytics, avoiding unnecessary efforts, conserving resources for product development and conquering new markets.

Under the K54 II programme, the firm hopes to save around Rs 500 crore in FY20, and Rs 600-650 crore next year.

Capex for the year is expected to be Rs 1,200-1,300 crore, against the initial plan of Rs 2,000 crore. For the next four-five years, capex would be around Rs 400-500 crore.

“We are making the company very asset-light…,” said Mahadevan. He expects the commercial vehicle segment to grow from the third or fourth quarter next year.

To protect the company from volatility it plans to grow its international, light commercial vehicles, and defence and parts businesses. The firm hopes to grow its exports by 20 per cent as it sees potential in African countries, Sri Lanka and Bangladesh.

The parts business has been growing at 10 per cent and Mahadevan believes it should be growing at maybe 15 per cent.