Ashok Leyland to cut wages, reduce debt

Ashok Leyland's debt increased to Rs 5,500 cr as of June, from Rs 4,300 cr at the end of the March quarter, mainly due to higher working capital

Ashok Leyland Ltd, the flagship commercial vehicles maker from the Hinduja Group, is planning to cut capital expenditure (capex) for 2013-14 massively besides downsizing the wage bill and selling non-core assets to improve the cash flow and bring down debts.

The company has set aside a capex of around Rs 450 crore for the current financial year, sharply down from the Rs 1,545 crore it spent in 2012-13. Dheeraj G Hinduja, chairman of Ashok Leyland, said the company needed to optimise cash and delay implementing the capex till the market review. He noted that the commercial vehicles sales were down 25 per cent this year.

"Fortunately, critical investments were made in the last four years. If critical investment are needed, we will not shy away," Hinduja added.

The company has told analysts debt reduction is its major target in 2013-14. Its debt increased to Rs 5,500 crore as of June, from Rs 4,300 crore at the end of the March quarter, mainly due to higher working capital. In a bid to reduce staff costs, the company has cut down the number of working days per week, effected a five per cent cut in salaries in May across the executive segment (resulting in Rs 10 crore saving in a quarter) and laid off about 1,300 temporary workers.

Ashok Leyland's wage bill in 2012-13 stood at Rs 1,076 crore, compared with Rs 1,020 crore the year before. According to the company's annual report for 2012-13, the number of employees has been falling in the last three years. In 2012-13, Ashok Leyland had 14,668 employees, down from 15,734 the year before and 15,812 in 2010-11.

Through these measures, the company has saved Rs 125-130 crore in costs during the first half of 2013.

An ICICI Direct report stated weak macros had had a severe impact on Ashok Leyland's earnings as it remained the most leveraged in terms of operating performance. Volume growth expectations have been tempered and it feels no swift recovery is possible. "Ashok Leyland's financial recovery is also on an unsure footing. We feel margin recovery for the company will take three quarters," the report added. In the last few years Ashok Leyland has gone through a major investment and capex cycle, Hinduja said.

The company is estimated to have invested around Rs 4,000 crore in various joint ventures, including the ones with Japanese auto maker Nissan Motor Co Ltd to manufacture light commercial vehicles and with John Deere to make construction equipment. The company has also set up a new manufacturing facility at Pantnagar, Uttarakhand.

Asked about the payback on the investments made by Ashok Leyland in acquisitions and joint ventures, V Sumantran, non-executive vice-chairman, said the company was expected to reap the rewards soon.