Ashok Leyland to reduce debt with the Rs 667 crore raised through QIP

It also expects to see a better industry sentiment in the second half of the year

Commercial vehicle manufacturer Ashok Leyland Ltd said that its highest amount of fund raising through equity issue, of Rs 667 crore through Qualified Institutional Placement (QIP), will help it along with the revival expected in the second half of the year would help it to reduce debt and to grow.

Vinod K Dasari, Managing Director, Ashok Leyland, said, "This the highest amount ever raised by Ashok Leyland through an equity issue. It reinforces the strong faith reposed by investors in our Company."

Commenting on the fund raising, he added, "The funds raised will help us reduce debt, as we continue to drive the performance of the company. The CV industry is also readying itself for revival in demand during the latter half of the year".

The flagship company of the Hinduja Group, has raised Rs 667 crore through QIP, launched on June 26. The fund raising committee of Ashok Leyland approved the issue and allotted 1852 lakh equity shares to eligible Qualified Institutional Buyers (QIB) at an issue price of Rs 36 per share including a face value of Re 1 and a premium of Rs 35 per equity share - a premium of 5% to the SEBI floor price.

Gopal Mahadevan, Chief Financial Officer, Ashok Leyland, said, "the issuance will help improve the debt and the financial position of Ashok Leyland."

Meanwhile, Bofa has raised Ashok Leyland Target to 43, 20% upside.

"Following successful fund raising, we expect Ashok to deleverage its balance sheet faster and thereby lower financial risk. Consequently, we raise our PO by 7.5% to Rs 43 on higher multiple (10x EV/EBITDA vs 9.5x earlier),"said Bofa.

The company managed to raise $110mn through Qualified Institutional Placement (QIP), by issuing 185 million additional shares at Rs 36/share, implying seven% dilution to equity. The company plans to use proceeds to lower debt, which will likely improve leverage to ~1.2x compared to 1.4x at the end of FY14. Interest costs should thereby trend lower but EPS will remain largely unaltered due to dilution.

"We expect Ashok Leyland's operational recovery to continue from last quarter. Sales likely to remain flattish despite eight% decline in volumes due to better mix in this seasonally weak quarter of Q1. EBITDA margins expected to expand sharply by 300bps yoy at four%, thanks to recent cost cutting initiatives, but down 200bps qoq due to lower volumes. However high depreciation costs and interest outgo are likely to result in losses, albeit moderating to Rs 890mn (from Rs1.4bn in Q1FY14), in our view," said Bofa.