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Ashok Leyland has been adopting various strategies to cut its debt, from reducing working capital and manpower to selling non-core assets. However, the best way to do it is perhaps by increasing profits. Vinod Dasari, managing director of the Hinduja Group company, hopes that as the market turns around, the company will make some profits. He adds that while there is a huge pricing game played by competitors, Ashok Leyland is not keen to offer discounts. On the sidelines of the launch of 'truck-car' Boss in Ahmedabad, Vinod Dasari, managing director, Ashok Leyland, talks to Sohini Das. Edited excerpts...
What is the target for debt reduction this fiscal year?
We have tried all ways to reduce debt — reducing working capital, exiting some businesses and selling non-core assets like land. We had tied up a lot of money in working capital (around Rs 1,400 crore), we have reduced that to Rs 400 crore. We did sell off some assets like land which were not being utilised. Yesterday, we sold a land parcel in Chennai. We also raised Rs 660 crore last month through qualified institutional placement (QIP). While all these were contributing, there was only one thing that was not yet contributing to reducing debt--profit. But, as the market turns around, we hope that the company will make some profit. I am confident about the market turnaround, and with that I hope that we will reduce our debt even further. We are hoping to bring it (debt-equity ratio) to below 1 by the end of this fiscal. From a debt of around Rs 6,600 crore, our debt is now around Rs 4,000 crore.
Last year we made a Rs 29 crore profit — it was actually more close to a loss. But, we continued to maintain our 65-year-old tradition of making profits. We have been profitable since inception, and last year was a real struggle. We came very close (to making a loss).
Are there signs of a revival yet, have your margins improved?
Our operating margins have come back. In Q4 last year we had sold nearly 18,000 vehicles, and had a 6 per cent operating margin. In Q1 this year we actually sold 20 per cent less on a quarter-on-quarter basis, which is usually the case, as the fourth quarter is traditionally the best. Nevertheless, our margins were substantially better than last year. In Q1 last year our operating margin was 1.1 per cent and this year it is 4.5 per cent. That is proof that things are picking up. This is margin improvement on like-to-like sales on a year-on-year basis.
What is the situation on the exports front?
We are growing in exports, we were selling only in the SAARC region, but we are now growing in Middle East and Africa. I think compared to last year, we should do 25-30 per cent better in exports. The share of exports in our turnover last year was around 10-12 per cent, and this year it should be around 12-15 per cent. In the long run I would like it to be somewhere around 30-35 per cent. Although I see a more than 30 per cent growth in exports this year, the overall share in revenues will not see that kind of growth as the domestic market would also grow.
Which are the segments you are bullish on?
Our market share in the intermediate commercial vehicle (ICV) segment (which ranges between 7.5 and 15 tonne gross vehicle weight) has actually tripled in the last five years, from 4.5 per cent to 15 per cent. In the heavy commercial vehicle (HCV) segment there has been a lot of competition. And there has been a huge pricing game being played by some competitors. We don't play that game. We know that commodity costs are going up. We have raised prices by 4.5 per cent in the last four months. So the results are showing in our profitability.
Are there plans for further price increases this year?
We have just increased prices in July. There could be a price increase in October and another one in January. Usually price increases are in the range of 1-2 per cent.
