The commercial vehicle major Ashok Leyland has been having a rough ride in the last two years due to the slowdown in the economy, which in turn has impacted the Hinduja Group's flagship company. However Gopal Mahadevan, chief financial officer, Ashok Leyland choose not to look at the current situation in any negative way.
In an interview, which will be the first of its after he joined the company six months back, with T E Narasimhan, Mahadevan says the focus has been tighter in handling working capital, reducing the debt (which has come down by Rs 700-800 crore in the last six months), reducing the inventory and others. Edited excerpts:
What is your view on the current scenario and what kind of initiatives Ashok Leland has taken to address the challenge?
All CV companies are making loss. For any industry which witnesses drop in topline volume by 40-45%, eventually will have problem. This is applicable to any industry.
ALSO READ: Ashok Leyland launches Backhoe Loader targeting first-time buyers
The last 22 months for CV industry is virtually impossible. All industry/organisation goes through cycle and commercial vehicle industry also went through in the past, but this is the longest.
We are using the current period of challenge, to see what are the right or better things we can do. We don't want to do anything in urgent and desperate situation and we are not in desperate situation. Its all about prudent financial management and we want to ensure things are done appropriately.
The company got portfolio of assets and have to manage expenditure, reducing working capital and trying to generate as much incremental cash possible from the system and see how to reduce the debt outstanding. This is the basic strategy.
While we have to ensure that performance, operational efficiencies and drive performance in the organisation, at the same time retaining good people is also key.
ALSO READ: Ashok Leyland to increase overseas exposure
The company has become tighter in handling the working capital and decided that will produce only, what we can sell and will not store up the inventory. I will also ensure receivable are faster.
How is your working capital and debt reduction programme is going on?
Between working capital and sale of non-core assets we want to release around Rs 1,000 crore of cash. We made significant progress in working capital and sold one or two assets including sale of shares in IndusInd Bank and selling Defiance Testing in US. Debt level was reduced by around Rs 750-800 crore in the last six months.
But still the company got over Rs 5,000 crore debt? are you worried?
Current debt level is around Rs 5,400 crore, which is both short and long term. We are financially extremely stable and we are not worried about it. Most of our capex programme are also already over. Our new product development cannot come down and got good product lines, hopefully when the industry revives we are ready to meet the demand.
When the industry will come back, Ashok Leyland has a growth strategy in place at the same time we also decided why waste an opportunity of a crisis, use it as opportunity. If you want to tighten your belt, tighten it nicely.
ALSO READ: Ashok Leyland eyes 30% share in domestic CV mkt in 3-4 years
The company is trying to be as efficient possibly, internally trying to manage cash as tight as possible. Markets are tough, time are tough but we are looking it as challenge.
The company has a strategy which is restructuring for growth. Restructure of our internal operations and bring in greater operational efficiency, not that we dont have now. We are trying to bring in greater operational efficiency. Some of which started yielding results like improvement in working capital, rationalised our man power, reducing cost which are non-core, increasing the break-even level.
Do you see any improvement in the market? what is the target for break-even level?
There is some improvement in overall situation, how long it will continue I am not sure. For Ashok Leyland, December volumes were better than November and January volumes are significantly better than December's and February expecting slightly to be better.
ALSO READ: Ashok Leyland aims for 10% of sales from defence within 4 yrs
We started a programme to improve our break-even level in mid-last year. We decided to reduce fix cost, in such a way that we can reduce the breakeven time by 25%. Break even will improve only if the fixed cost is lower and margins are better. Right now margins are tight, because of high realisation.
We have been increasing prices periodically -- in April, July, November -- to ensure that we can maintain gross margins on certain products. Ultimately for the industry to revive volume and demand need to go up that is lot more to do with the economy. We are using this current period of challenge in the economy to see what are the right or better things we can do
Your view on the interim-budget? did you pass on the excise duty benefit to customers?
Excise duty reduction is a welcome move and I hope that it would help the commercial industry, since the transportation industry will be benefited. However, the input tax credit continues to be at the earlier rates.
We have reduced the duty by around 3-5%. Pricing is not just about excise duty, it is also about input cost, manufacturing cost and others including duty. More than cost pressure, demand is challenge.