Ashok Leyland takes cost cutting route, to save Rs 500 cr in a year

Chennai: Ashok Leyland, the flagship of the Hinduja Group, has announced that it will be taking measures to reduce around Rs 500 crore in operational costs through various initiatives during the year.

The firm’s Whole-Time director and CFO, Gopal Mahadevan, told reporters at an event held in city recently that the cost-saving initiatives are going to very important to them.

“We have a specific programme that we are running today and through these initiatives, we are expecting to take out at least Rs 400-500 crore in costs (during the year). If you are not going to be clear about volumes, you have to ensure that the company is using the rupee to the most appropriate terms,” he said.

The commercial vehicle major reported revenues of Rs 5,684 crore, nine per cent lower than the same period last year, when it stood at Rs 6,263 crore.

The total industry volume too had come down by 17 per cent, while the PBT for the quarter was at Rs 361 crore and PAT was at Rs 230 crore.

Huge task

Asked how the firm aims to reduce such a huge amount in a year, the CFO said it will be done by carefully scrutinizing all expenditure. “We have to look at all expenditure. You can take administrative overhead, selling overhead, manufacturing, distribution, productivity and automation. We are looking at everything, including the efficiency of our own distribution. We have to ensure that we continue to grow in the market,” he said.

Speaking about the demand being subdued, Mahadevan said, “The second quarter demand has not been very good until now. The perception is that things will start getting better by the second half of the year.”

But he did say that until Q2, there has been no improvement in market sentiment. “We started the year with the pretext that demand will go up. But it has not risen yet. So we are looking at reducing the inventory level. Depending on what is happening on the ground, we are taking decisions. Ideally a dealer will have 15-20 days of stocks but now it is 30-35 days stock,” he noted.

The transition

On transitioning into BS6 without incurring losses, he said the firm is carrying it out efficiently.

“We are already preplanning (for BS6 rollout) so that there is minimal inventory loss. The best way to do that is to engage with the dealers. Our estimation at the moment is that we have to stop production or sale of chassis by January. Sales will grow with growth in economy upon BS6 rollout,” said Mahadevan.

“Improvement in economic condition (will also help). We are hoping that the government will introduce policies regarding the industry like some incentives, scrapage policy, the clarity of it, etc. The automotive industry contributes to a big chunk of the GDP,” he added.

The good in bad

The CFO said the firm has to increase its international revenues. “We have to re-think our strategies,” he said.

But he also added that the firm will spend close to Rs 2,000 crore on various fronts including capacity expansion.

“The project Phoenix LCV range will be launched mid-2020. We are spending on capacity expansion, electric vehicles. We do a V.E.D (vital, essential, desirable) analysis for everything. We are looking at spending Rs 1,700-2,000 crore and there might be some spillover next year. A lot of this will depend on the kind of demand we receive,” he explained.

Mahadevan also explained that the company has grown in market share because it kept on increasing its dealership network that gave it access to new markets.

“The second thing we did was we started introducing products that we did not have earlier. Today, we have the largest ICV portfolio in India and revenue is coming in from that segment. Our market share has grown. But one has to make sure that they do not expand in an expensive manner.”

Despite the year being a tough one, the firm saw its EBITDA for the quarter touch 9.4 per cent. The company’s market share in the MHCV segment for the quarter grew by four per cent to 34.1 per cent.

EV talk
Gopal Mahadevan said Ashok Leyland will not get into manufacturing batteries as the technology is growing.

“Li-ion is here to stay and we will look at the chemistry. There is so much happening in the battery industry today that it does not make sense for me to get locked in a particular set of technology,” he surmised.

According to him vendor sentiment is good because Evs are lot less complicated as the number of moving parts are very low.

On possible layoffs, he said, “I don’t know”. “We are not recruiting people and we are looking at positions that are redundant and are looking at improving efficiency with the people we have,” he said.

Praveen Kumar S