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Ashok Leyland embarks on cost-cutting route to stay fit, maintain margins

FE Bureau

Hinduja group flagship Ashok Leyland Ltd (ALL) has said it has decided to prune costs across verticals to not only stay fit in the volatile market conditions but also maintain its earnings before interest, tax, depreciation and amortisation (Ebitda)/profitable margins at a decent level.

Expecting flattish or degrowth in line with the industry's projections, the company hopes to save at least Rs 500 crore by cutting costs across verticals during the fiscal, said Gopal Mahadevan, whole-time director and chief financial officer.

Amid challenging times, the company hadproposed to make Rs 1,700-crore to Rs 2,000-crore investments over the next one year on modular business programme (MBP), electric vehicles development, Phoenix (new light commercial vehicle products) project and in plants, he added.

Addressing media here on Thursday on the first quarter (Q1) performance, Mahadevan said: "We have decided to bring down our expenditure across verticals including sales, manufacturing, productivity, automation, distribution. There won't be any recruitment and we plan to make existing workforce more productive. By doing so, we expect to suck out (save) at least Rs 500 crore out of the system which would help us better our performance in the fiscal."

"We see some exciting/challenging times ahead, and Q2 and Q3 will not be rosy as we expected at the beginning of this fiscal. Though Q4 will see some pre-buyings owing to effective implementation of BS VI norms from April 2020, but we have to see how things will fold up, going forward."

On the recent shutdowns of its Pant Nagar plant, "While we increased our production at the beginning of this fiscal (in April) anticipating stable government, ease of liquidity and normal monsoon, but things went against our expectations as overall sentiment didn't improved and sales started falling in the past two months. We have to take a lot of production planning at aggregate levels and hence decided to go for a few days shutdown on an objective manner."

To a specific question on inventory at the dealers level, Mahadevan said: "As against usual 15-20 days inventory, currently it is hovering around a month due to poor offtake. We are working out on plans - both at plant as well dealers level - to bring down the inventory levels in the coming months. We will continue to monitor the same at dealers' level."

Replying to a query over to BS VI, he said: "The company is ready with BS VI vehicles. We will stop making/selling BS IV chassis effective January next year to meet the requisite norms. Of the total sales, chassis alone account for 40-45%. However, we will make and sell fully-built trucks/buses to the customers till March 31, 2019. The cost escalation towards BS VI is estimated to be 15-18% but will be known exactly when it happens."

According to Mahadevan, the company continues to do well on the LCV front. The LCV business has grown 12% in Q1 and the company sees continued traction despite marked decline in M&HCV (medium & heavy commercial vehicle) business. Dost along with Mitr and Partner continue to do well in the fiscal, he added.

On the export front, he said the company was working on new products, specifically catering to left-hand driven (LHD) markets to boost growth. In the next two to three months, new products would be rolled out to cater to specific markets, he added. The exports declined by 64% in Q1.