Ashok Leyland, India’s second largest truck maker by sales, plans to exit the construction equipment business to reduce non-core assets and pare its debt, a top company official told HT.
The Chennai-based company, will scale up core areas such as manufacturing trucks, buses, engines and grow its finance business. “We see growth in the defence business which is currently the fastest growing in its sector,” managing director Vinod Dasari said in an interview.
In 2009, Ashok Leyland formed a 50:50 joint venture with US-based John Deere for earth moving equipment business and the first product was launched in November 2011. But since then only one product has been launched. With the infrastructure industry slowing down, and mining taking a hit due to a Supreme Court ban, the joint venture never managed to scale up and Ashok Leyland now wants to get out of it.
In November, the company wrote-off Rs 157 crore as a diminution in the value of its investment in that business. “The production is not happening. So we will find the best solution. I don’t think we will participate in that business,” said Dasari. However, no final decision has been taken.
Since 2011, a downturn in automobiles led Ashok Leyland to review its 27 joint ventures, including a company that makes high pressure die-casts. “We will look at each one of them…either you have a strategic fit with my core or you are generating a lot of money for me. If one of them is not true, then I shouldn’t be the owner,” said Dasari. The company also wrote down about `224 crore of its investment in a joint venture with Nissan.
The move to reduce non-core businesses is to cut debt. By September 2015 quarter, Ashok Leyland managed to halve its debt to a little over Rs 3,000 crore in eight years and the long-term plan is to bring debt levels lower than the EBITDA (earnings before interest, taxes, depreciation and amortisation). In the July-September quarter, the company reported revenue of Rs 4,940 crore on net profit of Rs 287 crore. EBITDA was Rs 594 crore.
The Hinduja group flagship is focusing on its truck and bus making business, where it currently has a market share of close to 30%.
Defence will also be a big play. Ashok Leyland provides logistical vehicles to the armed forces and its vehicles are used by the United Nations peacekeeping missions in Africa and elsewhere.
“This is a Rs 500 crore business, I have a clear line of sight to make it five times and we are targeting to make it at least 10 times over five years,” said Dasari. The company, which is planning to bid for Rs 20,000-30,000 crore worth of defence projects, is in talks with Lockheed Martin and Nexter for manufacturing tie-ups.