Ashok Leyland cuts capex by Rs.13 bn, floats finance arm

February 13th, 2009 - 8:32 pm ICT by IANS  

Chennai, Feb 13 (IANS) Commercial vehicle major Ashok Leyland is adopting a multi-pronged strategy, including cutting capital expenditure (capex), focussing on non-vehicle segment sales and floating a finance arm, to weather the tough market conditions, a top official said Friday.
“As against the budgeted capital expenditure of around Rs.33 billion (Rs.3,300 crore), we will be incurring about Rs.20 billion,” Ashok Leyland executive director (finance) K. Sridharan told reporters.

“We have decided to knock off the engine and gear box project at Ennore near Chennai, restrict the Uttarakhand plant capacity at 50,000 units and postpone all discretionary capex,” he added.

As against a planned capacity of 184,000 units, Ashok Leyland will now have 150,000 units.

“Cutting down the capacity addition is not a knee-jerk reaction. The industry sales have gone down drastically and the revised capacity will be sufficient for now,” Sridharan said.

He added that revised business plans were being worked with Japan’s Nissan Motor Co, with which Ashok Leyland has agreements to set up three separate joint ventures for production of light commercial vehicles, power trains and research and development activities.

Stating that the Tamil Nadu government is yet to allot land (380 acres) for the Nissan projects, Sridharan said: “We had earlier announced that the projects would involve an outlay of around Rs.23 billion. This figure may change as we are still discussing the project. The project is already delayed by six months.”

Ashok Leyland has floated a non-banking finance company (NBFC), Hinduja Leyland Finance Ltd, to help the group weather the cash crunch.

“The finance arm can fund nearly 15 percent of our total sales,” Sridharan said.

The company is hoping to earn nearly 50 percent of its turnover from non-vehicle business - engines (for power generation and marine applications), spare sales and defence supplies - segment.

“Out of the expected turnover of Rs.60 billion this year, nearly Rs.28 billion will come from non-vehicle business,” he said.

The company has also started an austerity drive that includes pay cuts aimed at saving Rs.500 million.

The company is also planning to bring down inventory levels from the current 9,000 units by cutting production so as to save on working capital.

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