Loss-making castings manufacturer is merged with Ashok Leyland, which plans to generate synergies and also develop exports.
16 Sep 2016 | 9664 Views | By Kiran Bajad
Having cleaned up its balance sheet by selling non-core assets and cutting costs, Ashok Leyland has announced the merger of Hinduja Foundries Ltd (HFL), which makes grey iron castings and automotive components, with the company.
Ashok Leyland is confident that synergies between the two companies will help turnaround ...
This is an Autocar Pro Plus article. Subscribe to continue reading.
Having cleaned up its balance sheet by selling non-core assets and cutting costs, Ashok Leyland has announced the merger of Hinduja Foundries Ltd (HFL), which makes grey iron castings and automotive components, with the company.
Ashok Leyland is confident that synergies between the two companies will help turnaround the loss- making company. After the merger, HFL will remain an independent company within Ashok Leyland as a separate division.
As an immediate impact of the merger, HFL’s losses will get subsumed in Ashok Leyland’s operating profit albeit offer a tax benefit to the company. Ashok Leyland has a 2.6% stake in HFL and a preference capital of Rs 321 crore. HFL has accumulated losses of Rs 1,100 crore and debt of Rs 512 crore.
Speaking to media on the merger, Gopal Mahadevan, chief financial officer, Ashok Leyland, said, “There are multiple reasons that we decided to choose to merge this company. Firstly, HFL is a big supplier of castings to Ashok Leyland which provides nearly one-third of its revenues. Secondly, we have a financial stake in the company, and thirdly the company is loss making. We can bring some best practices to turn it around.”
Typically, most vehicle manufacturers have foundries of their own; Ashok Leyland is the sold large CV player sourcing castings from a separate company. “We are already taking various steps in turning around the company, bringing changes in the manufacturing and production processes. In fact, we are doing what we have done with Ashok Leyland 2-3 years ago,” said Mahadevan. “We need to fix certain aspects of the operations and overheads. If we are able to do this, we will be very comfortable in our goal and all the right steps are being taken,” he added.
Vinod K Dasari, CEO and managing director, Ashok Leyland, said, "The amalgamation will result in operational efficiencies and help realise significant cost synergies."
HFL manufactures critical components such as cylinder blocks, cylinder heads, housings and SG gray iron at its two manufacturing plants at Sriperumbudur and Ennore. It has a production capacity of 122,000 metric tonnes and is currently utilising only 60 percent. Although exports are marginal at present, Ashok Leyland foresees opportunities to increase shipments significantly.
Recommended:
- Ashok Leyland acquires Nissan’s stake in JV
- Ashok Leyland sales drop after 24 months of sustained growth