Ashok Leyland to revive Hinduja Foundries

Fund infusion, in the form of preference capital from the promoter, will support the firm’s liquidity position, say analysts
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First Published: Fri, Dec 28 2012. 06 31 PM IST
R. Seshasayee, executive chairman Ashok Leyland. Photo: Ramesh Pathania/Mint
R. Seshasayee, executive chairman Ashok Leyland. Photo: Ramesh Pathania/Mint
Updated: Fri, Dec 28 2012. 09 40 PM IST
Chennai: The promoters of Hinduja Foundries Ltd are to provide financial support in reviving the auto parts maker, which has lost half its peak net worth because of accumulated losses.
Hinduja Automotive Ltd and Ashok Leyland Ltd are the major shareholders in the company.
The Chennai-based company, a part of the diversified Hinduja group, informed BSE Ltd last week that its board will decide whether to consider filing with the Board for Industrial and Financial Restructuring that it had become a sick company.
“It is not the intention of the promoters to allow the company to file for sickness, we would put in the require capital and manpower to turn around the company,” said R. Seshasayee, executive chairman of the company, at the annual general meeting on Friday.
The company’s losses widened in the second quarter to Rs 138 crore from a loss of Rs 93.76 crore in the three months ended 30 June. Total debt was Rs 673 crore (excluding the redeemable preference shares component of Rs. 97 crore) and the interest burden was Rs 116 crore in the 18-month period ended 30 September.
About a decade ago, Ennore Foundries (as it was then called) became potentially sick, and had accumulated losses amounting to Rs 14 crore, resulting in negative net worth as of 31 March 2004. It returned to financial health in March 2005 after registering a profit in 2004-05.
Sluggish demand for trucks, cars, tractors and construction equipment contributed to the company’s latest woes, coupled with power cuts that hurt production at its foundry. The company also took one-time charges amounting to Rs.125 crore.
“Slowdown in the domestic automobile industry impacted the demand prospects of several auto ancillary players, including Hinduja Foundries,” said an analyst at the rating company ICRA who did not want to be named.
The company had to write off Rs. 125 crore, of which Rs 83 crore was due to a difference in physical and book stock resulting from ineffective process standards and inadequate documentation. Payments under a voluntary retirement scheme amounted to Rs 21 crore; in addition unrecoverable bad debts worth Rs 21 crore were written off.
McKinsey and Co. has suggested a road map to revive the company through a programme called ‘Mission New Leaf’ that aims to eliminate operational bottlenecks, improve delivery and quality and enhance control over the product mix.
A turnaround of the company is dependent on the demand recovery in the automobile industry, the outlook for which is currently subdued, said the ICRA analyst.
The fund infusion, in the form of preference capital from Ashok Leyland, should support the liquidity position of the company to some extent, said an ICRA report. Ashok Leyland had subscribed to Rs 150 crore earlier and will have to subscribe to another Rs 150 crore of preference shares in Hinduja Foundries by 31 March 2013.
“We have already put in place a turnaround plan...but it will take time,” said Seshasayee.
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First Published: Fri, Dec 28 2012. 06 31 PM IST