Chennai: Hinduja Leyland Finance Ltd, the financing unit of India’s second largest truck maker Ashok Leyland Ltd, plans to raise Rs 200 crore by March to boost lending to light commercial vehicles (LCVs) and three-wheelers to offset a drop in demand for loans to buy heavy and medium-size trucks.
Half the amount will be raised in September by selling more shares to Ashok Leyland and IndusInd International Holdings Ltd, the majority owners of the one-year-old financier, S. Nagarajan, managing director of Hinduja Leyland, said in an interview. The remaining Rs 100 crore may be raised by selling shares to private equity firms or existing stockholders early next year.
Hinduja Leyland’s focus on smaller vehicles’ financing comes at a time when the central bank is raising interest rates to curb inflation. Higher lending rates have slowed sales of heavier commercial vehicles that tend to make fewer trips or don’t get packed to capacity as consumer demand slows.
The move also signals continued sluggish sales for truck makers such as Chennai-based Ashok Leyland. Hinduja Leyland finances only its parent’s brand in the heavy and medium-size commercial vehicles segment.
“We expect three-wheelers to show the strongest growth of 15-18% and light-commercial vehicles at 11-13%,” said Amit Kasat, a Mumbai-based analyst with Standard Chartered Securities. “However, (we see) only single-digit growth for heavy and medium commercial vehicles for the current fiscal.”
Ashok Leyland reported sales of 23,512 trucks and buses during the first quarter of the current fiscal, an 8% drop from a year earlier. In its annual outlook for the year to 31 March, Hinduja Leyland has stated it is taking a cautious approach in funding medium and heavy trucks. It expects its disbursements to double to Rs 2,500 crore in the year.
For this year’s first quarter, half of the truck financiers Rs 650 crore disbursement came from funding Ashok Leyland trucks and 20% from used commercial vehicles. The balance of the assets came from financing Tata Motors Ltd’s Ace light commercial vehicle and three-wheelers made by Piaggio Vehicles Pvt. Ltd and Bajaj Auto Ltd.
Of the 94,106 vehicles sold by Ashok Leyland in 2010-11, Hinduja Leyland financed 5,000.
Hinduja Leyland reported a net profit of Rs 27 crore on an income from operations of Rs 101 crore last fiscal, its first year of operations. Currently, the company has a paid-up capital of Rs 225 crore and capital adequacy ratio of 19%, compared with the mandated capital adequacy ratio of 15% for finance companies.
Ashok Leyland’s vehicle sales had dropped 35% to 53,431 vehicles in the year ended 31 March 2009, in the aftermath of the global financial crisis. This made the firm realize its handicap of merging its finance arm, the erstwhile Ashok Leyland Finance, with Hinduja group-controlled IndusInd Bank in 2004. Subsequently, the truck and bus maker set up Hinduja Leyland Finance.