Ashok Leyland separates truck, bus and power solutions businesses
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Chennai: Ashok Leyland Ltd, India’s second largest maker of commercial vehicles, has formed three distinct units to oversee its main lines of business in an organizational revamp aimed at turning it into a more nimble company able to better compete in a slowing market.
The flagship company of the Hinduja group has divided itself into separate units that will handle its truck, bus and power solutions businesses.
The Chennai-based company says the move will bring greater accountability to each business that will eventually translate it into greater profitability when the economy rebounds and sales pick up momentum. It will also enhance its ability to respond to the market’s needs and demands.
“The market’s need for speed is much greater and Ashok Leyland needs to be nimble-footed,” said managing director Vinod Dasari in an interview on Tuesday on the sidelines of an event where Ashok Leyland launched its new intermediate truck named the Boss.
The company is trying to reduce the time taken to deliver a truck by half to three weeks from the time a customer makes payment.
The organizational revamp, modelled on the structure adopted by rivals Tata Motors Ltd and Mahindra and Mahindra Ltd, comes after the company hired consulting firms McKinsey and Co. and Boston Consulting Group to help improve its performance. The restructuring process was initiated in May and is expected to be completed by December.
Ashok Leyland’s margins are shrinking because of higher promotional expenses and hefty discounts offered to attract customers deterred by the economic slowdown and high interest rates. In the quarter ended 30 June, Ashok Leyland’s net profit fell 22% to Rs.66.9 crore from Rs.86.25 crore a year ago.
Ashok Leyland’s shares have fallen by 58.8% to Rs.16.55 from a peak of Rs.40 in 2010.
Trucks sales in India are falling as the economy, which grew at the slowest pace in 10 years in the year to March, struggles for recovery. Truck sales fell by 15.3% in the first half of the current fiscal year despite heavy discounts offered by manufacturers.
“Truck makers in India are estimated to be operating at just 30-40% capacity utilization,” said Rakesh Batra, partner and national leader of the automotive practice at EY.
Ashok Leyland’s top management has, in the meantime, seen some churn. Gopal Mahadevan took charge as chief financial officer after K. Sridharan retired. P.G. Nilsson, executive director of international operations, retired and Sam Burman, chief technology officer, quit recently.
In July, during its annual general meeting, shareholders questioned the board of directors about the weak performance of its stock and were critical of the compensation paid to company executives despite its weak earnings. As a result, Ashok Leyland recently introduced a long-term compensation structure for senior management that is directly related to the company’s performance and share price.
Dasari declined to give more details on the new compensation structure.
The company is targeting lowering its break-even point—the number of trucks sold to make profit in a month—by 10-15%.
Still, the economy will have to stage a recovery before the organizational revamp starts delivering results, analysts say.
“The restructuring is not going to help much until the market revives actually as commercial vehicle industry is cyclical,” said Surjit Arora, an analyst at Prabhudas Lilladher Pvt. Ltd, a Mumbai-based securities house.
Once the market revives, the new structure can help bring more focus in terms of driving sales because the customer segments for trucks and buses are completely different, and will help clearly demarcate their strategy for each segment, said Arora.