Signs of recovery seen in commercial vehicle segment: Dheeraj Hinduja
Hinduja speaks about reducing debt, his company’s JV partner Nissan Motor and not making huge investments
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New Delhi: The chairman of Hinduja group’s flagship company Ashok Leyland, Dheeraj Hinduja, said that he sees initial signs of recovery in the medium and heavy commercial vehicle segment with sales picking up in the last 2-3 months.
In an interview, he spoke about reducing debt, his company’s joint venture partner Nissan Motor Co. Ltd, not making huge investments, exports and the reasons his company never diversified in the auto space—unlike its peers Tata Motors Ltd and Mahindra and Mahindra Ltd. Edited excerpts:
This slowdown seems to have a big impact on you.
I don’t think in particular for us. I think it’s across the board. Look, the sector of course is down. It does happen every five years. It’s just that the extent of it has been longer this time. Normally it is 12-15 months but this time it has gone on to 20-21 months. We see a slight change in sentiment. In November, December, January, the numbers seem to be looking up.
In the medium and heavy commercial vehicle segment?
Yeah. We have given our numbers and December was better than November. January is better than December, so in that context, there seems to be slight improvement in market conditions.
Is that sustainable?
Well, this is normally the best quarter for the industry anyway and the next quarter is normally a lull period—between April and June. I think, looking at all the indications and the extent over which there has been a slowdown, I’m sure a turnaround has to happen very soon.
Your debt levels are pretty high. What are you doing about that?
There are 2-3 initiatives that we have taken. One is the host of cost-cutting initiatives that we have taken across the board. There has been a good reduction in working capital but we are looking at certain divestments as well in non-core areas and looking at unproductive assets. In a way, in all these recessionary times, you try and tighten your belt and come out stronger. The main issue for us is to reduce our break-even. We are trying to bring it down to Rs.4,500-5,000crore, which even if the industry picks up, in the long-run that will be helpful.
Can you talk about the divestment plans?
I think many of these are confidential, so they are difficult to disclose. Our focus really is on core business and within that I would include our LCV (light commercial vehicles), construction equipment. As an example, Defiance US (Defiance Testing and Engineering), which we divested, we realized that in our engineering and design company, testing is a component but we had learnt all the requirements of what is going on and we found a good value and we said ‘fine it’s not a core activity, let it go’.
What other non-core businesses would you look to do away with?
Like I said, I think it’s due to the nature of it; it is very difficult to specify. But a lot of activities are on, so that we get into the profitability. I can’t delve much into that but I think the company is taking all the right steps to move forward.
What is the current debt level?
It is in the range of Rs.5,600-5,800 crore and we will bring it down by at least Rs.1,000 crore in the next a few months. And looking at the initiatives that are being taken, I think we are on the right track.
What’s happening on the alliance front with Nissan Motor Co? Where do you see it in 10 years?
Fortunately, the alliance is there for seven years now and it seems to be getting stronger and stronger in terms of our relation between the two companies. We are the natural fits and the idea is really to continue within the LCV (light commercial vehicle) sector to get the leadership position in the Indian market and in that respect, joint product development programmes are going on. We are looking at the markets where Nissan is not present, which Ashok Leyland can address. So, in that context, we are well tuned to each other, looking at global markets together.
So far it is a 50:50 joint venture. Will equity partnership change in the future?
No, we are working very well at these levels.
Will this JV make products separately for Nissan and Ashok Leyland?
At the moment, our partnership is very much to look at products, which both partners can utilize and both can stand for themselves for different markets around the world. So, we have never discussed making something exclusively for Ashok Leyland or exclusively for Nissan. It is for both partners.
The rivalry that we used to see between Tata Motors and Ashok Leyland has mellowed down with new companies coming in the market.
If you look at the last five years’ trend, I think we are holding on to our market share. We have been hovering between 24-26.5%. So, at the moment we are 25.4%. So, despite the arrival of so many competitors, we are still holding on.
So, do you still think that Tata Motors is your main rival?
How can we ignore the largest competitor in the market.
Is your priority to protect your market share from new entrants?
Look we are entering many new segments. The light segment has two competitors so in that segment, it will be natural that we will take a share from the other player.
In the ICV (intermediate commercial vehicles with 8-15 tonnes capacity) again, our market share is very small, less than 10%; it’s growing now in the last few years and you have got Eicher Motors Ltd, Tata Motors. They are the main competitors there and some of the newer competitors have entered that segment as well.
So, our aspiration is to take from leaders in that segment. In the medium and heavy segment, where we have had 25-26% market share, that’s where we will focus directly on Tata Motors. But I can say that it is the overall segment of commercial vehicles that we need to look at. We have growth and market share aspirations and it is not going to be easy with so many competitors.
Some of your peers such as Tata and Mahindra have diversified into the passenger vehicle business but you continued with your pedigree business. Any particular reason?
That’s one of the differences for us. Tatas have gone in to passenger cars. Mahindras have grown from one company to many different sectors. Ashok Leyland is a part of a group and that group already has a lot of other businesses. In terms of having a larger portfolio of activities, for us, Ashok Leyland really has to remain a commercial vehicle player.
If you look at Tata Motors, more than 95% of their consolidated profits come from Jaguar and Land Rover. Mahindra got a lot of technology support after acquiring Ssangyong and that is reflecting in some of their products. Don’t you think by doing that they have insulated themselves from a lot of risk?
I guess for Ashok Leyland, insulation is being part of the group. We did not want Ashok Leyland to venture too far out. That’s why we are into commercial vehicles, design engineering, construction equipment. We restarted the Hinduja Leyland Finance, a leasing company. I think there has been enough growth in adjacent sectors. Not venturing too far out into something completely outside of your box—I think this is the strategy that we want to go about it.
In the long run, if you look at Indian commercial vehicle players, we are still small in global size. In buses, we are No.4 globally. The opportunities that we have in trucks is substantial. If we start going into different sectors and activities, I think that will divert our attention from what we want to do, especially at a time when competition is also increasing. It really makes sense for us to invest really more in the core, whether it is R&D, productivity, and ensure that our networks expand domestically and on the exports side. I think the next thrust for Ashok Leyland will really happen on the exports side.
How is your business doing overseas?
Compared to last year, this year we will probably be down 10-12% but the opportunity for us is all the new product launches that we are doing. Whether it is Dost, Partner, Boss, Captain, they have all been designed with a potential for exports. So, for a company that only exports 2-3 models of buses, we will not only have a whole line-up of trucks but many new buses as well.
At Ras-Al-Khaimah (in the United Arab Emirates), where we have our plant, where we are doing predominantly 3,000 buses, within three years we reached our peak capacity. And this only servicing the Middle East. We will probably be taking a similar route in the African markets as well. Not only one base, we may create 2-3 bases with assembly facility. We are trying to stick to the Indian costs, yet build vehicles of international standards and that will give us a natural advantage when we go to overseas markets.
What are your investments planned for the next few years?
Fortunately for us, when you talk about high debt levels, it has been due to high investments that we have done and one fact that I think which many people forget is although Ashok Leyland is 65 years old, all of its life, barring the last 5-6 years, has been dependent on foreign technologies.
It was British Leyland before, Eino engine and others. It was only in 2007 that we took a decision Ashok Leyland needs to be a self-sufficient technology company. That’s why we invested so much.
Going forward, I don’t see this level of investment because the product cycle is not like cars; it does not need a replacement every 5-6 years. I think most of the investments are done. Even if we put up assembly plants in new countries, they are nominal investments.
Where do you see Ashok Leyland in 10 years from now?
If you look at Ashok Leyland 10 years hence, not only will we be focusing on commercial vehicles, domestically, internationally, we will have new businesses, for example power solutions, design engineering have good opportunities. This is really where we want to go. I keep looking at the global scene. We are very small. We need to build up scale. I think going in to the new markets presents the opportunity for us.
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