Ashok Leyland decides to focus on core business

Ashok Leyland's net profit for the March quarter took a hit due to exceptional items. The commercial vehicle major's net profit fell 66.5% yearly to Rs 77 crore in the fourth quarter due to exceptional loss of Rs 379.3 crore as against Rs 8 crore a year ago and higher tax payout.

During the quarter finance cost were lower than a year ago. A few years ago Ashok Leyland said it has diversfied into few areas including light commercial vehicle (with Nissan), construction equipment business (along with US-based John Deere) and in other areas.

Now the company has decided to write off its investment to the tune of Rs 510 crore in Nissan venture and exited from the John Deere venture. Gopal Mahadevan, chief financial officer, Ashok Leyland said that impairment includes investment in Nissan, John Deere, 25% impairment in Albonair, provided equity in Optare.

The company's domestic medium and heavy commercial vehicles (M&HCV) sold 98,809 vehicles during the year. (66,442 nos. )with a growth in market position across the country and segments. Light Commercial Vehicles (LCV) was 30,695 (27,242 numbers), while international volumes for MHCVs de-grew by 2%, owing to slower offtake in some markets. The company added that demand from the defence sector registered a healthy growth.

The company's operating profit stood at Rs 753 crore against Rs 457 crore. The debt/equity ratio as at the end of the year was 0. 24:1 as against 0. 75:1 last year. The board has recommended a dividend of 95% per share translating to 95 paise per share. The results for the year also included exceptional provisions (net) of Rs 389 crore.

These included provisions for impairment in investments in certain joint ventures as well as overseas subsidiaries. This move is in line with the company's strategy of reviewing its portfolio of investments and rationalizing the same to drive focus on the core business.

Ashok Leyland's Managing Director Vinod K Dasari said that the company decided to focus on its core business and decided to come out from the areas, which are unrelated diversification. The company has decided to writoff investment in Nissan to the tune of around Rs 510 crore.

AL also exited from the John Deere JV and the company has gone for liquidation and sold of Avia. The good news is that it decided not to sell German-based Albonair considering the valuation of the company has increased on the back drop of Euro VI.

Dasari said the JV with Nissan for LCV is still continuing and the company is in discussion with the Japanese partner on how to take forward the business.

It may be noted, the relation between Ashok Leyland and Nissan turned ugly after both the parties went to the court and started blaming each since the JV was not doing well. Ashok Leyland was planning to sell its stake to Nissan, however that did not happen.

Dasari said the company decided to focus on its core business, which is commercial vehicle and it would continue to focus on related diversification.

He agreed that it was a bad decision to get into unrelated, though it was done with a good decision, but somehow things didnt work out may be due to bad execution, bad market, timing, execution, strategy, partner we don't know. It doesn't work instead of spending the time and energy to revive a dead business, let it go and focus on the core business and make money.