Hinduja Foundries to merge with Ashok Leyland
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Hinduja Foundries Ltd (HFL), an automotive component manufacturing company, is awaiting approvals to merge with the heavy commercial vehicle manufacturer and Hinduja Group flagship, Ashok Leyland (ALL). If approved, by the end of March or April 2017, the whole merger process would be completed. While HFL will be a division in ALL, it will have its own management and governance board. HFL makes castings, cylinder blocks and heads and other critical parts. Ashok Leyland is among its key customers.
The amalgamation decision was taken unanimously at a recent meeting by the Board of Directors. The Board also had approved the exchange ratio on the amalgamation in which 100 equity shares of Rs 10 each of HFL will get 40 shares at Re 1 each fully paid of ALL; 1,000 2008-series GDRs of HFL will get 133 equity shares of Re 1 each fully paid of ALL; and one 2016-series GDRs of HFL will get 4,800 shares of Re 1 each fully paid of ALL.
Vinod K Dasari, Chief Executive Officer and Managing Director, Ashok Leyland, said: “The amalgamation will result in operational efficiencies and help realise significant cost synergies. We are confident that the roll out of the best practices of Ashok Leyland will benefit HFL. While it is a critical supplier to Ashok Leyland, HFL will continue its focus to grow its relationships with other customers. In fact the new arrangement will help in providing a wider range of solutions to them. There is so much more Hinduja Foundries can do under the new arrangement”.
Gopal Mahadevan, Chief Financial Officer of Ashok Leyland, said the purpose of the amalgamation move was to bail out one of its key suppliers, which has been suffering from operational inefficiency and other challenges. He said that this should be viewed as a `one-off’ and Ashok Leyland “has no plans to bankroll” its subsidiaries or make any further acquisitions.
The company would remain steadfast to its core business even as it expected the contribution from its truck business would come down to 40-45% in the next three to five years from 60-65% now because of the cyclical nature of the truck market, he said.
He said that the merger would not impact Ashok Leyland’s profit and loss statement and added that HFL would add to the company’s bottom line in two to three years. In 2015-16 HFL posted a loss of Rs 394.25 crore, including exceptional item of Rs136 crore, as compared to Rs 262.44 crore, a year ago. During the same period Ashok Leyland reported profit of Rs 721.78 crore and Rs 334.81 crore, respectively.
Mahadevan said that in the last two months HFL reported EBITDA positive and in the next 2-3 years, company can be turned around. He added, HFL is critical to Ashok Leyland and 36 percent Of HFL’s revenue comes from Ashok Leyland. The company sees significant synergetic benefits once HFLs comes under Ashok Leyland and there is an opportunity to improve financials of HFL and hence the decision to merge it with Ashok Leyland. ALL was the only OEM having the forging operations outside, while others had internally and it is better to have it internally to avoid uncertainties, Mahadevan said.
However, the investors and market analysts are sceptical about the claims of Mahadevan. They said “the merger is earnings dilutive for Ashok Leyland and run counter to the strategy the company has been pursuing over the past three years of exiting non-core businesses and loss-making subsidiaries as it sharpens focus on its core business, which includes trucks and buses, defence, aftermarket and power solutions.”