Talk about tough assignments. If you thought your job was tough, spare a thought for Vinod Dasari, who took over the reins of heavy vehicle major Ashok Leyland in April 2011, just after the last few tremors of the 2008 credit crisis had been felt and just ahead of the slowdown in the auto industry in 2012. Dasari took over as managing director of India’s second largest truck company at a time when the most brutal slowdown to have hit the Indian commercial vehicle industry in over three decades was creeping up on the company. Emerging from the debris of the 2008 crisis, during which it saw its inventory pile up due to a fall in demand for trucks and its production schedule trimmed to three days a week, Hinduja flagship company Ashok Leyland was headed towards another tumultuous period under a new leadership. For Dasari and his team, who survived this period and steered the company out of its rough patch, this challenging phase will remain forever etched in their minds. “We used to call it the perfect storm because we felt surrounded from all sides — the market was down, breakeven point was high, debt was very high and product pricing was dismal,” says Dasari. “However, I could sense that the employees were eager to take on these challenges. This gave us the courage to take tough decisions and make structural changes to transform the company,” he adds.
Though it was not easy, under Dasari’s leadership, the company took some hard calls — it cut costs drastically but sustainably while investing in new products and ramping up service outlets and branding. “The support from the board and promoters provided us the necessary cover while we were weathering the storm on the ground,” says Dasari. The company even managed to trim its bloated employee count from 15,734 at the end of FY12 to about 11,552 by the end of FY14. And while the commercial vehicle industry is still reeling under the pressures of the ongoing slowdown, Ashok Leyland has shown signs of a recovery, the first of the lot to do so. Dasari, however, is not surprised. Right at the centre of the company’s perfect storm, Dasari, with his Kellogg School of Management background and years of industry experience, had learnt that the company only stood a chance if decisions were taken — and implemented — as a team, thus ensuring that the company fought as a whole. As is obvious by now, Dasari managed to put in motion a full-fledged transformation that not just sought to win back customers but was product-, employee- and process-led.
Innovation In Tough Times
But the going was not all smooth. Dasari still remembers how both employee and dealer sentiment was down in the dumps when he took over. “We were just recovering from a terrible slowdown. There was not much mutual trust between employees and dealers. We had a lot of hard work to do,” he says. Despite high debt and declining sales, Ashok Leyland chose to not stop investing in new products. With good products under its umbrella — the truck-maker launched Boss, Captain, Partner, JanBus and a few other models over the past three years — Dasari knew Ashok Leyland held an edge over its rivals. In fact, the company even announced a new truck line-up in May 2013, at a time when the market was not too promising. In the pipeline were plans to introduce the much-awaited multi-purpose heavy vehicle Stile, followed by the launch of Partner in the 5-6 tonne light commercial vehicle (LCV) segment and the Boss range in the 8-16 tonne intermediate commercial vehicle (ICV) segment. A month later, the company launched the Neptune engine — designed and developed in-house — for premium trucks.
“Our new products enabled us to win — rather than buy — back our market share. Boss sales have crossed the 2,500 mark and are helping us establish our leadership in the premium ICV segment. The Captain model is generating a massive pull in the market and we are ramping up production in order to meet this demand,” says Dasari. To boost morale internally and on the dealer and operator fronts, Ashok Leyland ramped up its network from its 350-odd outlets catering only to the medium and heavy vehicle (MHCV) segments across India five years ago. Today, the company has nearly 1,300 touchpoints across the country, spanning MHCVs, LCVs and power solutions businesses; Ashok Leyland’s MHCV business alone has over 800 touchpoints. The company claims that it has a touchpoint every 45 km in the golden quadrilateral and north-south-east-west corridors and one every 25 km on key corridors such as the Delhi-Mumbai one.
“We have outlets in the remotest corners of the country, be it at the Bangladesh border in Meghalaya, at Attari near Wagah or deep in the coal mining belt at Singrauli. This was made possible through our innovations at our outlets — we have developed frugal and comfortable formats that our channel partners can set up at low cost,” says Dasari. Ashok Leyland furthered this support to its partners by helping its dealer network remain profitable throughout its lean patch. The company controlled its own inventory as well as that of its dealers, setting a target of no more than three weeks of stock with them, compared with a two-month period in the past. Dealers usually have to factor in a lot of things — including margins, logistic charges, credit interest and target incentives — while stocking inventory. During slowdowns, they can’t afford to stock higher inventories and end up paying more to truck companies, which is why it helps when companies step in to manage inventory and reduce overall costs, thus improving dealer profitability. “The fact that dealers have stuck with us throughout this period and are now reaping the benefits of the uptick in our shares shows that our strategy has been effective,” says Dasari. The operator morale has definitely improved, if one goes by the rise in replacement demand. Of course, the reduction in diesel prices has also helped operators improve profitability.
Screeching To A Halt
Just like the rest of the industry, Ashok Leyland was also excited about the rapid growth in the Indian market between 2000 and 2006. In fact, the company had lined up many plans and investments in the aftermath of the 2008 slowdown. “Most of our investments were in the incubation stage, that is, they were good investments but would require several years of cash infusion before they yield results. Cash flow projections were also not in sync with the rapidly changing business context and the several tough calls we took were based on this requirement,” says Dasari. In the eye of the storm, the truck-maker went straight to lowering its working capital, trimming its workforce, cutting costs and reducing debt. In a bid to send the same message across the organisation, the company enforced uniform pay cuts above board. “It was painful. We not just cut back the number of employees but everybody took a 5% pay cut. Of course, now that the market is back, we have enforced a 10% hike at the junior level that has offset things somewhat,” says NV Balachandar, senior VP, group HR and excellence.
One of the key factors behind Ashok Leyland’s transformation has been the asset sale of non-core businesses to reduce debt. Late last year, the company sold its 38% stake in Hinduja Tech, formerly known as Defiance Technologies, to Nissan International Holdings, the Japanese carmaker’s global investment arm. Further, in its 2013-14 annual report, Ashok Leyland lists its associate companies Albonair GmbH, Albonair India and Avia Ashok Leyland Motors as open to sale.
Dasari points out that with the market expected to turn around and the transformation already brought about within the company, the management is not as worried about Ashok Leyland’s debt situation as it was three years ago — debt levels have come down from Rs 6,200 crore in September 2013 to around Rs 4,323 crore in September 2014. A QIP issuance of Rs 650 crore in July 2014 further strengthened the balance sheet. “The QIP was a proof of investor confidence reposed in the company,” says Mahadevan.
Despite low volumes, the company claims that it has started making money over the last couple of months, having brought down the debt to equity ratio to 1:1. “Our fixed costs have also been structurally corrected as we went in for a leaner production model and our breakeven point lowered by over 30%. This has given us high operating leverage, thus improving profitability and our ability to generate cash as demand revives,” adds Mahadevan. The truck-maker’s employee expenses also went down by 7% in 2013-14, primarily due to a reduction in executive strength and lower number of working days. Ashok Leyland also managed to contain manpower costs in spite of wage increases at various factories in Bhandara, Hosur and Ennore. The company also undertook many cost reduction initiatives in FY14, leading to a 16.5% reduction in expenses over the previous year.
One of the major areas of transformation for the company includes streamlining its business process and reengineering processes right from product development to sales and marketing and operations planning. “From a functional organisation, we are now a matrix organisation, with separate and independent verticals for trucks, buses, LCV, defence and power solutions — each one is an SBU in itself, with responsibilities for top-line and bottom-line growth,” says Dasari. He sees each of these five verticals panning out and taking on a significant presence on their own. In fact, the company has ambitions of growing the defence arm in revenue from Rs 600 crore at present to Rs 6,000 crore over the next five years. In its power business, it aims to grow revenue from Rs 500 crore at present to Rs 5,000 crore over the next five years.
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