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Hinduja Foundries' merger won't hit Ashok Leyland, says company CFO

Ashok Leyland changes gear on brand refresh


Ashok Leyland Ltd (ALL's) decision to merge the loss making Hinduja Foundries Ltd (HFL) with itself is a win win situation, says Ashok Leyland's management. However the street was not too excited on ALL's decision. Ashok Leyland's stock was down by 3.43 per cent, while HFL's share was down by 19.9 per cent on Thursday.

Analysts said that it's a bad deal for Ashok Leyland since HFL has been a loss making company for the last five years. However, Ashok Leyland's CFO Gopal Mahadevan said that the merger will not impact Ashok Leyland's profit and loss statement, adding that HFL will add to Ashok Leyland's bottomline in 2-3 years.

In 2015-16, HFL loss was at around Rs 394.25 crore, including exceptional item of Rs 136 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, the company can be turned around.

The company hopes that by end of March or April 2017 the whole merger process will be completed, subject to regulatory and shareholders' approval. While HFL will be a division in Ashok Leyland, it will have its own management and governance board. HFL appointed D M Reddy as the new MD, after the merger he will head the division.

Mahadevan added that HFL is critical to Ashok Leyland since 36 percent of Hinduja Foundries' revenue comes from Ashok Leyland. The company sees significant synergetic benefits once Hinduja Foundries comes under Ashok Leyland and there is an opportunity to improve financials of HFL, expand the customer base and look at exports in a more aggressive manner.

Ashok Leyland, which had invested around Rs 320 crore of preferential capital in HFL, said that it would get around 30-35 per cent tax benefit in the total HFL's loss of around Rs 1,100 crore when the merger happens.