115-080-1

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Financial Statement Analysis of Ashok Leyland
This case was written by Nagendra Kumar M V, under the direction of D Satish and C Padmavathi,
IBS Hyderabad. It was compiled from published sources, and is intended to be used as a basis for
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 115-080-1

Financial Statement Analysis of Ashok Leyland

“Sentiment is better. Our industry largely runs on sentiment and economic
viability. With the new government in place, there is renewed hope about
economic revival. By the second half of the financial year, we will see substantial
improvement,”
Vinod K Dasari (Dasari), CEO & Managing Director, Ashok Leyland1.

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During the year 2013-14, Ashok Leyland (Ashok), the flagship company of the Hinduja Group2
and India’s second largest commercial vehicle manufacturer, reported a loss that exceeded
analysts’ predictions. Ashok’s sales revenue declined by 20% and the net profit margin by 93%3.
Ashok’s negative performance reflected the performance of the Indian automobile sector, which
declined by 2%, recording Rs. 2117.65 billion sales revenue as against the previous year’s
Rs.2160.00 billion 4 . However, as per the analysis and information given by Component
Manufacturing Association of India (CMAI), the various initiatives proposed in the Union Budget
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for the year were expected to provide the necessary boost for the industry during the fiscal year
2014-15. To overcome the challenges inherent in the prevailing economic scenario, Ashok
initiated organizational restructuring aimed at fixing accountability and responsibility on the heads
of each unit. “Rather than sit back and cry about problems that were created by external factors,
we decided to use the downturn as an opportunity to fix ourself,” said Dasari5.This move was
expected to make the Ashok management more flexible & adaptable to the changing business
environment.
To increase its efficiency, Ashok had already taken initiatives at the beginning of the financial year
2013-14. The company reduced its work force by laying off around 1,200 casual workers. It also
cut the salary packages of its executives by 5%6. The company announced a Voluntary Retirement
Scheme (VRS) for its executives and in November 2013, around 500 executives (10% of the total
executive strength) opted for the scheme7. “While the company maintained market share in the last
quarter, volume pressures continue and we need to take some definite steps to manage the
slowdown. The VRS package will be fair and would provide adequate compensation to any

1
T E Narasimham, Sales slowdown a blessing in disguise for Ashok Leyland, www.business-
standard.com, 16th June, 2014.
2
A global conglomerate founded in the year 1914. Its headquarters are located in London, United
Kingdom. The group has various businesses operating in different industries. As a part of global
investment, the group invested in Ashok Leyland, foraying into the Indian market in the year 1987.
3
T E Narasimham, Sales slowdown a blessing in disguise for Ashok Leyland, www.business-
standard.com, 16th June, 2014.
4
Vikas Yogi, Performance Review: Indian Auto Component Industry in 2013-14, http://auto.ndtv.com/,
17th July, 2014.
5
T E Narasimham, Sales slowdown a blessing in disguise for Ashok Leyland, www.business-
standard.com, 16th June, 2014.
6
Ashok Leyland offers VRS, www.thehindu.com, 8th November, 2013.
7
500 Ashok Leyland employees opt for voluntary retirement scheme, http://timesofindia.indiatimes.com/,
5th December, 2014.

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 115-080-1

employee who opts for it,” said Dasari8 . The company also planned to come up with a VRS
scheme for the workers. Besides, the remuneration of Dasari was also reduced to Rs.22.1 million
during the year 2013-14 from Rs. 27.9 million in the year 2012-13. In the year 2011-12, his
remuneration was Rs. 24.8 million9 (Refer to Exhibit-I for Ashok Leyland Profit & Loss Account
for the Year Ended March 31, 2014). To overcome the challenge of declining sales revenues, the
company focused on improving its revenue margins by expanding into other regions and by
concentrating on the sale of non-core business products (Refer to Exhibit-II for Ashok Leyland
Revenue Details for the Year Ended March 31, 2014).
The company initiated steps to reduce its debt burden and to improve its working capital position.
Its debt position at the end of March 2014 stood at Rs.46,900 million (Rs. 4690 crore) while its
working capital was at Rs.7800 million (Rs. 780 crore), considered to be the lowest in the previous
five years. According to the CFO, Gopal Mahadaven, the management of Ashok planned to
continue its cost-cutting measures until the end of March 2015 to improve its financial and
operational position (Refer to Exhibit-III for Ashok Leyland Balance Sheet as on March 31, 2014).
Without ignoring the focus on capital expenditure decisions, the management had invested around

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Rs. 2000 million (Rs. 200 crore) to Rs. 2500 million (Rs. 250 crore) on developing new products

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during the year “We have only stopped capacity expansion investment plans, while product growth
will continue,” said Dasari10.
With the entry of international commercial vehicle manufactures (Volvo, Daimler, Scania, MAN,
Isuzu, and Hino) in the Indian automotive industry, the competition in the industry had intensified.
According to a survey conducted by Ernst & Young, the domestic players were expected to face
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challenges from international manufacturers in terms of technology, quality, durability, and

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reliability of products. The top commercial vehicle manufacturers in India were TATA Motors and
Ashok Leyland, with a combined market share of around 90%11. During the year 2013-14, Ashok
introduced the BOSS vehicle in the Intermediate Commercial Vehicle (ICV) segment and the
CAPTAIN vehicle under the M&HCV segment. Apart from eyeing local markets, it was also
planning to take advantage of the opportunities arising in the international markets.
During the year 2013-14, the export business constituted around 10% to 15% of the company’s
sales. The management’s objective was to improve the export margins to 20% to 25% in the long
run (Refer to Exhibit-IV for Ashok Leyland Domestic and Export Sales Volumes for the year 2013-
14). The management of the company had been positive about opportunities coming up in the
future and expected substantial improvement in the performance of the company (Refer to Exhibit-
V for additional information on Ashok Leyland). As per the market analysis, investors had positive
expectations about the performance of Ashok Leyland in the future. The company did not raise any
additional equity capital during the year (Refer to Exhibit-VI for Ashok Leyland Cash Flow
Statement for the Year Ended March 31, 2014).

8
Ashok Leyland offers VRS, www.business-standard.com, 8th November, 2013.
9
Ashok Leyland to Slash CEO’s Pay, www.thehindu.com, 31st March, 2015.
10
T E Narasimham, Sales slowdown a blessing in disguise for Ashok Leyland, www.business-
standard.com, 16th June, 2014.
11
Ketan Thakkar, Indian commercial vehicle market to double to 1.6 million by 2016-17: E&Y Report,
http://articles.economictimes.indiatimes.com, 25th April, 2012.

3
 115-080-1

Exhibit I
Ashok Leyland Profit & Loss Account for the Year Ended March 31, 2014
Amount in Million Rs. Amount in Million Rs.
Particulars
(2012-13) (2013-14)
INCOME
Revenue from Operations 132,985.59 105,608.45
Less: Excise Duty 8,173.59 6,174.19
Total Net Revenues [A] 124,812.00 99,434.27
MANUFACTURING EXPENSES
Cost of materials consumed 75,394.16 59,096.95
Purchases of stock-in-trade - Traded

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13,117.39 12,690.28

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goods
Changes in inventories of finished goods,
2,719.77 4,238.71
work-in-progress and stock-in-trade
Manufacturing Expenses [B] 91,231.33 76,025.93
Gross Profit [A-B] 33,580.67 23,408.33
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Employee benefits expense 10,755.13 9,996.72

Other expenses 14,060.86 11,745.99
Operating Expenses [C] 24,815.99 21,742.71
Total Expenses [B+C] 116,047.32 97,768.64
Operating Profit [A - (B+C)] 8,764.68 1,665.62
Other Incomes 623.52 665.21
Exceptional Items 2,895.56 5,056.59
Profit Before Interest, Depreciation,
12,283.76 7,387.42
and Tax (PBITD)
Depreciation and Amortization Expenses 3807.84 3770.36
Profit Before Interest and Tax (PBIT) 8,475.92 3,617.06
Finance Costs 3,768.86 4,529.25
Profit Before Tax 4,707.06 (912.19)
Deferred Tax 370.00 (1,206.00)
Net Profit 4,337.06 293.81
Source: Ashok Leyland Annual Report, 2013-14

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 115-080-1

Exhibit II
Ashok Leyland Revenue Details for the Year Ended March 31, 2014
Amount in Million Rs. Amount in Million Rs.
PARTICULARS
(2012-13) (2013-14)
Revenue from Operations
A) Sale of Products
Commercial Vehicles
Manufactured 103183.35 79381.1
Traded 8151.71 10396.068
Engines and Gensets 4835.16 4178.39
Spare parts and others 18145.81 12125.73
[A] 134316.04 106081.29

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B) Revenue from Services [B] 1382.55 1024.862
C) Other operating revenues
Contract manufacturing 1184.99 943.002
Export incentives 828.63 414.048
Scrap sales 750.18 715.913
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Others 17.42 3.968

[C] 2781.22 2076.93
[A+B+C] 138479.81 109183.08
Less: Commission, rebate, and discounts 6494.22 3574.628
Total Revenue from Operations 132985.59 105608.45
Other Income
A) Interest income from
Long-term investments 1.49 1.49
Others, including bills discounting 330.94 171.864
332.43 173.35
B) Dividend income from
Current investments 5.71 2.927
Long-term investments 69.92 44.125
75.63 47.05
C) Other non-operating income
Cash discount earned 40.45 31.094
Profit on sale of fixed assets - net 41.73 93.892
Others 133.28 319.815
215.45 444.80
Total Revenue from Other Sources 623.52 665.21
Source: Ashok Leyland Annual Report ( 2013-14)

5
 115-080-1

Exhibit III
Ashok Leyland Balance Sheet as on March 31, 2014
Amount Amount In Amount
Amount In
In Million Million In Million
Liabilities Million Rs. Assets
Rs. Rs. Rs.
(2012-13)
(2013-14) (2012-13) (2013-14)
Shareholders' Funds Fixed Assets
Share capital (Total No.
of outstanding shares
2,66,06,76,634, Face 2,660.68 2,660.68 Tangible assets 49,184.34 52,219.27
value of Rs. 1/- per
share)
Reserves and Surplus 41,890.37 41,818.16 Intangible assets 3,634.49 4,379.40

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44,551.05 44,478.84 5,626.18 1,551.30
progress
Intangible assets
Non-current liabilities 1,263.09 263.97
under development
Non-current
Long-term borrowings 27,378.42 32,965.05 23,376.32 24,053.11
investments
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Deferred tax liabilities Long-term loans and

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5,273.67 4,067.67 4,993.34 6,727.65

(Net) advances
Other long-term Other non-current
17.79 23.71 120.32 330.90
liabilities assets
Long-term provisions 785.13 678.66 88,198.08 89,525.61
33,455.00 37,735.09
Current Liabilities Current Assets
Short-term borrowings 7,669.83 5,874.08 Current investments - 3,843.75
Trade payables 24,853.69 22,141.54 Inventories 18,960.21 11,887.03
Other current liabilities 17,350.63 16,969.14 Trade receivables 14,194.11 12,990.11
Cash and bank
Short-term provisions 3,086.83 881.27 139.42 116.91
balances
Short-term loans and
52,960.98 45,866.02 8,713.42 8,007.11
advances
Other current assets 761.78 1,709.45
42,768.94 38,554.35
TOTAL 130,967.02 128,079.96 TOTAL 130,967.02 128,079.96
Source: Ashok Leyland Annual Report, 2013-14

6
 115-080-1

Exhibit IV
Ashok Leyland Domestic and Export Sales Volumes for the year 2013-14
Domestic Exports
Segment Change Change
2012-13 2013-14 2012-13 2013-14
(%) (%)
M&HCV Buses 46,913 38,709 -17.49% 7,562 7,104 -6.06%
M&HCV Trucks 221,776 161,918 -26.99% 11,962 16,709 39.68%
M&HCV Total 268,689 200,627 -25.33% 19,524 23,813 21.97%
LCV Buses 47,827 42,799 -10.51% 3,057 2,254 -26.27%
LCV Trucks 476,695 389,312 -18.33% 57,446 50,989 -11.24%
LCV Total 524,522 432,111 -17.62% 60,503 53,243 -12.00%

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CV Total 793,211 632,738 -20.23% 80,027 77,056 -3.71%
Source: Ashok Leyland, Annual Report (2013-14)

Exhibit V
Additional Information on Ashok Leyland
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Amount Rs. Amount Rs.

Parameter
2012-13 2013-14
Market Price Per Share 21.95 23.70
Dividend Paid Per Share 0.60 Nil
Book Value Per Share 16.74 16.72
Source: Ashok Leyland Annual Report (2013-14) & Compiled from other published sources

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 115-080-1

Exhibit VI
Ashok Leyland Cash Flow Statement for the Year Ended March 31, 2014

Amount In Amount In
Particulars Million Rs. Million Rs.
(2012-13) (2013-14)
CASH FLOW FROM OPERATING ACTIVITIES
Profit/(Loss) before tax 4,707.07 (912.19)
Adjustments for:
Depreciation, Amortization, and Impairment — Net of
Capitalization 3,807.84 3,770.36
Other Amortizations 57.13 18.904

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Bad and doubtful debts/advances provided/written-off (net of
recovery) 52.485
Foreign exchange (gains)/losses (127.74) 73.326
Loss/(profit) on disposal of tangible assets (41.73) (2026.62)
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Loss/(profit) on sale of long-term investments (3,297.19) (3687.09)

Provision for Diminution in value of long-term investments 401.63 95.732
Voluntary Retirement Scheme expense 467.49
Finance costs-net of capitalization 3,768.86 4,529.25
Interest income (332.43) (173.35)
Dividend income (75.63) (47.05)
Operating profit before working capital changes [A] 8,867.80 2,161.25
Adjustments for changes in:
Liabilities and provisions (1,699.44) (3375.67)
Trade receivables (1,908.97) 1,168.05
Inventories 3,346.04 7,073.18
Loans and Advances (311.05) (844.80)
Other non-current and current assets 88.27 147.20
Voluntary Retirement Compensation paid - Exceptional item (467.49)
Total [B] (485.15) 3,700.46
Cash generated from operations [A+B = D] 8,382.65 5,861.71
Income tax paid [C] (1,099.66) (297.41)
Net cash flow from Operating activities [D-C = E] 7,283.00 5,564.30

8
 115-080-1

Amount In Amount In
Particulars Million Rs. Million Rs.
(2012-13) (2013-14)
CASH FLOW FROM INVESTING ACTIVITIES
Payments for acquisition of assets (6,491.62) (2197.54)
Proceeds on sale of fixed assets 53.24 126.97
Proceeds on sale of tangible assets - Exceptional item 973.35
Proceeds from sale of long-term investments - Exceptional
item 4,146.46 5,096.56
Purchase of long-term investments (9,282.43) (5,379.29)

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Inter Corporate Deposits — repaid 200.00
Interest received 188.08 143.64
Dividend received 75.63 47.052
Related Party Loans and advances given / repaid (Net) (332.55) 408.27
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Taxes Paid (20.41)

Net cash flow (used in) investing activities [F] (11,643.20) (1,101.41)
Cash Flows from Financing Activities
Proceeds from long-term borrowings 11,713.85 12,009.41
Repayments of long-term borrowings (7,347.09) (8,506.08)
Proceeds from short-term borrowings 102,693.29 136,717.85
Repayments of short-term borrowings (96,056.12) (138,393.98)
Debenture / Loan raising expenses paid (113.53) (88.04)
Interest paid (3,628.30) (4,357.81)
Dividend paid and tax thereon (3,092.31) (1,867.72)
Net cash flow used in / from financing activities [G] 4,169.80 (4,486.36)
Net cash Inflow/(Outflow) [E+F+G] (190.41) (23.47)
Opening cash and cash equivalents 274.63 78.11
Add: Pursuant to amalgamation 2.80
Exchange fluctuation on foreign currency back balances (6.12) (6.85)
Closing cash and cash equivalents 78.11 50.59
Source: Ashok Leyland Annual Report, 2013-14

9
 115-080-1

Suggested Readings and References:

1. Vatsala Kamat, Ashok Leyland trims costs to pull up performance, www.livemint.com, 27th
July, 2014.
2. T E Narasimhan, Sales slowdown a blessing in disguise for Ashok Leyland, www.business-
standard.com,16th June, 2014.
3. Ketan Thakkar, Indian commercial vehicle market to double to 1.6 million by 2016-17:
E&Y Report, http://articles.economictimes.indiatimes.com/, 25th April, 2012.
4. R.Natarajan, Indian CV industry – Battle for supremacy, www.motorindiaonline.in, 3rd
March, 2014.
5. Ashok Leyland to slash CEO's pay, www.thehindu.com, 10th February, 2014.
6. R.Balaji, Ashok Leyland plans another VRS, www.thehindubusinessline.com, 26th January,
2014.

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7. 500 Ashok Leyland employees opt for voluntary retirement scheme,
http://timesofindia.indiatimes.com, 5th December, 2013.
8. Ashok Leyland announces voluntary retirement scheme,
http://timesofindia.indiatimes.com/, 9th November, 2013.
9. Ashok Leyland offers VRS, www.business-standard.com,8th November, 2013.
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Ashok Leyland offers VRS, www.thehindu.com, 8th November, 2013.

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10.
11. Ashok Leyland (2QFY14-Results Review), HDFC Securities Institutional Research,
www.hdfcsec.com, 7th November, 2013.
12. Ashok Leyland separates truck, bus and power solutions businesses, www.livemint.com,
17th October, 2013.
13. Ashok Leyland to carve out three corporate divisions, www.thehindubusinessline.com, 12th
May, 2013.
14. Ashok Leyland (Annual Report 2013-14).
15. Ashok Leyland (Annual Report 2012-13).
16. www.ashokleyland.com

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