Commercial vehicle major Ashok Leyland Ltd is targeting to save about Rs 500 crore in operating costs by sifting through the expense heads while investing about Rs 1,700-2,000 crore for capex, a senior official said on Thursday.
Whole Time Director and Chief Financial Officer Gopal Mahadevan also said the company is likely to stop production of BS IV vehicle chassis from January 2020 end. The company will continuing to roll out fully-built BS IV vehicles and also start rolling out BS VI emission norms complaint vehicles.
“We are targeting to cut about Rs 400-500 crore of operating costs. We want to take that out of the system,” he told reporters here.
Queried about the areas of cost reduction, Mahadevan said: “We are studying our distribution costs and see how it could be done in a more cost effective manner. Similarly, we are also looking at cutting down the administrative overheads.”
He said that the costs are classified into vital, essential and desirable.
“Costs that are vital and essential will be incurred and those under the desirable head will be spent on need basis,” he added.
Asked whether reduction in administrative overheads would involve reduction in head count, Mahadevan said instead of reducing the staff, the focus will be on increasing the productivity of each employee.
Production cuts will be on demand projections, he said.
On the capex he said the company is planning to invest between Rs 1,700-Rs 2,000 crore for BS VI vehicles, modular vehicle platform and project Phoenix.
He said while there is negative growth in medium and heavy commercial vehicles, there is good growth in the light commercial vehicle segment and the company will come out with new range of vehicles of 3 to 5 tons soon.
With only BS VI emission norms complaint vehicles will be registered from April 1, 2020 onwards, Mahadevan hoped for pre-buying of BS IV vehicles during the second and third quarter of the current fiscal.
While expecting a spike in demand for fully built BS IV vehicles during the last quarter of the current fiscal, he said sale of chassis will be stopped from January 2020 end.
“It takes about two months for a customer to build a body on the chassis,” he added.
On electric powered buses, Mahadevan said the company is talking to private bus operators also apart from State Transport Undertakings.
Meanwhile, Ashok Leyland closed the first quarter of the current fiscal with a revenue of Rs 5,684 crore and a net profit of Rs 230 crore.