Financial Daily from THE HINDU group of publications
Saturday, Oct 26, 2002
Ashok Leyland: e-com, ratings are next priorities
CHENNAI, Oct. 25
ASHOK Leyland is poised to reap the benefits of more material cost reduction, from the last quarter of the current year onwards, when the company's e-Commerce initiative will be fully operationalised.
The company's Executive Director-Finance, Mr T. Ananthanarayanan, sees e-Commerce as a two-levelled instrument. The first level represents bidding on the Internet, which the company has begun to do, on an experimental basis. In the first six months, the company bought steel and sold some old machines, through Net-based auctions.
The second level is a full-fledged Supply Chain Management and Customer Relations Management model. A Rs 50-crore project for this is almost complete - it will take another two months and around Rs 7 crore to complete. (There was some delay in this project, because of the absence of a crucial fibre optic linkage backbone, which the Bharat Sanchar Nigam Ltd has now put up.)
Once the project is complete, Ashok Leyland's suppliers will know how much they will have to supply to the company in the next one week, next one month, next three months... .That is when a true Just-in-time model will be possible.
Alongside, a process of rationalisation of suppliers is on. Three years ago, the company had around 1,300 suppliers. Today, it has only around 800 and the plan is to reduce the number to 500 in the present phase. While not wanting to disclose the exact savings from material cost reduction in the last six months, Mr Ananthanarayanan observed that the company had been bringing down its material costs by one percentage point year after year. "Not a flash in the pan," he said.
In 2001-02, `consumption of raw materials' cost the company Rs 1,536.39 crore.
In the first six months of the current year, it amounted to Rs 745.44 crore, as against Rs 695.40 crore, (even as the volumes have risen).
A full e-Commerce model will also include CRM components and a HR portal, and the company is working towards these.
While this is on one side, on the other is the effort to improve Ashok Leyland's ratings. At present, the company's long-term borrowings are rated AA- (double A minus) and short term (P1+), the highest, by Crisil.
Mr Ananthanarayanan said that Crisil takes a view on the cyclicality of the transport industry and therefore does not give the highest rating (Triple A) to the company. Yet "we continue to aspire for it", he said.
By explaining to the lenders the company's intrinsic strengths, Ashok Leyland has been able to get AA+ ratings for its long term loans.
It reckons that any improvement in rating to AAA, would yield an interest rate benefit of 100 basis points.
On a loan portfolio of Rs 600 crore, this would works out to Rs 6 crore, "which is a lot of money".
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