The Ashok Leyland stock closed 3.5 per cent lower on Thursday, after the company announced the merger of supplier Hinduja Foundries. Worries over the merger has been over three aspects. One, Hinduja Foundries is loss-making, clocking a loss (adjusted) of ₹258 crore for the 18 months ended March 2016.
Additionally, the company has a debt of about ₹460 crore as of March 2016. Besides, the terms of the merger are expected to result in a 2.76 per cent dilution in equity for Ashok Leyland on the expanded equity base.
While Ashok Leyland says that Hinduja Foundries’ operating performance has improved in recent times, the merger is expected to be earnings accretive only two to three years down the line. The only immediate benefit for Ashok Leyland is a tax benefit from the accumulated losses of Hinduja Foundries.