Ashok Leyland's board of directors has approved a plan to merge with Hinduja Foundries. In a statement filed with stock markets, the Chennai-based automaker said its board has unanimously approved the amalgamation with the Hinduja Group Company. Hinduja Foundries is a manufacturer of grey iron castings and automotive components and is a crucial supplier to Ashok Leyland. Under the scheme of amalgamation, shareholders of Hinduja Foundries will get 40 shares of Ashok Leyland for 100 Hinduja shares. The proposed date of amalgamation is 1 October 2016. Hinduja Foundries makes cylinder blocks, cylinder heads, housings. and SG grey iron at its two manufacturing plants at Sriperumbudur and Ennore, both near Chennai in Tamil Nadu. "We welcome Hinduja Foundries into the fold of Ashok Leyland Ltd," said Vinod K Dasari, Ashok Leyland's CEO and managing director. "The amalgamation will result in operational efficiencies and help realise significant cost synergies."
Significance: The merger comes at a time when Ashok Leyland has restructured its operations and has swung into profit in recent years. On the other hand, Hinduja Foundries has accumulated losses of INR11 billion (USD163.5 million) and debt of INR5.12 billion. Ashok Leyland already has a 2.6% equity stake in Hinduja Foundries and accounts for nearly one-third of the latter's annual revenues. The transaction is important as it moves the foundry in-house for Ashok Leyland, which also stands to reduce its tax outgoings following the merger as some of its profits will be offset by Hinduja Foundries' losses. Nevertheless, the transaction poses some challenges for Ashok Leyland as turning around the perennially loss-making entity will not be easy.
