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The Hinduja family feud as inconsequential as far as Ashok Leyland Ltd’s prospects go. The general view among brokerages is that the company’s operations won’t get affected by the fight over the promoter group’s $11 billion fortune.
However, investors have been a bit on the edge, with the company’s shares falling 7.5 per cent in the past three trading sessions. The company’s better than expected March quarter results didn’t lift sentiment either.
Loans to promoter entities worth Rs 500 crore were outstanding at the end of March, which is a bit of an eyesore, especially since the company’s debt numbers themselves shot up last year. So what should have ideally been used to repay its own debt was instead used to fund a promoter-group venture.
Investors have typically frowned at such arrangements. In Leyland’s case, the company told analysts that among other things, it gets to make an arbitrage gain by borrowing cheap and lending to promoter entities at rates that are 3-4 percentage points higher.
While this sounds good, prima facie, the moot point is that the company’s investors are really looking to ride its fortunes in the auto business, and not quite its prowess in the market for inter-corporate deposits.
While Ashok Leyland has had a history of giving loans given to promoter entities, these have been typically short-term loans, and never kept outstanding in the end-March period. In FY19, loans worth Rs 735 crore were given, but these were also repaid before the end of the year. But in FY20, loans worth Rs 950 crore were advanced, while repayments amounted to only Rs 450 crore.
