Ashok Leyland Limited (ASHOKLEY) Earnings Call Transcript & Summary

Good morning, everyone. On behalf of Motilal Oswal Financial Services, I'd like to welcome you all to this call with Ashok Leyland. Ashok Leyland is represented by Mr. Gopal Mahadevan, Executive Director and CFO; and Mr. K.M. Balaji, Vice President, Corporate Finance. I'll hand over the call to Mr. Mahadevan for his opening remarks, post which, we'll start with Q&A. Over to you, sir.

Thank you, Jinesh. I hope that I'm audible. I'm working from home. So I'm using some infrastructure which is not really optimal. But thank you very much, amidst all these challenges that we have on the coronavirus, and all of you coming in, I believe there's quite a large number of investors. I -- this call, we thought typically like what Ashok Leyland does in the past whenever there are some concerns that are exhibited by investors, we normally get into a call to clarify matters. If you remember, we did the same thing in foundries, after which they found that the rationale behind it was acceptable and more than acceptable when things started to pan out. Now the purpose of this call is for the intimation that we've given to the stock exchange yesterday about the Board approving 19% of the additional equity shares in HLFL being acquired, and there were some -- and the total value that would be acquired would be INR 1,200 crores in total value. And I think there were questions on this. I just thought, briefly, I'll give a rationale and then throw the floor open for questions. First of all, we must remember that we had signed a term sheet and had acquired shares from Everstone in 2017, if my memory serves me right, at -- as the first tranche of taking over the shares of Everstone, because Everstone had been good investors in Hinduja Leyland Finance. They invested in 2013, and they were looking for an exit. And HLFL itself, if you remember, had tried to do an IPO twice. And once the markets actually went down because of the demonetization, and unfortunately, when the DRHP was filed, the second time again, there was this NBFC crisis and IL&FS crisis, which resulted again in the IPO being shelved. So we said that we were committed to the investors who had invested at the early stage when the company had required funds. And that is how Ashok Leyland, the Everstone, as well as the Hinduja Group, had been investing to grow the company. Now as the company grew, then we decided, as I mentioned, 7% was taken over in 2017 and the balance 7% was to be taken over in tranches, starting with July of last year and possibly ending in May of the current year. Now when this was done, this -- the pricing that was done was INR 119 per share and this was just equal to 2x March '19 books. I repeat 2019 March books, not 2020. Now I can't give the numbers for 2020, but believe me that the value will be much higher. So in terms of the pricing rationale, while people may see that the markets have come off, there has been a severe reduction that has happened, we cannot take a long-term potential valuation based on the current trailing that has happened to the market, point number one. So this is the first point. The second point that happened is that the company, HLFL, has growth plans. And as on date, their books have been growing quite significantly. And as on the -- as on December, I can share with you the expected book that is expected in the current year is something close to nearly about 29,000 -- INR 28,000 crores to INR 29,000 crores. So the company has been doing very, very well. And now as we move forward, the company is looking at multiple options. Since now Everstone is moving out, there are opportunities for other private equity investors to come in and we would -- we are actively in discussions with them. And there is also opportunities for picking up some very good assets in the current market, which will help in -- which may require a merger. Now at the moment, I don't want to make it sound too forward-looking. But these are very active discussions that are happening now. And when we are having active discussions, which may lead to a closure, that is the purpose of investing time and effort from all sides, one of the complexities that we found was that there were too many shareholders in Ashok Leyland. So we have aside of Everstone and Ashok Leyland, there were a whole sort of other group companies who had actually invested periodically to keep the company going for the funding. So then it was felt that the potential investors, we have been talking to quite a few, they also felt that they needed clarity on the holding because there were too many players, too many approvals, shareholding agreements were becoming a lot more complex and then it was felt that we need to simplify this. So what we decided was, while the timing is not the most appropriate, but we also had to look at it as we need to do these transactions appropriate moment in time, which will create value for HLFL and for Ashok Leyland. The reason being why Ashok Leyland predominantly is because HLFL is 62% owned by Ashok Leyland and is a strategic financing partner for Ashok Leyland, and I'll touch upon that a little later. So when we did that, we said, okay, we looked at the fund position of the company. We looked at Ashok Leyland's debt. It is not very significant, even though the markets are down. So there are 2 things. One is a market sentiment, what is happening to CV industry, what is happening to the general stock markets, global markets, coronavirus and all that. But we also have to look at what is the opportunity that HLFL has got amidst all this challenging environment, and we have to ensure that the structure is appropriate for us to start inviting investments into the company as we want to grow further. And these are going to be growth paths, which are going to be quite different from just the traditional growth path. We are in discussions, early stage, but very, very determined that we need to open possibly associations or joint ventures and expand to markets like Bangladesh, Nepal, Middle East and Africa. Now we want to ensure that Ashok Leyland doesn't keep on putting capital, and we would want to invite capital, and more importantly, expertise from some of the investors. Now if we have to do that, it's important that we do not have complex shareholding. So when we -- and today, I tell you the CEO of HLFL, along with our international head, has visited Dubai, has visited Bangladesh, has visited Nepal amidst all of this coronavirus scare because we are determined to grow our international markets. And for us, financing is becoming extremely crucial. And especially in markets like Africa, we would need to have a solution for both the dealerships and retailer-ships. And unless we put -- our group puts in money into these efforts, it is very difficult to convince banks otherwise to make these investments. So there is a much -- you might see only a 2-line disclosure to a stock exchange, but there is a lot more complex decision-making that happens in the back. This is the second point that I wanted to share with you. The third point of this -- the rationale is once you have a simplified structure and once you are -- I mean, all of this is being done in preparedness for the company of HLFL and the strategic advantage that it brings to Ashok Leyland because HLFL -- 50% of HLFL books is commercial vehicles. HLFL does provide -- their stated market share should be about 15% and 50% would be the book size. We also have some rules. We don't cross-subsidize. The financial health of HLFL is very good, and I'll share some broad numbers on it. It has got a very broad-based Board. It is not a small company, which has got some only promoter holding company Board people. There are people who have come from banking industry, who are the ex-Chairman of ONGC and some of the bank heads are there on the Board. So we have some very competent people on the Board of Hinduja Leyland Finance as well. So for us, having a greater ownership becomes -- it becomes strategic advantage because at some point in time, HLFL will go for an IPO. And at that point in time, we would want to show some value release, point number one. The second one is, when we invite investors and when we invite -- suppose there is an opportunity for a merger because certain things I can't discuss with you because a merger can bring in certain other strategic advantage to the balance sheet. And when that -- all of this happens, we were very clear that we did not want to have Ashok Leyland stake coming down below 51%. And that is the reason that we have not gone for the entire amount. If you look at it, this is not as it is portrayed in some WhatsApp messages and all that stuff. We have only gone for INR 1,200 crores. And I'm coming to the third most important point. This INR 1,200 crores that is being invested is also including the 7% commitment that Ashok Leyland has as the primary investor to Everfin. So people have been actually kind of thinking multiple things, but this is now how the whole deal has been looked at from our side. So when we look at it, out of the possible 19%, I'm just giving some approximate numbers, 7% is already a committed number. And what happened is the earlier tranche of 3% because of the uncertainty of working capital and all that, there was an agreement that was signed that either HG Group or Ashok Leyland will pick up Everfin -- Everstone shares, which is only fair because we wanted to give a fair exit to an excellent financial partner. Now that we know that our debt level positions aren't so bad and that there was a reason that there's a potential investor who may come into HLFL, there is also a potential merger that can happen, but at this moment, these are forward-looking statements. But if all of this were to happen, we said the best thing to do is to acquire the balance 4% of Everstone directly from HLFL and also acquire possibly the 15%, of which 3% is Everstone, from the Hinduja Group so that we have sufficient headroom for dilution as we move forward. And believe me, when the markets recover after 2 to 3 years, and I'm sure that the markets will recover, and when we are going to -- when we will list and -- HLFL, and hopefully, third time, we will be lucky, there is a significant upside that will come in. I thought I should give this perspective so that we understand why the decision has been made. And back to you, Jinesh.

[Operator Instructions] The first question is from the line of Ruchit Mehta from SBI Mutual Fund.

Firstly, I hope all your employees and family, everybody is safe in this crazy and all. Just a query. Was this the best methodology to do it in the given circumstances? And the reason, to be frank and honest with you, is that one can always bring questions that, look, tough market, tough environment. So far, you guys have a done a stellar job in turning things around, keeping the ship afloat, governance standing has improved dramatically the last 5, 7 years. And there are group companies which may be stressed on offset, and we just -- look at the way the stock price of IndusInd Bank had moved, et cetera. Is this an environment in which rumors can fly thick and fast and so I get the logic of trying to consolidate shareholdings, et cetera, but could not that have happened in some new entity or structure in which the promoters could have clubbed all their holdings and then you could have sold it to some investor who wanted to [ complement and branch out ].

No, Ruchit. You are right. You are right. So the question, and it's a good question, and it gives me an opportunity to answer it. The -- see, I will step back a little bit and tell you this, okay, so that I don't want to -- I'm not going to be canvassing for this investment. Let me put it that way. I have to play a neutral role, so I'm going to play a neutral role. The point is, yes, the timing sucks. I'm not saying no. Timing is tough, right? But the point is when we are discussing with various things, and tomorrow, if something were to happen, at that point in time, I can't do things because there are complex decisions to be made and the shareholdings have to be done. It is also possible that some of the decisions, while we are getting some MOUs and draft and all those things are happening, finally, it has to conclude. But the best thing is to prepare the company. Second part is while you say group holding, promoter company and all that, if you look at it over the last so many years, what has happened is we have actually been -- look at the company what it has been doing, okay? So we have been actually impairing the investments that have happened. We had impaired Optare fully, but we still continue to invest in Optare because I can't close the company like that. And we have been open about it saying that the company has a little bit of -- Optare has some challenges, but we have to keep going because it is the only decent bus company that is there in London. And it has won -- and the international -- I mean, the double-decker in the award. Now it is burning cash, we are aware of it. We have parachuted some good people inside now, even though we need people. And we are trying to pick things there to see how to get the break-even point down. We will take a decision on it at a suitable moment in time, if we find that all opportunities, revenues we need to explore have closed out. Now you -- somebody may say, hey, but these guys are continuing to invest in Optare. Yes, of course. It is a business decision. It can't be just about sentiment because once you do that, we will only be doing things which others will perceive right and we will not do things which may be strategically right. This is one. Same thing with Albonair. We have taken a hit of 50% in Albonair. I have impaired Optare equity fully. Every time we do it, we actually keep impairing it. And if you look at Albonair, we have taken off 50% of it. We carry -- I mean, we're carrying the carrying value only at 50%. Now nearly 40% to 50% of my urea dosing nozzles are going to come from Albonair for my BS VI, and it has worked reasonably well, I would say, in more than 150,000 units of Volvo in Europe. So what happens is there are perceptions. I mean, where is this subsidiary, what is happening. Then we have to tell investors, see this is where the money is going. This is where it's getting invested. HLFL is not an Optare or is not an Albonair, okay? HLFL, today, if you look at it, has got a huge strategic advantage because what is happening is, I -- the number is going to be that for my half year numbers as well -- okay, my December numbers. Unfortunately, my laptop was hanged, but anyway, now my December numbers, quite a significant amount of my consolidated profits are coming from HLFL. So it is not something, which is hanging around my head like a millstone. It is not the NBFC, which has actually had a huge problem in the market. It has been growing quite significantly. It has got 50% portfolio from Leyland. 50% is non-Leyland portfolio where it has got motorcycles, 2-wheelers, off-road vehicles, loan against properties, small-value tickets as well as special purpose papers that are bought from the market. So it is quite derisked. And then it's got a subsidiary whose book is also something like about INR 1,200 crores or so, which is into housing finance. So this is -- and my carrying value in the books today is only INR 53. Okay. So I have a good upside buffer on that investment, whereas what -- see, you must understand. Some of these WhatsApp and all that, no, while it is -- well, WhatsApp is a WhatsApp, I'm not trying to belittle it. I'll take it as an opinion and a perception. But what is important also to see is that this is not something which is dilutive. It is not some -- this is not some nonperforming company in which Ashok Leyland is going and acquiring the stake. It is a performing, well-rated, accretive subsidiary of Ashok Leyland. In fact, if I tell you, and again, that's why I said, I am not holding a case for this. Ideally, if you ask me, when I -- I would have looked at it as to why do we have so many shareholders. Ashok Leyland should have been holding predominant part of the shares along with Everstone. Now the point was, at every stage, when we were looking at it, we said, okay, we'll do it later, Everstone is there. Then after that, when we said, okay. And the group picked up about 3% because at that point in time, we wanted to enter into this because what is happening is that we said supposed Ashok Leyland's CapEx becomes 2,200 crores, then what happens? See, in July, the forecast that I had given, and I know that we have been able to get it down, my compliments to the team, we said that we will be about INR 2,000 crores to INR 2,200 crores of CapEx. Now that CapEx today has come down to INR 1,300 crores. My working capital has been very, very infinitesimal. So which is why my net cash after -- my net borrowing after removing all my investment, ICDs, everything, is INR 1,400 crores in December and it has become better in March. So having said that the situation is like this, we said, let us do it now because, again, when we are looking at some other time, we will prioritize, we'll give away the stake. And let us assume -- see, look at a scenario where, for example, I don't know whether it will pan out. Let's assume the markets rally up after 2 years, 3 years. Let's assume that we do an Hinduja Leyland IPO at something like, say, INR 200, INR 225. At that time, investors will say, see, Ashok Leyland could have picked up this investment at INR 119, they didn't pick it up. So again, there is a perception. So what happens is, why I'm giving a long-winded answer is, there's a lot of deliberation and this deliberation is not junk, this is a professionally managed Board. You have some of the most diverse set of people on the Board of both HLFL and with Ashok Leyland. So this is not something that is done without explaining the rationale, et cetera. So if the Board is considering it, it's after examining a lot of stuff. So that is why we said, okay, now we will do it. Market is bad. No worries. But let us move on because tomorrow, if there is an investor coming in and which is going to be of strategic value for both HLFL and for Ashok Leyland, better to do it now than later.

Okay. Okay. Sir, just to clarify, this INR 119 pricing that's been decided, you could have done something as part of earlier Everstone's investment agreement that's there? And then, has there been a further additional independent valuation exercise done for this investment?

Yes, yes. See, the valuation exercise is not done by just current market multiples here. You also have to look at -- see, valuation is very subjective, let me be very clear. You cannot say that this is the value. It is not like saying 1 kilo. And you know it, I don't have to preach to the pope. So what happens is when we're doing a subjective exercise, we'll have to look at the projections of the company, and more importantly, whether the company has been achieving the predictions made in the past, right? The team in HLFL has been achieving the projections bang on target. And then we said that, okay, the multiples are where they are. But when we actually did the valuation of INR 119 even in the month of July, believe me, it was at a deep discount. Because just 3 months earlier, 4 months earlier, when we were looking or, say, maybe 6, 7 months earlier, I can't tell the exact day. But when we were looking at a DRHP and when you're looking at pricing, in '18, '19, I'm not talking '19, '20, in '18, '19, the pricing was supposed to be somewhere around INR 160 to INR 180 band. And from then on, the book has only grown. So it is not like -- so there has been a discount that has happened even at that time when we took the INR 119, and this is reasonably factual. You look at the multiples of Chola. You look at the multiples of Mahindra Finance. You look at -- of course, Sundaram Finance is at a very, very high multiple. But if you generally look at the multiples of well-managed companies with very decent-sized books, you will actually see that the INR 119 price was a very, very advantageous price, if I may say so, for Hinduja Group and Ashok Leyland. But at that point in time, prudence demanded let me not put further capital there. See, otherwise, you tell me, what is the advantage of the Hinduja Group taking 3% and then selling it back to us at the same 3% or 3.2%, only having a carry of -- because the price is no different, yes. The price is INR 119, 9 months back. You're taking it at the same price as INR 119. So there's no gain in that, right? It's a loss. But I'm not holding -- see, again, I'm telling you, ladies and gentlemen, I'm the CFO of Ashok Leyland. So I don't want to act as a representative for this deal or something. The purpose, we have come on the call, unfortunately only I could come because of so many other things, is because we wanted to clarify what the rationale is like we clarified in the time when HFL merger was also done.

See, one thing, if I can -- I may chip in. The revenue for the HLFL is around INR 2,000 crores and the profit has been -- the PAT has been quite good. The performance has been quite good until December. It's around 10% PAT.

You see, it is adding significantly to our PAT today. Unfortunately, my -- I'm sorry, because if it was in office, I would have given a thing, but Balaji, do you have the PAT of December number, that's what I was mentioning. Do you have the December PAT?

Yes. Actually, the revenue for Hinduja Leyland Finance was 2,000...

No. I want PAT here. Don't give revenue. I want only PAT.

INR 222 crores.

As of December?

Yes. This is similar to December.

Yes. And what is Ashok Leyland PAT?

Ashok Leyland PAT is roughly INR 300 crores cumulative.

So that's exactly the point. So if you look at it on a consolidated -- I know this is a tough year, by the way. So I don't want to give some this thing. But even if you look at it from another side of the telescope, today, in current situation where the main MHCV business is coming under stress due to which Ashok Leyland's PAT has come off quite sharply, Hinduja Leyland Finance has acted like a good derisking. So we have had Ashok Leyland PAT at about INR 300 crores, 320 crores whereas AL PAT has been -- I mean, HLFL PAT has been INR 222 crores. That is what I mentioned earlier. So it is adding to my consolidated EPS quite significantly. So when I invest further into it, please don't think that this is some arrangement, it's not so. Maybe it's arrangement, I'm not saying no, because without an arrangement, you can't have buying and selling that's happening. But we are also trying to see that we maintain some majority in the event there is a dilution much later. And I would want to do it now instead of doing it 2, 3 years later when everything is going well. At that point in time, I cannot say to the group, please give it to me at INR 119 or -- share. At that point in time, I will have to pay a much higher value. And I also wanted to share something. Your question was, in a way, you know, that group companies, et cetera, et cetera. I don't know where this perception is coming from. Because if you really look at it, we have only the main company, Leyland and the material subsidiaries today are HLFL, Optare, Albonair, Hinduja Tech, Ashley Alteams. Each of them have got a purpose. Optare was bought as a bus company. It has got EV, double-decker, makes state-of-the-art buses, which are flying in London, which are flying in New Zealand, which are flying in Middle East. Are there challenges? Yes, there are challenges. No doubt about it, right? Are we trying to fix it? We are trying to fix it. Will we be successful? We will tell you when we are successful. If we are not, we'll look at other plans, okay? Albonair has been breaking even. It has not been asking too much of cash at all. All that has been stemmed. And then after that, Albonair is going to supply nozzles for urea dosing. And I'm keeping my fingers crossed, and we are hopeful and we are confident that it will be a strategic advantage for us when we are launching BS VI. Obviously, our vehicles have been using the Albonair nozzles, and we have been testing it and we are founding it as very good. Hinduja Technology was formed with the purpose of being -- because we are in business of commercial vehicles and we understand vehicles, it is actually -- it was looked at as -- predominantly as an auto engineering company, which will try to grow. And that is how Nissan also got invested into it. So these are not some group companies, which are kind of floating around or something like that. Hinduja Leyland Finance, you already know. It is -- when you look at the annual reports, when they're consolidated, the numbers will tell you what kind of a company it is, right? And believe me, it's -- in terms of -- it's an independently managed company. But in terms of liquidity profile and all that stuff, up to 5 years, I have looked at it, the liquidity is absolutely there in the company. We are actually favorably disclosed. In fact, we are very favorably disposed 0 to 15, 15 to 30, above 6 months, above 1 year and all that. So it has been done with a certain amount of prudence. So other than that, there are no major group companies which Ashok Leyland has picked because I saw the WhatsApp and I was like this thing. One of the companies that we kind of shut down voluntarily and mutually was Ashok Leyland John Deere. It was brought in because it was supposed that we wanted to get into off-road and backhoe loaders because we knew that for every backhoe loader, there are 4 tippers that are sold. So we have tipper customers. So why not leverage that to look at backhoe loaders? Didn't work out for various reasons, so we decided to shut it down. We [ decided ] well in advance, informed the shareholders. And then after that, we decided there was no insight, right? Nissan, joint venture. LCV business was a joint venture with Nissan. All of you must have remembered what's happened in the market, the kind of challenges we had in running the joint venture. But today, look at it, it is one of the most important -- it's one of the most important, I would say, devolatilization strategy for the company. The LCV business [indiscernible] is doing very well even in these markets. Its EBITDA even last year, leave out the current year EBITDA. Its EBITDA margins for last year in 2019, '20 is higher than the MHCV EBITDA. We were to launch a new product in the month of March. But because of CVD, we are going to -- we are going to defer it a bit because a launch should be done properly. And once we do that, we believe that we will get into another strategic space because we are only running on Dost. The 18% market share that the company has in the addressable market is only on one major product, which is Dost. Now we will be launching another equally, if not more innovative product, which will ensure that we are enhancing the market share. And as we move forward, when we are looking at being global top 10, we have revised our vision to become global top 10. And we achieved our earlier vision. It was not a vision that was painted saying that this is what we will do, feel good factors. We said we want to be global top 10 in trucks and global top 5 in buses for 7.5 meters and above for buses and 7.5 trucks, and we achieved that. Okay. So we are very purposeful, and we would want to achieve the second goal of global top 10 where we need to be in LCV, we need to be in aftermarket, but most importantly, we need to be in exports. And for exports, we need products. And for exports, we need financing. And if we need financing, we need to go beyond the realm of our current geography. And we are working actively with the HLFL market -- management to convince them to partner us and go across to, say, a Dubai or a Bangladesh or a Nepal. A study is going on as I'm talking to you. Beyond this, I can't share because I don't want to overpromise and under-deliver on this. So there is a much larger canvas, which we are operating on when we're looking at HLFL.

The next question is from the line of Pramod Kumar from Goldman Sachs.

Gopal, I was just trying to understand what has changed between the third quarter earning call in February till now? Because on that call, the management was very clear that you are looking to pay down investments and CapEx and try to conserve cash. And all of a sudden, we see this -- in a matter of 4 weeks, we see -- less than 4 weeks, we see a INR 1,200 crore outgo. So just trying to understand what changed in the -- between the earning call on February 17 and now, sir? Because that's what I think we are trying to understand here. Understand what -- the long-term rationale of the business, all of that is good. But what has happened or transpired in the last 1 month that, all of a sudden, from a equity conservation mode, we are going into investment. I'm not questioning the long-term pieces here or on any of that. I'm just trying to understand what has changed in the last 4 weeks or less than that?

Okay. That's a good question to ask. But I'm going to also share -- see, I'm not being -- guys, I'm just going to answer it in very simple terms because the reason is, at some point in time, there is a turning point. So suppose I have spoken to you last month and the turning point happens this month. You are rightful in asking, hey, I just spoke to you last month, but suddenly, you have turned this month. Suppose the turning point after -- had happened after, say, 2 quarters, ideally it would have been good. Because then what happens is, I can say I told you 6 months back, but my turning point has happened only after 6 months. Unfortunately, that's why we said that timing has not been very good, but suddenly, things have started to develop in HLFL and then we said we have to ready ourselves for this, which was not available in the earnings call in the month of -- when we did it in February. And it was not -- it was very early for me even to make a disclosure that something like this is going to happen because, even now, I tell you, in deals, until the deal is done, nothing is done. So -- but we have to ready ourselves for it, and that is what we are doing. So it is not -- please understand. I agree with your question. Do I have a specific answer for it? I don't. But I didn't have the visibility that I have today. The Board did not have the visibility it had, say, the last 3, 4 days or 1 week that it had in the month of February. Otherwise, we would have said, no, we are contemplating. If suppose we knew this is going to happen, frankly, we would have disclosed it even then. And it would have been even better to have disclosed it in the past because then it is there in the minds of investors, right? So it would have been easier. But we didn't have that visibility, which is why we have done it now. We said, okay, now we'll take a decision, sometime a decision has to be taken. Let us do it now than doing in April, May, June when the whole organization will be running after BS VI and all that stuff. So let us have this to be done now. That's all. I have no other answer for it.

Pramod, if I may add to what Gopal has said. We will never get a perfect -- we can never hit a perfect timing for this. We'll have to manage with the existing situation.

I wanted to -- okay, anyway, I'll go for the next question, please.

The next question is from the line of Amit Premchandani from UTI Mutual Fund.

In this environment, with most of the companies are going for buyback, you are going for a transaction which kind of appears to be a bailout for the promoters. So any comments on that?

No, what is a bailout? I don't know about that because I can't talk about -- see, we are a reasonably large, diversified group. So I don't think INR 1,200 crores -- I don't know, I'm not going to comment on behalf of promoters. INR 1,200 crores is not a bailout in any sense because out of that INR 1,200 crores, like I mentioned to you, 7% is something that Ashok Leyland should have possibly acquired. Okay. So we see the group companies helped because of our own uncertainty on cash flow management, and that -- so what is happening is out of the 19%, 7% is coming out of this entire Everstone sale. And then we have a 12% being done, so that if there is a dilution that's going to happen. I don't believe that there is any bailout that is happening at all. I mean no comments on bailout at all.

Do you think it is a better use of company resource as compared to a buyback given that -- do you think Ashok Leyland Finance is cheaper than Ashok Leyland as a company and you could have used that cash to buy back actually Ashok Leyland shares at this point of time? And also, your comment on -- if you look at -- also...

Yes.

Let me complete. Another point that you said that if you look at valuation of Chola and Mahindra or whatever, these companies are -- some of these companies are not now available at below book, and this decision has come yesterday. So you have to look at the current price, how the market is valuing some of these companies.

Yes, I agree. But you see, the point that comes up is, as far as valuation of -- I'll answer your point about, what should we say, about this buyback of Ashok Leyland versus buying of HLFL shares. The point that comes up is, we have never been doing -- even when the stock price was INR 11 or INR 12, we have never done a buyback. And we've seen the stock price actually going up all the way to some very all-time highs and stuff like that. The idea that was there, again, like I mentioned to you, was because we believe that the value accretion that will happen on this investment is going to be quite high in terms of the ROI that we'll get when we -- when the market starts to come back, that's all. And we need to keep our stake above 51%. And we have been in discussion with investors for quite a while. We have been exploring investments. Some of you people will be aware, if these discussions have been going on ever since we had actually kind of not gone for, what should we say, ever since we have not gone for the IPO and then we have looked at the Everstone being bought out, that we were looking at other investors. It is not that we have not been trying.

We'll move on to the next question. That is from the line of Prateek Poddar from Nippon India Mutual Fund.

Sir, so I understand that one has to look at the normalized scenario and one can't extrapolate the current market conditions. But if I were to look at HLFL's P&L and balance sheet and ROA and ROE, and I'm just saying not this year, but last year or a year before that when the industry was doing very well, which is the CV industry, the ROEs were, I mean, they were like 12%, 13% versus the Chola or say [ the companies ] which you quoted, which would have ROAs as well as ROEs in excess of what HLFL is earning as of now. So my question was, sir, then comparing this ROE and Chola ROE and the multiples wouldn't be fair, right? Isn't that understanding correct?

Well, yes, that is why you see what happened even at that point in time, there was a discount. So what I said is I'm not -- I said, when you compare the ROA and the ROEs of various companies, we would see that HLFL has some little bit of catching up to do. I'm not saying no. But at the same time, when we offered the price of INR 119, it was not something that we had said that we will give it at Sundaram Finance valuation or we'll give it at Chola valuation. It was at a discount. That's what I mentioned earlier also.

So the point was, today, if I were to see on trailing basis, HLFL is valued at 2x. Chola on trailing basis in FY '19 was trading at 2.5x. So a differential -- an ROE differential of almost 10% or 15%, if I would -- hello? Am I audible?

Can you repeat it again? Can you repeat again?

Yes, yes. What I was saying was, if I were to look at the valuation and whatever numbers were shared at the Analyst Day, which were H1 FY '20 numbers, and I'm just extrapolating that and making some assumptions, in my view, this transaction or whatever the valuation has been quoted, say, INR 1,900 crores for 19%, if I were to do, you would get a 2x kind of a trailing price-to-book multiple for HLFL.

It's not trailing. It is FY '19 book.

FY '20, sir. So I have just extrapolated, and I might be wrong in this. I just have extrapolated.

No, you are because the FY '19 book, I'll tell you that number. And then if you want, I'll reclassify it because I'm working from home. But I'm just revisiting, the FY '19 book of HLFL consol, which includes HHF, is INR 59.

Okay.

So it is not -- some of the numbers that is being quoted in the call are not right.

Okay. So what numbers I have, and I'm just looking at the presentation, which was given on the analyst meet, H1 FY '20 net worth was INR 3,000 crores, right?

Okay. Okay.

And valued this company at INR 6,300 crores. If I were to add 6 months PAT, now that's an assumption, which I'm making of around INR 200 crores, you would come to around INR 3,100 crores and you are valuing the company at INR 6,300 crores. So roughly, say, 1.8, 1 point x. My only limited point was -- sir, my only small limited point was when I look at -- and right, you can compare it to Chola, the valuation, I mean -- so obviously, when you compare it to Chola, you have to look at the ROEs what Chola makes and what ROEs would an HLF make, right? Right. HLF is making substantially lower ROEs as we speak and it can go higher, and I'm not debating that at all, 11% to 12%.

Absolutely. Yes.

It's 12% whereas Chola is 20%. So obviously, there has to be some discount to what Chola is trading at, but that discount doesn't seem material, given the ROE differential is only my limited point. Nothing else.

Well, it's a very valid point. You can say that the ROE is of, what shall we say, of HLFL is lower than Chola. I will not be able to debate that at all. But you see the problem that comes, like I mentioned to you, is the timing also, right? So when we look at the timing, what has happened is there has been possibly a derating. Today, when you look at Chola's valuation, you are seeing that number. If you were to look at it maybe 2 months earlier, it would have been a different number. But we cannot just go by an exceptional event because the markets are tanking because of the coronavirus also. So you have to look at it...

Yes, I agree with you. And that is why I'm just looking at normalized numbers. I've never looked at current numbers. And just on a normalized basis also, Chola on a trailing basis used to always trade at 2.5x price to book. And this is a...

I thought I have a different number, but I can't debate that number on the phone now. But I thought on trailing basis...

Maybe we'll take this offline, sir, if you want.

Sure. No problem. I would be interested to know that. See, that's what -- see, ladies and gentlemen, what I mean to say is that in the current timing that it looks appropriate -- inappropriate, I agree with that. That's how I started the call with. But at some point in time, some decisions have to be taken. So it is not like we are significantly deviant from the price we are paying for Everstone, right? So it is not like we are going over and above what is being paid, et cetera. But the future business plan, what is the potential of the company is something that we see, and it's not a freely floated stock. So some assumptions have to be taken. Where it is fair to Ashok Leyland, it is fair to the other shareholders, then we take a decision. But even assuming that all of this is somewhere -- it can't be -- I can't be getting the INR 1,200 crore equity investment, and let's assume that I remove the 7% committed, right, so 7% committed. I'm just doing this so that everybody is clear about what is the materiality we are talking about, okay? Now 7% of HLFL -- I mean, of HLFL would now come to -- unfortunately, I don't even have a calculator. Please give me a moment. I'm using the same mobile for calculation.

No, it's okay, sir. Maybe we'll take this offline.

So no, no, no. I am just saying because you see because once a question is asked, we also need to answer it. By the way, other people will be listening to this, is if you look at it, the total equity capital is 46 crores. And if I take a 7% on it, that comes to 3.22 crores, right, 3.22 crore shares. And if I were to put in INR 120 for simple math, that comes to about INR 400 crores. So out of 8 -- INR 400 crores is already submitted. Now then I have got the balance, INR 800 crores, right? In that INR 800 crores, assuming that I have -- I'm not assuming. Let's assume that, that is a list in comparison to current market valuation, it appears in [indiscernible], How much will be that additional impact? You see -- but what we'll have to look at is, if you look at it in parts, then you will understand that this is not something that is totally material about that we are doing this. This is a INR 1,200 crores transaction out of which INR 400 crores is already submitted to Everstone, INR 386 crores or INR 390 crores, whatever is that number, right? The balance is what is being taken over, and that is being taken over because Ashok Leyland doesn't want to dilute beyond 51%. And we are looking at potential investors. If it happens, then you will know, yes, this is right. If it does not happen, it's unfortunate. We are also looking for a merger. We are also looking for expanding outside India, right? So then I have to get other partners also. So we have to -- I think we have to look at this and be ready at an appropriate moment in time. All your questions, you see, I'm not trying to brush them off. That is why I'm trying to answer them. That is why I said this call is not about in defense of -- it is more in clarification of what is happening. Why are we doing this at this point in time? We know that the timing is not absolutely perfect. We know that. But at some point in time, some decisions have to be taken because we believe it's good for Leyland, which is good for HLFL and then it is also fair on the group. That's all.

The next question is from the line of Kapil Singh from Nomura Securities.

Sir, firstly, could you talk about what is the long-term shareholding plan for Hinduja Leyland Finance? I mean, how much Ashok Leyland plans to hold in this company?

Well, let me put it this way. This is again, at the moment, everything is for the moment, okay? We are saying that in 3 years' time, approximately, it could be 2 years, it could be 4 years, I don't know. We are looking at doing -- within this period, we would have some private equity investors coming in and possibly adding to portfolios also through either buyout or -- not portfolios, to buy out companies or merge them, et cetera. Now if we do that, the second part of it that we'll have to look at is when can we do a listing? Because if we get fresh investors, there will be an IPO that needs to be done. So after that, once we have the investor, once -- in the event we have a potential merger and then if we do an IPO, Ashok Leyland would still like to have majority of 51%. That is the goal. So I am looking at divesting what I bought today at about INR 119. Maybe 3 years later, hopefully, investors will complement saying that, "Hey, this was a good decision." I know this was all looked at very badly. But we have done an IPO and we have been able to get a good carry on it and we are able to exit it very profitably and still maintain 51% on a good company.

Okay. And in the interim, could you just tell us after this transaction, you'll end up having, what, about 85%? And could you -- rest of it would be owned by the promoters?

Yes. At the moment, yes, we are not looking at buying anything more. It is not 85%, it is 80%. I think it is 19% plus 50% -- 62%. So it should be about 81%, yes.

Okay. And you can confirm that you will not be buying any further beyond this 81%?

Yes.

Okay. And second was on this valuation, you've talked about arm's length valuation. So can you just let us know how this was done and at what time it was -- this valuation was done?

We have even reaffirmed it as earlier this year -- I mean, this week because we have to look at the projected cash flows. We have to look at the projected cash flows of HLFL. Then we have to take a multiple, right? And we have to take a medium-term multiple. I can't take the current multiples and do a valuation. Then all your -- hopefully, I'm just saying all your buy reports for most of the companies will not be valid, right? So the current valuation is not the valuation that I can go and justify for, right? So we have taken a medium term, we have taken a 5-year plan. We have...

Basically, the argument is if somebody wants to do a transaction today, they can do at current multiples in-market. So yes, the buy report is having a target price, which may be 1 year or 2 year forward. But today, if I want to...

Correct. But this is an unlisted entity. Exactly the point. Today, you can go to the market and buy, no problem. But if you want to go and acquire, say, for example, 10% to 12% in the company or 19% in the company, I'm sure you can't do that at the current market rate. Now again, I don't want this to become a defense. I am not defending. I am only trying to give a perspective, right? Now the point is -- the second point is it's an unlisted company, correct? So I will not just look at market multiples. I also have to look at the potential growth that is going to happen, which is why somebody like Everstone would not agree for INR 119 just like that. And then they will not say, "Okay, I'm okay, fine, I -- we will go ahead and do it at a discount." They will also see the long-term potential. They will look at market multiples and then they will look at an average pricing. Correct? Now today, with the growth in the book that has happened, this has been very, very good growth in the book of HLFL, if you look at the book over the last 3 years. And then the projected growth that they are showing, it looks like the price is pretty well justified.

Okay. Sir, the other questions were on the books, could you give some numbers because there has been -- I mean just your views in terms of has there been any additional stress buildup during the last couple of months or any concerns as far as NPAs are concerned. Just some qualitative comments there from your side.

If I say that there is no stress buildup for that, there are no -- that the quality of the portfolio has been as great as the beginning of the year, none of you are going to believe it. Of course, there has been a certain amount of stress. There has been repos, et cetera. But we have also been -- the management has been reviewing the quality of the repossessed vehicles. And we are pretty confident that after making provisions for repos, if there is any additional hit, they believe that, that shall be more than recoup because of the pricing that will happen between BS IV and BS VI, right? So it's not like there is a huge amount of challenge in the balance sheet of HLFL at all. In fact, their portfolio buyouts have been doing wonderfully well. See, they have got portfolio buyouts. They have got motorcycle 2-wheelers, they've got 3-wheelers, they've got off-road applications, then they've got trucks and they've got LCVs.

Is there requirement for further equity investment in the company over the next...

We don't know. Money into company, maybe about INR 200 crores, INR 300 crores in the later part of next year. I don't know at the moment. There, the management is what we set out. We are trying -- they are stretching and stretching. That is why if you notice the -- unfortunately, because it has grown, see, you must also understand. If the number is INR 28,000 crores, INR 29,000 crores, how old is HLFL? Yes, so it's a very recent company. So the growth has been phenomenal. So a certain amount of capital has been brought in. But they have also used internal accruals. But if it was a 25-, 30-year-old company, then we would get into a steady state. You can do a mix of buy up, sell down and then keep looking at some amount of -- I mean there's a lot of internal generation to keep the cash flows going. But we will require some amount of capital, but I can only tell you after a month or quarter or so.

Sir, lastly, I wanted to check, the transaction is being done in tranches over a period of 12 months. So why is that happening and...

No, it may not. We have just done it as a safety. I wanted to share one more thing which I didn't share at the beginning of the call is that I told you the -- that for these purposes, we have already an approval for INR 600 crores of NCD, which was taken for some other purposes in June. In July, we disclosed about INR 600 crores of NCD being taken because there is a rule in RBI that if you want to borrow domestic, then you have to have 20% or 25% being borrowed through nonconvertible debentures, which have to be listed. Now I have an approval for that. Now I may go for further NCD approval for this transaction, but we have not yet decided. I will look at the cash flows and then decide whether we need to go for an NCD. So I'm telling all shareholders now itself that we may come for an NCD approval for another, I don't know, INR 600 crores, INR 700 crores. If that happens, this is for the same transaction and this is not to be viewed as anything which is going out of control or anything, okay? So -- but we will -- the idea is to keep that because we want to get the funding done and close it out. But I think the phasing out has been done just for safety's sake. But ideally, if you ask us, we want to do it quickly so that we keep the balance sheet as ready as possible. But we will be going for -- because the -- it's better to have long term to long term and not have the asset liability mismatches. And so we may go for an additional NCD approval because we've got INR 600 crores and we have to go for an additional possibly INR 600 crores or so, I don't know, which we will come back possibly in the next week or 10 days, if necessary.

Right. Sir, I don't know whether this is relevant or you can answer it right now, but could you also give some comments on the business in view of coronavirus and the impact of that on both supply chain as well as...

Well, I can only tell one thing. I think the entire world underestimated the impact of coronavirus and more importantly the social impact, leave out the commercial impact. The social impact has resulted in commercial impact. And we do see that this would -- hopefully with time, this coronavirus would go away in a quarter or maybe 2. And once that happens, I believe that we would see things slowly looking up. India has its own challenges. But in terms of readiness for manufacturing BS VI, we do have some amount of challenges, but it is not very significant because, thankfully, China is opening up. And more importantly, Wuhan, which is the manufacturing hub for vehicles, has also opened up. So that way, I think things are fine. I won't say they are looking all right. But things are slowly going in the positive sense. So if China keeps opening up, it's good because it is a global supplier. And we need some toolings. And that is why our own vehicle, which is Phoenix, is getting delayed because we need some parts coming of it and more important, not parts, we need to have over 100 containers to come inside. But it is getting quarantined in the port. And only after the quarantine is over, we can shift it to our factory. And we also need to fly in some of the engineers, either from China or from Korea. And again, there are restrictions on that. So we have to ensure that all of that is done. But for the routine BS VI and modular business programs, some issues are fuel injection pumps because I think the suppliers of fuel injection pumps also have their base in China. But there, we heard last week that they are also opening up. So we'll wait and watch and give an update if necessary. But yes, definitely, there is an impact on the coronavirus.

And the BS IV is exhausted? Or are you sure that there will be no issues because of these lockdowns and all exhausting BS IV inventory?

See, we have been -- that's what I said. I mean some of these things when we do in prudence, it also is -- at that point in time, it looks a little thing. It looks a little odd. But we have been steadily decreasing our inventory. So we have hardly about, as we speak, and I don't know today's number. Between us and the dealers, numbers are less than 1,000. In fact, they're even much lower than that. I think it's about 600 vehicles or something like that. Now so we are not in any major danger. We have been planning it reasonably well. And from consolidated inventory between the dealers and Ashok Leyland of 27,500, we've got to this number. We have a team called as project crossover. And what that cross-functional team does is continuously monitor inventories which are there, what needs to be disposed of, what is the inventory at vendors' levels. And continuously, we have been doing this from July, August and which is why we are in a much, much, I would say, stable position. And I don't anticipate anything significant. Having said that, while I can't divulge the numbers, if we started the purchasing exercise in the current year, which is '19/'20, we not only set ourselves a target for reducing our overheads by about INR 500 crores and INR 550 crores, which we have achieved and which is why our EBITDAs are much higher than competitions, our working capital management is much more superior. But more importantly, we also had this project crossover coming in, which helped us say that we need to see what is the potential hit that the company will have to take for a crossover, right? And that factoring has also been kind of budgeted and factored in, and we have been providing for it. So I would say that we are reasonably stable as far as the crossover into BS VI is concerned.

We will move on to the next question. Yes, we are moving on to the next question. That is from the line of Amit Jain from Samsung Asset Management.

Just quickly at 2 points. One is on the INR 400 crores sort of number that Everstone are picking up, that is sort of -- I mean as we understand, that's more or less like a put option that we had given them. Is that like a fair understanding to have?

It is some sort of that. I agree. See, the point is it is -- as I mentioned, this was also discussed in the call, I think, when there was a January disclosure also. The point that is there is they have been private equity investors. They have been very fine partners and they invested in 2013, I think just before I came. And when they've done that, there were -- the -- while I can't divulge the details of the shareholders' agreement [indiscernible], the spirit of the agreement between the Hinduja Group and Everstone was that at a suitable moment in time, they will be having an exit when we go for an IPO. And if the IPO does not happen, Hinduja Group will provide for best efforts, especially Ashok Leyland will provide for best efforts to acquire the shares of the company. Now frankly, if you had asked me in 2014, I would have said, "Yes, we are going for an IPO." '15, "We're going for an IPO." That would have been nothing that's going because things were roaring. And then Ashok -- HLFL was also growing its book very well. And then in 2000, we had this -- in 2016, we had the demo, the demonetization. Nobody expected that. And then again in 2017 or -- 2017, right, or '18, we had this NBFC crisis. So then we said, "No, we have to be fair to the investor," which is why in 2017, this decision was taken that 7% will be bought out. And then in 2019, we said, "No, we need to now exit because the market don't seem to be looking up." And we provided that exit, and it was a negotiated date.

I understand. And the other INR 800 crores that we're doing, I mean, I understand the need for sort of increasing your shareholding. Why not look at primary, right? Because then the money actually goes into the company, goes for expansion...

Yes. It's a very good question. Why primary? That is what I said. One of the reasons is because if you have a whole bunch of investors on one side, then what happens is that it is becoming very difficult for us to discuss with potential investors. So they are saying that keep your share -- existing shareholding because each one has a right and then there is a lot of complexity in terms of holding. And then the second part of it is...

Sorry, Gopal, if I can just ask, the point is the balance 19% remains with the same person, right, who owns the 8% as well from what you're buying right now. So how do things change?

No. Because we are trying to reduce the number of entities, yes.

The point we're trying to make, right, is that basically the money -- you're saying INR 300 crores is still going to be required, which probably we'd have to put in later. The money could have gone in now. And whether the shareholder or the same investor comes with 3 entities or 1 entity, still it doesn't affect any private equity player, right?

No, it does. That's what I said. Otherwise, we would not be doing this.

We move on to the next question that is from the line of Hitesh Goel from Kotak Bank.

Basically, my question is similar to what Amit had asked actually. Basically, what we are trying to understand is that we understand the Everstone deal that you would have committed that a certain price would have been discussed when the deal was being done. And you would have been given exit to Everstone. But was the same deal given to the promoters as well, promoter entity, when they put the money at that particular time, was the same deal negotiated? Because this dilution, even if Hinduja Leyland Finance required INR 300 crores, dilution will not be much at the valuation that you're talking about, it's only 5%. So Ashok Leyland stake doesn't come down to 51%. So that is what we are understanding that there's no need for capital immediately for Hinduja Leyland Finance. We understand the private equity player getting out. But why give the same deal to the promoter? And if it's such a growing company and the prospects are good, the promoter should have held on to the stake there and realize a better value later. So that is what we're trying to understand.

No, that's what I'm saying. So the answer is again the same thing that I told you. The point is, there is no rising -- see, we have not entered into anything with the promoter group or other shareholders at that point in time because then we would have disclosed. It is not anything that has been given in writing. The idea for acquiring this came up because we said that we would want to have a stake of about 80% or so, so that in the event there is a dilution of Ashok Leyland, when we have no stock being issued, we would be able to -- we don't go beyond -- below 51%. And that can happen in a term of a primary assurance by the company to either a strategic partner or in terms of merger. And the second one is in terms of when we go for an IPO. Now the question as to why promoter and why not money into the company is because currently the discussions that is happening, we are finding that there is some, what should we say, complexity that is coming, which has to be reduced. So we said that, if suppose we need to go ahead with the deal, okay, if we have to go ahead with a deal, there's an urgency to remove that complexity. That is the reason why it is coming. So it is not like INR 1,200 crores all going to promoter, out of that, that's why I said, I wanted to clarify, nearly about INR 380 crores to INR 400 crores is coming because of Everstone. It would have been picked up by agents. The balance, INR 800 crores, is what is getting picked up. Beyond this, I have nothing to answer, to be honest. [indiscernible] to do this. I can delay it also. We can say, "So why can't we do it after 2 months or 3 months if suppose the markets go down even further?" Yes, there are various opportunities. The same kind of questions did come at HFL also, if you remember. Why now? Why couldn't it have been 2 years ago? Yes, no answer, similarly LCV. So these are very, very complex questions for which it's very difficult to answer specifically, "This is the best moment. I know the future. I know the past. And this what is going to be done." No, it's not so. And I'm sure the Board must have also gone through it in detail before approving it.

No. Basically, what we're trying to say is that if the opportunities in HLFL is so great and later, if some other investor would have come at a valuation and Ashok Leyland had put money, at that valuation, nobody would have questioned. Because then other investor is also coming in and valuation is being discussed -- prepared valuation...

No, I understand.

That is what the concern is in the market.

Believe me, at each point where there were concerns in the past also, we had mentioned that we believe this is the best that will help the investors. And even now, I believe that this is the best interest in terms of all stakeholders involved here.

And just a request, can you put -- you had given that 1H FY '20 figures for HFL. Can we put down for the December quarter the NPA ratios, the provision coverage and all these main ratios for the NBFC so that people have a clear idea of where HFL stands as of December?

I don't have the number readily with me. But I'll possibly share it with you.

The next question is from the line of [ Shamit Shah ] from [indiscernible] Group.

I just had a broad question. I think we have done an equity raise somewhere around -- it's a small amount, around 2013, 2014. I know at that time, the industry was going through challenges, all are going through so-called restructuring into that holding health in terms of kind of like bringing the leverage ratios down. So as we sit today and with the idea that an IPO or any kind of deal at HLFL will probably happen a couple of years down the road, is there a comfort level for you here in terms of what debt/equity ratio you're going to be comfortable with? Because we've gone through the last 5 years, where we've basically, up until March 2019, we had net cash. And do you see that kind of inching up if you have to put in more equity into the business as well? And CV cycle still takes some time to recover, we might be past the bottom. So what's the debt/equity ratio you feel comfortable with?

See, I would put it this way. I think that -- let me put it this way. I think maximum would be a 1:1, but I wouldn't want to keep it that way. In the medium term, if the -- I would want a debt/equity ratio of possibly 0.5 to 0.6 at best and possibly even look at a debt-to-EBITDA ratio. Now why I'm not saying about a debt-to-EBITDA ratio because I prefer to have a debt-to-EBITDA ratio saying 1.5 years EBITDA, 1 year EBITDA. Then I know that this is the cash-generating potential of the company to repay its debt. So for me, debt to equity is like, okay. But I would want to measure it against the earnings capacity of the company. Having said that, to answer your question in current context, anywhere between 0.5:1 is what would be something that I would be watching out for. But today, my debt/equity is very insignificant. My net worth is about INR 7,500 crore, INR 7,800 crores. And my debt as on March, I mean, in December, is about net of all the investments and ICDs and all that is hardly about INR 1,500 crores. So it is very insignificant at the moment. But we have to be ready for next year. Because next year, I'm not very clear what's going to happen. So we are preparing ourselves. While we did tell investors INR 2,300 crores of CapEx, we have been able to bring it down to INR 1,300 crores. Next year again, we are looking at only a steady state CapEx of INR 500 crores, INR 600 crores. If we do invest in CapEx, that CapEx would be for a completely new expansion in LCV, where we can scale up our market share from the 18% to what we would want to target to about a much higher number. So we will look at that for a very tight payback. And we'll take a call suitable. Continuously, understand one thing. There are always various things that are happening, okay? So it's very difficult, "Gopal, you told in the call, it's only INR 500 crores, INR 600 crores and you were adding another INR 500 crores for LCV." Possibly, it can happen. I was the same guy who mentioned 1 year back that we are looking at INR 2,200 crores and everybody was concerned. But I said we're going to chip it down as much as possible. At that point in time, the visibility is INR 2,200 crores. And there was an outlook that the industry will grow by at least 10%. Now that came down. So when we saw that, we not only cut costs, we also reduced our working capital. And at the same time, we cut our CapEx by half. So it is not that we don't keep moving, things are moving in the positive sense. Things are moving sometimes in not expected sense. But that is how uncertain it is. So it's very difficult for us to say in absolute certain terms because this is not an annuity business. We are not in software, where I've got -- I'm not saying software business is easy to run. But you have long-term contracts and you know exactly how to compute the margins if everything is reasonably stable. It's not so. These are chunky CapEx investments. The asset turnovers are not very high. And then after that, the demand conditions for this commercial vehicle could also depend on a number of attendant factors. So you factor in a whole bunch of chunk and then you have to think and resolve the issue. And after that, of course, you manage subsidiaries, you put investments and all that. So it is -- while we're trying our best to get better and better at this every day, it is very difficult to pinpoint something and say that this is what will happen. But having to answer your question in a long-winded way because I wanted to give a perspective, I would be comfortable with anywhere between 0.5:1 is reasonably comfortable.

Got it. Yes. No, just -- the only reason I was trying debt/equity to EBITDA is it's such an interim target right now. And I can appreciate that, that's a difficult number even for you all to internally project.

Yes. But 4 years back, we said our debt-to-EBITDA -- target should be a debt-to-EBITDA of 1:1. And at that point in time, INR 2,200 crores of EBITDA and why it went to even INR 2,600 crores. And projections at that point in time to the extrapolated growth rate, so that EBITDA will move higher and higher and then we would not require. But things have changed now. So we are looking at it differently. What we have to ensure is do 3 things. We ensure that incrementally, we are performing better and how do we get our RoC is also getting better. So we have to keep looking at the balance sheet.

And then last question is in terms of an equity raise, do you foresee in the next couple of years that you might have to do that even if it's a small amount similar to 2013, '14? Or are you reasonably confident that, that might not be required?

I don't think at the moment we are contemplating any equity raise. Honestly, I'll tell you where it will all happen. It all depends on how the 2021 pans out. That's going to be very, very crucial. 2021 panning out is going to be crucial, not because of equity raise. Because you see, while there's $110 million that we raised, which was about INR 600 crores, looked like a small amount, it was. But I remember in 2013, '14, when I joined the company, the debt was peak debt, it was not [ public ] debt, peak debt had amounted to INR 2,400 crores. So we drew up a plan saying that I'll take out so much from working capital, we'll take out further by selling non-core assets. We will take so much by raising equity. And we will raise so much by improving the EBITDA margins. So that is how we actually looked at it and then we looked at cost reduction and the organization size and various things, product mix, et cetera. And that is how it worked. Now we're doing the same thing, the only thing we started 1 year earlier. So we had K54 II being launched and we took out INR 550 crores. Now this year, we have a stiffer target. But the stiffer target is, it's stiffer because we have taken out quite a bit of cost last year because -- I'm sorry, '19, '20. The whole team is now working together to see how to take out cost more strategically and in a more permanent fashion as we move forward because we want to be a leaner company and more efficient company.

The next question comes from the line of Sandeep Manam from Franklin Templeton.

I just wanted one clarification on the deal structure. So in Feb when the announcement was made, that was 7% stake at roughly INR 390 crores and that -- then the implied value comes at something like INR 5,580 crores. And this time...

Sorry. Can you repeat your question? Yes. Can you please repeat your question?

Sure. I just wanted one clarification regarding the deal structure. So in February when the filing was made, the implied valuation was roughly INR 5,580 crores for that 7% stake. And now I mean, this month's filing, 19% stake, the implied value comes to roughly INR 6,300 crores. So just wanted to get it clarified. So this 19% includes the previous 7%, right? So even that shareholding which you are planning to acquire, that has got revalued, is it?

Yes. See, what we are going to acquire, the INR 1,200 crores, is including the, what should we say, will be -- will factor in the 7%. We are not going to add anything more than that.

Okay. So the previous terms were kind of -- I mean not valid now with the previous price, which you were planning to acquire the 7% stake. That price has changed now under the new terms.

It is INR 119 only per share.

Okay.

It's INR 119, it's not changed. There's no change here. That's what I said. What we announced, we also wanted to keep it consistent. Otherwise, there is a lot of confusion. That's another aspect. Thanks for asking the question, but nothing has changed here.

Okay. Because there was some confusion that this time...

Maybe I'll take it offline with you, then we can -- I'll explain the calculation under something.

Ladies and gentlemen, that's the last question. I'll now hand the conference over to management for closing comments. Yes, sir. Would you like to add any closing comments?

No, I think so -- I mean thank you for the questions. I know some of them were wanting more clarification, but I hope that we have been able to provide this. All I can tell you is that while everybody may question the timing of it, one also has to look at it in terms of appropriateness for the various entities involved. And that Ashok Leyland is, for us, HLFL is very, very crucial as a company in Ashok Leyland. And we are hoping to grow Ashok Leyland also with the help of HLFL, especially on our international strategies. So thank you very much again, and look forward to being in touch.