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Vol. XXXIV No. 8, August 1-15, 2024
The Battle for Ashok Leyland
Business Houses of the South by Sushila Ravindranath
Ashok Leyland is the second largest manufacturer of trucks and buses in the country. The first is Tata Motors. This is a position both companies have maintained for decades. Ashok Leyland is Chennai’s pride and Tata Motors is Pune based.
It is now difficult to imagine that Ashok Leyland was a British Company till the mid 80’s. The parent company in the UK fellon bad times and wanted to get rid of its Indian subsidiary. Consequently Ashok Leyland, Chennai got caught up in an exciting take-over battle. Rahul Bajaj was a very keen contender. As the Bajaj group was already a leader in the two-wheeler industry, this would have been a good acquisition for them. Everyone thought it was a done deal.
However there were other strong contenders as well. The Hindujas, who were big time traders based in London wanted to enter India and also manufacturing. They did not want to start small. They saw Leyland as a perfect fit for their ambitions. Cummins USA and the Chhabrias who were takeover kings during that period were also contenders.
There were three rounds of bidding. The UK-based Hindujas emerged winners. Rahul Bajaj was a graceful loser although he was seen as a front runner from the beginning. The Hindujas offered £30 million and outbid others. Imagine acquiring Ashok Leyland for 30 million pounds. At that time there was much discussion going on about whether the Hindujas had acquired the company for a song or had overpaid. As we can see now, it was a steal for them and for Bajaj it would have been a difficult amount to raise. The original shareholders may have preferred Bajaj, but according to the British laws, a public limited company had to go to the highest bidder.
In those days there was much discussion going on about whether the four-wheeler market would ever grow. Consequently, several people asked if the Hindujas had made a mistake. They had in reality taken a calculated risk.
Ashok Leyland was seen as a jewel in the crown of its ailing parent British Leyland. The company enjoyed a continuous but sedate growth in the first 25 years of its existence. In the late 70’s things seem to be looking up for the company. The signals were just right. An expanding market and a long waiting list for Ashok Leyland trucks meant a fat premium on the vehicles. It was time to go in for a massive expansion. The decision was to increase its capacity of 12,500 vehicles to 40,000 vehicles.
In 1984, after a convertible bond issue, Ashok Leyland’s foreign shareholding came down to 39.4 percent. The anticipated market expansion did not happen and seemed to pose a threat to the company. Even by 1981, the bottom had fallen out of the commercial vehicles market in the country. It was never quite restored in the 80’s. Although in the early 80’s the market for commercial vehicles was supposed to bloom, it did not happen. By 1987, sales were stagnant.
The company was forced to curtail expansion and was stopped at 20,000 vehicles instead of the planned 43,000. Things were incredibly tight in those pre-liberalisation days. The downturn in the commercial vehicles market went on and on. In 1986, selling 40,000 vehicles seemed a distant dream. To add to the company’s problems, there were steep cost escalations which could not be recovered from customers.
R.J. Shahaney the managing director and his team put in yeoman efforts to prevent the company making losses. There have always been comparisons between Tata Motors and Ashok Leyland. Industry sources have felt that Ashok Leyland has been more tightly run.
When the Hindujas finally managed to squeak through Bajaj and some multinational contenders and acquire the company, Rahul Bajaj graciously said, “I am happy that the Hindujas have got the deal. It is good to know that an Indian rather than a foreigner succeeded. lt could augur well for India and it’s heavy vehicle industry.”
He was prophetic. The Hindujas left the running of the company to Ram J. Shahaney, who was then managing director and after him to R. Seshasayee. Ashok Leyland has not looked back since.
