Shares of Ashok Leyland Ltd. tumbled the most in more than two decades as the Hinduja Group flagship commercial vehicle maker's plan to pick up a stake in a non-bank lending unit turned investors cautious amid the current market scenario.
The company's board approved a proposal to acquire up to 19 percent additional equity shares in Hinduja Leyland Finance Ltd. from the existing shareholders, in tranches, for a consideration of Rs 1,200 crore, subject to approval, according to an exchange filing.
This announcement comes at a time India's automakers are grappling with the worst sales slowdown in more than two decades. And now the coronavirus pandemic, which has pushed the equity markets globally into a free fall, threatens to stall even a fragile recovery in the sector. Shares of Ashok Leyland slumped 25.5 percent, the most since July 1997, compared with a 2.42 percent drop in the benchmark Nifty 50 Index.
“Given the challenging times due to the muted demand scenario in the commercial vehicle space domestically as well as uncertainty surrounding the economic impact of Covid-19, this investment is not a prudent step at this juncture,” Pankaj Pandey, head-research at ICICI Securities, said.
Also, the company is not “loaded with surplus cash on its books”, Pandey said in a report. “Hence, its plans to fund this share purchase through debt will increase leverage on its balance sheet, eroding our margin of safety.”
Ashok Leyland's standalone debt stood at Rs 2,585.92 crore, and cash and bank balance at Rs 95.83 crore as of September 2019, according to latest data available in the company filings.
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