ASHOKLEYNSEQ4 FY2022May 27, 2022

Ashok Leyland Limited

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Management on call

Jinesh Gandhi

MOTILAL OSWAL SECURITIES LIMITED

Dheeraj G Hinduja

EXECUTIVE CHAIRMAN – ASHOK LEYLAND

Gopal Mahadevan

WHOLE TIME

K M Balaji

DEPUTY CHIEF FINANCIAL

Dheeraj G Hinduja

Executive Chairman Mr. Gopal Mahadevan – Full Time Director & CFO,

K. M. Balaji

Deputy CFO. We would like to thank the management for taking

Key numbers — 40 extracted

30%

3. I am happy to share that after 10 quarters our M&HCV domestic truck market share has crossed 30%. In Q4 M&HCV truck volumes have grown at almost 50% higher than the industry growth resulting in

50%

M&HCV domestic truck market share has crossed 30%. In Q4 M&HCV truck volumes have grown at almost 50% higher than the industry growth resulting in our market share going to 30.6% as compared to 28.9%

30.6%

s have grown at almost 50% higher than the industry growth resulting in our market share going to 30.6% as compared to 28.9% in Q4 last year. Sequentially also in Q4 our M&HCV truck volume have grown 7

28.9%

t 50% higher than the industry growth resulting in our market share going to 30.6% as compared to 28.9% in Q4 last year. Sequentially also in Q4 our M&HCV truck volume have grown 78% as against in th

78%

% as compared to 28.9% in Q4 last year. Sequentially also in Q4 our M&HCV truck volume have grown 78% as against in the industry growth of 47%. Our market share has grown to 30.6% in Q4 from 25.3%

47%

equentially also in Q4 our M&HCV truck volume have grown 78% as against in the industry growth of 47%. Our market share has grown to 30.6% in Q4 from 25.3% in Q3. Our April 2022 market share was at a

25.3%

wn 78% as against in the industry growth of 47%. Our market share has grown to 30.6% in Q4 from 25.3% in Q3. Our April 2022 market share was at around 30% as against 29% in same month last year. I

29%

s grown to 30.6% in Q4 from 25.3% in Q3. Our April 2022 market share was at around 30% as against 29% in same month last year. I am happy to say that our Q4 absolute EBITDA has gone up sequentially

8.9%

up sequentially by two and a half times in percentage terms also EBITDA has more than doubled to 8.9% from 4% in Q3 despite taking into account the full impact of raw material price increases. Last

tially by two and a half times in percentage terms also EBITDA has more than doubled to 8.9% from 4% in Q3 despite taking into account the full impact of raw material price increases. Last year Q4

7.6%

e taking into account the full impact of raw material price increases. Last year Q4 EBITDA was at 7.6%. LCV which was on a growth phase has been impacted by semiconductor shortages but on a full year

31%

e the verbatim record of the proceedings International operation sales have registered a 31% year-on-year growth in Q4, 4173 numbers compared to 3164 in Q4 of last year. International operat

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Guidance — 17 items

Dheeraj Hinduja

opening

“Going forward the gross drivers for the bus segments remain largely favourable with increasing vaccination penetration, opening up of offices and educational institutions.”

Dheeraj Hinduja

opening

“Finally, before we address questions, let me ask Gopal to share the financials will be.”

Mukesh Saraf

“Firstly, previous quarter you had mentioned that the replacement cycle will start very soon and just wanted to get your sense of where we are now in the cycle, have we started seeing the fleet operators replacing some of these old trucks and how do you see this going forward?”

Mukesh Saraf

“Okay, any guidance or any sense you want to give us on say FY2023, how the growth for the industry will be and how the mix will move for the industry in terms of tippers, any kind of guidance you can give us?”

Gopal Mahadevan

“So, it is something that we will be happy to support this is more for growth capital in HLFL than anything else maybe about Rs.100 Crores – Rs.200 Crores at best not very significant at all HLFL has been able to manage it through very well till now.”

Gopal Mahadevan

“We would want to ensure that we have the right set of investors in the company because this is a medium-term and long-term business and we need to ensure that the investors that we have are aligned with our thought process also, because ultimately we are here to build a very good business just like we have built Ashok Leyland.”

Gopal Mahadevan

“If there is any funding support that may be required for switch, for instance from the Ashok Leyland we will have to provide it and we will be ready to provide it but i think at the moment there is nothing that we can share with you.”

Abhinav G

“First is that when do you think the current CV cycles will be peaking and second I just wanted to understand on the financing piece of our M&HCV and LCV part how much of the total percentage of the vehicles is financed and how much is done in-house and how much other partners do it, if you could give some colour?”

Dheeraj Hinduja

“We have now been operating the electric buses for two and a half to three years and so between Ahmedabad, Patna, we are also in Chandigarh and now we will be in Bengaluru and Mumbai.”

Dheeraj Hinduja

“Over these years with the experience that we have gained we understand what the operational cost can be and what could be the right pricing model that we can get into these general condition contracts and since there are long-term agreements eight to ten years and we want to make sure that they will be positive and adding margins for us and as you rightly say some of these tenders are going on an aggressive basis.”

Risks & concerns — 12 flagged

I am happy to say that our Q4 absolute EBITDA has gone up sequentially by two and a half times in percentage terms also EBITDA has more than doubled to 8.9% from 4% in Q3 despite taking into account the full impact of raw material price increases.

— Dheeraj Hinduja

For FY 2021 - 22 fleet utilization levels were on the rise as freight volumes picked up thereby easing cash flow pressure for the operator.

— Dheeraj Hinduja

I think it has become very difficult in estimating how the markets are going to go if we go by published data then ICRA has estimated anywhere in M&HCV growth of 15% to 20% and LCV growth of around 10%.

— Dheeraj Hinduja

It would be very difficult to guess when we would see the peak of this cycle with the growth commitment that the government has given it is very favourable for the industry at this point of time and considering that we have just come out of the recessionary trends in this segment.

— Dheeraj Hinduja

The second part of it has been that the impact of the axle load norms seems to have gained, so it looks like there is fresh buying that is going to happen now because the axle load norms have been used up.

— Gopal Mahadevan

To give an exact volume in terms of what is the TIV we expect I think it is a little early, it has got many tenders coming, CEFL had a tender for 5000, I understand that there is likely to be a new tender coming up once again in excess of 5000 vehicles, but all of them have a long lead time as well, so the delivery time frame is not always within six months they do reach out to 12 months as well, a little difficult to give you an exact answer on TIV expectation.

— Dheeraj Hinduja

So, it is difficult to estimate but from all indications as I mentioned and with the high expenditure that the government is committing on infrastructure.

— Dheeraj Hinduja

The third thing we are hoping for is that steel prices will soften and there will be price retention in the industry which will then improve the margins of the business even further.

— Gopal Mahadevan

The exceptional items are within the group companies, that is why you are seeing the effect of that is shown in the one of the group company essentially Ashok Leyland and when you look at the console level the impact of that you will not see in the consolidation stage.

— K.M. Balaji

I think this is a very good question because in addition to the pressure that the axle load norms were creating because suddenly overnight you had 20% of truck capacity being available.

— Gopal Mahadevan

Had it not been for the commodity price increases, we would have definitely seen coming back to the types of previous margins that we had and as Gopal mentioned a little earlier, we do feel that steel prices will begin to soften soon and once that happens there should not be any reason why we should not be able to keep a double digit EBITDA on a more regular basis.

— Dheeraj Hinduja

First question is on how the inventory in the system as it suggests the inventory is pretty low around 10- 15 days and given a very robust demand recovery do we see discounts or the net price improvement more than offsetting the entire gross margin pressure given discounts at peak have been nearly 15 – 20% of sales.

— Ronak Sarda

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Q&A — 10 exchanges

Good morning. Congratulations to the entire team for a great performance. Firstly, I wanted to ask you about market share I we have seen a substantial improvement in fourth quarter, you have touched upon it but if you could give us some more details on what are the actions you have taken that has helped this thing improved so much and also the CNG how much is it for us right now and how many more models are required to be launched going ahead in both LCV and ILCV or M&HCV space whichever way you look at it. So, for the industry what are the CNG mix and where we are right now and some colour on

Dheeraj Hinduja

So, regarding the market share I think if you look back the last four- five years we have been at the 30% plus level. The last two years has been a reduction and I think 30% plus is the norm where we should be. What has helped us gain back our market share is definitely the addition of the CNG products as you are fully aware, ICV segment has become the largest segment in the industry and within that CNG is 40% of the market, so our product was slightly delayed but the market response has been very good. During COVID in phase-1 our network in North and East, unfortunately some of the dealers ha

Good morning and thank you for the opportunity. Firstly, previous quarter you had mentioned that the replacement cycle will start very soon and just wanted to get your sense of where we are now in the cycle, have we started seeing the fleet operators replacing some of these old trucks and how do you see this going forward?

Dheeraj Hinduja

We are definitely seeing that as we mentioned that the average age of the truck is nearly at an all-time high of 9.9 years and so we are definitely seeing people coming back into the market especially the fleet operators and this is a lot to do with the government's initiative on infrastructure, road building, the replacement cycle has definitely begun. Okay, any guidance or any sense you want to give us on say FY2023, how the growth for the industry will be and how the mix will move for the industry in terms of tippers, any kind of guidance you can give us? I think it has become very difficul

Congratulations sir for stellar numbers. Two questions: Firstly, can you talk about demand trends in export markets, how is the demand condition in key regions and company’s initiatives.

Dheeraj Hinduja

Firstly, on the global trend there are a lot of uncertainties, inflationary pressures, but for specifically the markets that we are operating in where we are likely to see a lot more growth is in the African markets because over the course of the last 12 to 18 months what used to be predominantly project sales for us we have established many new distributors who are very strong and have a large presence in these countries and with the added product range that’s available we should be able to start growing the volumes in these areas. So, Middle East Africa we feel we will continue to see good g

Thank you Sir, for the opportunity and congrats on a great set of numbers. I just had a couple of broad questions. First is that when do you think the current CV cycles will be peaking and second I just wanted to understand on the financing piece of our M&HCV and LCV part how much of the total percentage of the vehicles is financed and how much is done in-house and how much other partners do it, if you could give some colour? Thank you.

Dheeraj Hinduja

On the CV cycle as you have seen there is an element of technicality in this business typically three to four years are seen as the boom and then we do sometimes experience downturn anywhere between six to eighteen months, this time it has been a little longer as well. It would be very difficult to guess when we would see the peak of this cycle with the growth commitment that the government has given it is very favourable for the industry at this point of time and considering that we have just come out of the recessionary trends in this segment. The next few years should continue to be growth

Thanks for taking my questions. Two questions: Firstly, on this electric bus now we clearly seeing lot of noise in the industry, lot of STU orders which are coming through This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings and we have seen some of the aggression from both the incumbents as well as the new startup companies. Now, just wondering what is our thought process there, how are we thinking about it, where are we on the bids with the STUs some colour on the, strategy around this electric bus because we do have a dominant shar

Dheeraj Hinduja

We have now been operating the electric buses for two and a half to three years and so between Ahmedabad, Patna, we are also in Chandigarh and now we will be in Bengaluru and Mumbai. Over these years with the experience that we have gained we understand what the operational cost can be and what could be the right pricing model that we can get into these general condition contracts and since there are long-term agreements eight to ten years and we want to make sure that they will be positive and adding margins for us and as you rightly say some of these tenders are going on an aggressive basis.

Thank you for taking my question, sir. I was just looking at April numbers for the industry right for M&HCV. If we just annualize that right and April being not a very strong month seasonally. We should easily be surpassing 30- 35% growth for the M&HCV industry. So, i was quite surprised with ICRAs estimate and you also guiding to only 15 to 20% growth are we started to see a slow down after the price increase that we have seen in April or fuel price increase which has happened. Can you shed some light on this?

Dheeraj Hinduja

I did not personally want to give you any forward trend but I was quoting what ICRA has given. April has been a stronger month coming back from March and hopefully this trend continues but there are so many uncertainties that are currently in the global economic scene. So, it is difficult to estimate but from all indications as I mentioned and with the high expenditure that the government is committing on infrastructure. The year is looking very good and with the strong growth that the government has committed towards infrastructure, we feel that the year is going to be very strong and especia

Sir, thanks for the opportunity. Most of the questions have been answered. Just wanted to get some clarification on the exceptional items on the consolidated side because on the standalone you have a gain, on the console you have a loss. So, can you just help us understand what specifically you have done in this quarter?

Dheeraj Hinduja

Balaji you want to answer it or do you want me to take it? The exceptional items are within the group companies, that is why you are seeing the effect of that is shown in the one of the group company essentially Ashok Leyland and when you look at the console level the impact of that you will not see in the consolidation stage. Amyn, just to add what is happening is that we have written back the investment of the impairment of Optare right and then we have also prudently taken off some we have also in fact had another investment so that it also helps to rationalize the balance sheet this is on

Good morning and thank you for the opportunity. I have two questions, first is in relation to the NPAs in the system so if you recall in 2020 and maybe even parts of 2021 there was fear that because of NPS a lot of trucks are getting repossessed and they will come back into the system etc. Could you give us an update on where this particular issue stands are the excess inventory in terms of repossessed vehicles completely flushed out and as a result replacement demand etc should pick up strongly if you can give some update on that it will be great? Thank you.

Gopal Mahadevan

I think this is a very good question because in addition to the pressure that the axle load norms were creating because suddenly overnight you had 20% of truck capacity being available. We also saw that the vehicles had got reprocessed and they were getting back into the market. Fortunately, we believe what has happened from our own experience of the NBFCs is that they de-process vehicles most of these NBFCs are also not only taken a prudent hit they also disposed of the vehicles as quickly as possible because they also wanted to right-size their balance sheet. So, we believe that the signific

Thanks for the opportunity. First question is on how the inventory in the system as it suggests the inventory is pretty low around 10- 15 days and given a very robust demand recovery do we see discounts or the net price improvement more than offsetting the entire gross margin pressure given discounts at peak have been nearly 15 – 20% of sales. So, how do you see the entire net pricing movement in the next few quarters?

Gopal Mahadevan

As far as the inventory in the system is concerned I do not think there is any back pressure at all, this back pressure was there last year where we had shared with investors quite candidly that we would actually be going a little slow on wholesale last year because there is so much of inventory in the system because unfortunately there was a COVID and the system just shut down right and the dealers were left saddled with a lot of inventory and we do not push wholesale beyond the point you and we keep watching retail wholesale, retail dealer wise, geography wise, so that is the best and the mo

Thank you very much for your questions and I hope we have been able to provide more clarity for you. I would just close by saying that we have shown in Q4 a strong turnaround and the year ahead looks to continue in this similar manner and we at Ashok Leyland will continue this growth as you have experienced in Q4 but in a very profitable manner. We will not be buying market share, we want to continue this market share growth and continue to grow our margins as well. So, thank you once again

Management

Speaking time

Gopal Mahadevan

Dheeraj Hinduja

Moderator

Mukesh Saraf

Gunjan P

Hitesh Goel

Kapil Singh

Raghunandan

Abhinav G

Amyn Pirani

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Opening remarks

Jinesh Gandhi

Thank you Aman. Good morning, everyone. On behalf of Motilal Oswal Financial Services I would like to welcome you all to fourth quarter FY2022 Post Results Conference Call of Ashok Leyland. Ashok Leyland is represented by Mr. Dheeraj G Hinduja - Executive Chairman Mr. Gopal Mahadevan – Full Time Director & CFO, Mr. K. M. Balaji – Deputy CFO. We would like to thank the management for taking time out for the call. I now hand over the call to Mr. Hinduja for his opening remarks post which we will start with Q&A. Over to you Mr. Hinduja!

Dheeraj Hinduja

Thank you. Good morning ladies and gentlemen, it gives me immense pleasure to be in touch with you. I thank you very much for the interest shown in Ashok Leyland. I will quickly run you through the Q4 and full year performance as well as some latest development. I am extremely happy to share that FY2022 has been a year of turnaround for AL aided by a strong performance in Q4. We have been able to post smart performance on most of the areas. Q4 was more a consolidation quarter if I may call post the trends reversal in Q3. I am happy to share that after 10 quarters our M&HCV domestic truck market share has crossed 30%. In Q4 M&HCV truck volumes have grown at almost 50% higher than the industry growth resulting in our market share going to 30.6% as compared to 28.9% in Q4 last year. Sequentially also in Q4 our M&HCV truck volume have grown 78% as against in the industry growth of 47%. Our market share has grown to 30.6% in Q4 from 25.3% in Q3. Our April 2022 market share was at around 30%

Gopal Mahadevan

Thank you, Chairman. I think it is a very comprehensive introduction. I will just run through the financials quickly. Our revenues were at Rs.8744 Crores which was a significant jump over Q4 of last year by almost 25%, you can see the benefit of the operating leverage coming in sequentially also when you look at the revenue, the Q4 jump in revenue has resulted in better operating margins. There has been a lot of middle line management, material cost management which has actually helped there, there were negotiations in the fourth quarter which also saw some volume discounts coming in. We were also able to reverse some of the provisions that we did not require at the beginning of the year. This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings All said and done it has been a great quarter in terms of margins, in terms of the cash generation as we mentioned earlier during the year as the working capital was getting a little tight

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