ASHOKLEYNSEQ1 FY2023August 8, 2022

Ashok Leyland Limited

9,094words

92turns

11analyst exchanges

4executives

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Management on call

Raghunandhan Nl

EMKAY GLOBAL FINANCIAL SERVICES LIMITED

Dheeraj Hinduja

EXECUTIVE CHAIRMAN – ASHOK LEYLAND LIMITED

Gopal Mahadevan

WHOLE TIME DIRECTOR &

Balaji Km

DEPUTY CHIEF FINANCIAL OFFICER

Key numbers — 40 extracted

31.1%

e that Q1 FY2023 continued to be good, aided by strong performance in domestic truck sales with a 31.1% market share. Since Q1 of last year was impacted by the pandemic, the growth percentages are high

46%

ges are higher in most of the areas than normal. In Q1, MHCV truck volumes have grown at almost 46% higher than the industry growth resulting in Ashok Leyland market share improving to 31.1% as com

26.2%

han the industry growth resulting in Ashok Leyland market share improving to 31.1% as compared to 26.2% in Q1 last year. Sequentially also in Q1, AL’s MHCV truck market share has grown by 50 basis po

50 basis point

ared to 26.2% in Q1 last year. Sequentially also in Q1, AL’s MHCV truck market share has grown by 50 basis points. Our market share has grown to 31.1% and Q1 from 30.6% in Q4. EBITDA for Q1 was at Rs.320 Crores

30.6%

truck market share has grown by 50 basis points. Our market share has grown to 31.1% and Q1 from 30.6% in Q4. EBITDA for Q1 was at Rs.320 Crores 4.4% as against the loss of Rs.140 Crores which was a

Rs.320 Crore

basis points. Our market share has grown to 31.1% and Q1 from 30.6% in Q4. EBITDA for Q1 was at Rs.320 Crores 4.4% as against the loss of Rs.140 Crores which was a minus 4.7% in Q1 last year. LCV which was

4.4%

. Our market share has grown to 31.1% and Q1 from 30.6% in Q4. EBITDA for Q1 was at Rs.320 Crores 4.4% as against the loss of Rs.140 Crores which was a minus 4.7% in Q1 last year. LCV which was on a g

Rs.140 Crore

to 31.1% and Q1 from 30.6% in Q4. EBITDA for Q1 was at Rs.320 Crores 4.4% as against the loss of Rs.140 Crores which was a minus 4.7% in Q1 last year. LCV which was on a growth phase has been impacted by s

4.7%

EBITDA for Q1 was at Rs.320 Crores 4.4% as against the loss of Rs.140 Crores which was a minus 4.7% in Q1 last year. LCV which was on a growth phase has been impacted by semiconductor shortages, bu

66%

been impacted by semiconductor shortages, but our Q1 volumes were still higher than last year by 66%. International operation sales have registered a 76% year-on-year growth in Q1. Q1 operating pr

76%

volumes were still higher than last year by 66%. International operation sales have registered a 76% year-on-year growth in Q1. Q1 operating profits was at Rs.95 Crores as against the loss of Rs.381

Rs.95 Crore

onal operation sales have registered a 76% year-on-year growth in Q1. Q1 operating profits was at Rs.95 Crores as against the loss of Rs.381 Crores in the last year. Working capital was increased by about Rs

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Guidance — 12 items

Dheeraj Hinduja

opening

“Going forward the growth drivers for the bus segment remain largely favorable as demand continues to improve gradually with opening up of educational institutes and offices post the impact of the pandemic waning off.”

Kapil Singh

“I wanted to understand how much was the cost increase for the quarter and how much price increases we took and as we look into the next quarter, are we actually seeing a cost reduction Y-o-Y or Q-o-Q and if so how much and also if you can update in July or in August if you are taking any price increases.”

Gopal Mahadevan

“Going forward we believe that steel prices should soften and we are seeing that happening in Q2 as we will have to wait for the settlements to happen.”

Gopal Mahadevan

“See, while you said massive, I don’t think it will be massive as we mentioned in the last quarter (Q4) typically we get benefits of some of the provisions that we make throughout the year like for example incentives or cost increases that we have to budget for and then at the fourth quarter there is a lot of settlement of all of these things that happen.”

Dheeraj Hinduja

“So I think given all of this it does allow us to price better and where we need to be more competitive we will take those calls as well, but I think we as a team feel quite confident that going forward the gross margin level should improve for the company.”

Pramod Kumar

“So do you see that in the heavy tonnage category or the medium and heavy tonnage category there will be any reversal of this trend of formalization of the industry and it is becoming more of a B2B business with strategic players on the trucking, on the fleet side.”

Dheeraj Hinduja

“So in the long run the ratio in this heavy end according to me will be more geared towards the larger fleet owners.”

Gunjan Prithyani

“So some color on incrementally what kind of product action we could expect in the white spaces.”

Dheeraj Hinduja

“We will be aggressive, but we will be aggressive in tenders and on routes where we believe that the ability to make money is going to be better.”

Amin Pirani

“Just one last thing on that do you anticipate investing any money into Hinduja Leyland Finance this year because we still do not know the timelines of the reverse merger.”

Risks & concerns — 15 flagged

Passenger segment is expected to grow by 30% to 35% as demand continues to improve gradually with opening up of educational institutes and offices post impact of the pandemic.

— Dheeraj Hinduja

Fleet utilization levels are on the rise as freight volumes picked up thereby easing cash flow pressure for the operators.

— Dheeraj Hinduja

Going forward the growth drivers for the bus segment remain largely favorable as demand continues to improve gradually with opening up of educational institutes and offices post the impact of the pandemic waning off.

— Dheeraj Hinduja

Again as I mentioned we have been taking price increases and especially the steel price increases which has softened and the impact of those have not come through so far.

— Dheeraj Hinduja

The challenge has been to find the right equation, because beyond a certain point, freight rates have not increased substantially and it is very difficult to pass on this commodity cost increase onto the customer.

— Dheeraj Hinduja

Going forward we believe that steel prices should soften and we are seeing that happening in Q2 as we will have to wait for the settlements to happen.

— Gopal Mahadevan

Second question is on the pricing and the competitiveness because there is an evolving view that commodity prices have started to soften.

— Pramod Kumar

I think you are completely right in terms of besides the softening on the commodity prices, competition does remain immense and there will always be that pressure in terms of how to sustain the market share as well as continue to increase the price to a level that gives us better gross margins as well.

— Dheeraj Hinduja

There are two or three good things that are happening one is that it looks like definitely in Q2 steel prices will soften and hopefully if the export duty continues the steel prices will continue to be at a softer range.

— Gopal Mahadevan

My question was regarding the pricing environment obviously you have spoken about it to some extent, but would it be right to say that for the last three to four months the discounting pressure from competition in the market in general has been much lower and everybody has taken the sensible route and allowing prices to go up.

— Amin Pirani

Why is that despite volume increases there is a margin pressure, it is because we need to catch up on the cost increase that has happened 1) between BSIV to BSVI and 2) the steel price increases, So I think with the demand coming up, we were not and possibly some of the players were looking at customer acquisition through pricing alone but in a situation where the demand starts to go up then what happens is that price is just one factor for decision making.

— Gopal Mahadevan

So they have grown very rapidly in that segment and it has added well and as you know the portfolio for Hinduja Leyland finance is quite diverse so we are doing two-wheeler, three-wheelers, tractors, commercial vehicles, and that let us say spreading of risk across the board has improved, our NIM is improving and Gopal if you can give an update on the listing side.

— Dheeraj Hinduja

So when we look at some of the peer set numbers that have come across there seems to be slightly higher pressure on gross margin in the quarter.

— Chirag Shah

No, the sequential the pressure seems to be higher when we compare to the peer set.

— Chirag Shah

So for them what happens is that they do not have the pressure of having to take vehicles and then getting stuck.

— Gopal Mahadevan

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Q&A — 11 exchanges

Hi! Sir actually I had two questions. Firstly, on the market share, we have seen a pretty significant improvement on a Y-o-Y basis. So if you could talk about some color as to what are the things that may have helped in gaining our market share so significantly.

Dheeraj Hinduja

Firstly, I would say that the products are performing very well and as I already mentioned particularly in the MHCV side, the product range both in tippers and multi-axle vehicles are doing very well. Also we have been able to increase the network in the North and East which has been a weaker territory and also you would have noticed there has been a shift once again away from CNG. LCV has become a very significant sector for EV. So it still continues to be, but the shift towards diesel once again has definitely helped us as well. Second on the cost side. I wanted to understand how much was th

Thanks a lot for the opportunity. My first question pertains to the other expenditure side last quarter we had a favor of control on the other expenditure side, but we have seen some massive surge this quarter. So if you can just help us understand Gopal as to what happened This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings here and what could be more like a normalized level of other expenditure for you for the reminder of the year.

Gopal Mahadevan

See, while you said massive, I don’t think it will be massive as we mentioned in the last quarter (Q4) typically we get benefits of some of the provisions that we make throughout the year like for example incentives or cost increases that we have to budget for and then at the fourth quarter there is a lot of settlement of all of these things that happen. When that happens and then combined with operating leverage as a percentage to sale becomes lower. Volume discounts from suppliers are not only material as other things also come out in the fourth quarter. Now the second part of it is the infl

Couple of questions from my side. One is with respect to the RM cost impact in 1Q. So, if we see the gross margins they have corrected quite reasonably, but can you comment on what was the cost inflation on the commodity side in 1Q.

Gopal Mahadevan

Just like I had mentioned earlier the steel price increases had been at about Rs.4 to Rs.5 a kg. So you can do the math that is the base on which the cost inflation has happened, but of course an entire vehicle is not steel there are other aggregates etc. There are two or three good things that are happening one is that it looks like definitely in Q2 steel prices will soften and hopefully if the export duty continues the steel prices will continue to be at a softer range. The second good thing that is happening is that there is a pull in the industry now, the TIV is actually growing fast and y

Thanks for taking my questions. Just two questions firstly on the white spaces that we have been calling out CNG and know still more launches on LCV. Could you just give some more sense as to incrementally what are the product gaps because CNG you have done some launches, but LCV we are still awaiting there was supposed to be more product action. So some color on incrementally what kind of product action we could expect in the white spaces.

Dheeraj Hinduja

Well on CNG as we had said on our last call we have introduced the CNG in our ICV segment and we are working to ensure that all products are available in CNG fuel also during the course of this next eight, nine months. As far as the LCV is concerned we at this point of time have the Dost, Bada dost and partner. Dost is already available in the CNG format, but as we look ahead especially in the LCV, we are seeing a very strong trend from end customers to move towards an electric version in the light segment. So this will move slowly but that is the movement I think the market will witness durin

Thanks for the opportunity. My question was regarding the pricing environment obviously you have spoken about it to some extent, but would it be right to say that for the last three to four months the discounting pressure from competition in the market in general has been much lower and everybody has taken the sensible route and allowing prices to go up.

Gopal Mahadevan

I would say yes because of the material cost increase we have no other choice. Why is that despite volume increases there is a margin pressure, it is because we need to catch up on the cost increase that has happened 1) between BSIV to BSVI and 2) the steel price increases, So I think with the demand coming up, we were not and possibly some of the players were looking at customer acquisition through pricing alone but in a situation where the demand starts to go up then what happens is that price is just one factor for decision making. So hopefully customers will see the total cost of operation

Thanks for the opportunity Sir. Two questions from my side. First on the gross margin at the cost of repeating. So when we look at some of the peer set numbers that have come across there seems to be slightly higher pressure on gross margin in the quarter. Now is it largely because of the lag effect of commodities or it has more to do with the revenue mix also if you can share some light some breakup if possible.

Gopal Mahadevan

Sorry just to clarify for everyone’s benefit, are you stating that our gross margins are better or I did not understand. No, the sequential the pressure seems to be higher when we compare to the peer set. See I understand that it could be purely sequential or seasonal of quarterly variations. So is that the reason or there is something in the revenue mix which is taking it slightly lower frequently and absolute terms as well as when you compared to the to the industry peers. So that was first question. You see basically it is when you look at peer set 1) there are only one or two with whom you

Thank you for the opportunity. I just have one question. So when we look at the current TIV so if you look at quarterly volumes and adjust it for seasonality. We note that it is fairly close to the peak TIV. The peak TIV, I recall correctly was about 390000 close to 4 lakhs This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings and current volumes adjusted for seasonality would be 3.4, 3.5 lakhs. So despite a large part of normalization of volume, we are seeing that discounts are significantly high which is counterintuitive because typi

Dheeraj Hinduja

I would say that one of the things we do need to take into account is that as we have gone through these emission norms. There has been a cost escalation as a result of those which we have not been able to pass on substantially onto the market, but I feel quite comfortable in saying that an EBITDA of + 10% or possibly 11% is where we as an industry should operate because there needs to be efficiency internally within the company. So even if we are not able to price at a level due to competition where we should be, we are definitely working on our internal efficiency with many cost reduction in

I think as Gopal was saying the internal efficiencies what we are focused upon and the last two quarters the growth that we see in market share I would like to re-emphasize a lot of it has to do around the product itself and the performance of the product the performance of the engine. So if we can keep going and as the customers are becoming more sophisticated looking at the total cost of ownership as opposed to that immediate point of price when they initially purchase I think we are set up very well.

Management

Yes, thank you my line got disconnected. Sorry go ahead please.

Dheeraj Hinduja

I hope I have responded to your question. Yes, Sir thank you that is all I had. Thank you.

Hi! Sir, can you please throw some light on the exceptional item that we have seen in the accounts this quarter like the discontinued products for the LCV division and more importantly regarding the expected outflow due to the accidental damage.

Gopal Mahadevan

See that is the discontinued operations are nothing but a quarterly charge that happens on account of the merger of the LCV business with Ashok Leyland. So this is a very minor charge that happens every quarter it is an accounting thing which will run through a couple of years I do not know the exact term, but this is a charge that needs to come in because the businesses have been merged all the three LCV companies have been merged what was the second part please. Regarding the expected outlook due to the accidental damage which is appearing in the consolidated accounts. No, that is nothing bu

I would just like to thank everyone once again for participating and showing your interest. I hope you do see continued growth in this industry even if we look at the GDP analysis which is estimated anywhere between 6%, 6.5%, 7% growth, with that growth rate we believe that this segment should see continuation of the upward trend that we have witnessed over the last few quarters and for us at Ashok Leyland the important aspect is to make sure that our customers receive the best products and they receive the best service. Our subsidiaries like Hinduja Leyland finance are performing well, switch

Gopal Mahadevan

No thank you Sir, I think nothing more. Thank you very much for the interest in Ashok Leyland to all of you and very healthy attendance today in the call. Thank you.

Speaking time

Gopal Mahadevan

Dheeraj Hinduja

Moderator

Saurabh

Kapil Singh

Pramod Kumar

Jinesh Gandhi

Gunjan Prithyani

Amin Pirani

Chirag Shah

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Opening remarks

Raghunandhan NL

Good afternoon everyone. On behalf of Emkay Global, we welcome you all for Ashok Leyland Q1 FY2023 earnings conference call. From the management team we have Mr. Dheeraj Hinduja – Executive Chairman; Mr. Gopal Mahadevan – Whole Time Director & Chief Financial Officer; Mr. Balaji KM – Deputy Chief Financial Officer. We thank the management for providing us the opportunity. We hand over the call to management for opening remarks that can be followed by Q&A session. Over to you, Sir!

Dheeraj Hinduja

Good afternoon ladies and gentlemen. This is Dheeraj Hinduja. It gives me immense pleasure to be in touch with you and I thank you very much for the interest shown on Ashok Leyland. I would like to quickly run you through the Q1 performance as well as some of our latest developments. I am extremely happy to share that Q1 FY2023 continued to be good, aided by strong performance in domestic truck sales with a 31.1% market share. Since Q1 of last year was impacted by the pandemic, the growth percentages are higher in most of the areas than normal. In Q1, MHCV truck volumes have grown at almost 46% higher than the industry growth resulting in Ashok Leyland market share improving to 31.1% as compared to 26.2% in Q1 last year. Sequentially also in Q1, AL’s MHCV truck market share has grown by 50 basis points. Our market share has grown to 31.1% and Q1 from 30.6% in Q4. EBITDA for Q1 was at Rs.320 Crores 4.4% as against the loss of Rs.140 Crores which was a minus 4.7% in Q1 last year. LCV whi

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