ASHOKLEYNSEQ2 FY2023November 18, 2022

Ashok Leyland Limited

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93turns

9analyst exchanges

4executives

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Management on call

Annamalai Jayaraj

BATLIVALA & KARANI SECURITIES LIMITED

Dheeraj G. Hinduja

EXECUTIVE CHAIRMAN

Gopal Mahadevan

WHOLE TIME DIRECTOR

K.M Balaji

DEPUTY CHIEF FINANCIAL

Key numbers — 40 extracted

32%

that Q2 FY2023 continues to be good, aided by a strong performance in domestic truck sales with a 32% market share. This is almost a 10% increase over our market share during the same period last yea

10%

, aided by a strong performance in domestic truck sales with a 32% market share. This is almost a 10% increase over our market share during the same period last year. This is the third consecutive

102%

. In Q2, MHCV truck volumes have grown more than 1.5 times of the industry growth. AL growth at 102% versus TIV growth at 39%, resulting in Ashok Leyland market share improving to 32.3% as compared

39%

mes have grown more than 1.5 times of the industry growth. AL growth at 102% versus TIV growth at 39%, resulting in Ashok Leyland market share improving to 32.3% as compared to 22.2% in Q2 of last ye

32.3%

AL growth at 102% versus TIV growth at 39%, resulting in Ashok Leyland market share improving to 32.3% as compared to 22.2% in Q2 of last year. Sequentially also, in Q2, AL’s MHCV truck market share h

22.2%

rsus TIV growth at 39%, resulting in Ashok Leyland market share improving to 32.3% as compared to 22.2% in Q2 of last year. Sequentially also, in Q2, AL’s MHCV truck market share has grown by 1.2%. Our

1.2%

to 22.2% in Q2 of last year. Sequentially also, in Q2, AL’s MHCV truck market share has grown by 1.2%. Our market share has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores,

31.1%

2, AL’s MHCV truck market share has grown by 1.2%. Our market share has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores, 6.5% as against Rs.135 Crores, which was 3% in Q2 last

Rs.537 Crore

s grown by 1.2%. Our market share has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores, 6.5% as against Rs.135 Crores, which was 3% in Q2 last year. LCV, which was on a growth phase

6.5%

. Our market share has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores, 6.5% as against Rs.135 Crores, which was 3% in Q2 last year. LCV, which was on a growth phase, has b

Rs.135 Crore

has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores, 6.5% as against Rs.135 Crores, which was 3% in Q2 last year. LCV, which was on a growth phase, has been marginally impacted by

Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores, 6.5% as against Rs.135 Crores, which was 3% in Q2 last year. LCV, which was on a growth phase, has been marginally impacted by semiconductor

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Guidance — 20 items

Dheeraj Hinduja

opening

“On a longer term, CRISIL expects commercial vehicle demand to grow at a robust 10% to 12% CAGR for a 5-year period between FY2022 and 2027.”

Dheeraj Hinduja

“We will be launching the electric versions of the Dost and Bada Dost in the middle of 2023, and you are right, we see increased requirements from many courier companies, logistics companies within cities for last-mile delivery, they are asking for electric vehicles.”

Dheeraj Hinduja

“There is potential but I do feel that it will be a slow rise and it will be more a B2B business to begin with, rather than retail.”

Gopal Mahadevan

“Just to add to what Chairman said, we will be definitely there in a multi-player approach.”

Gopal Mahadevan

“Like Chairman repeatedly says, we want to grow, certainly, we will grow, but we will grow profitably.”

Jinesh Gandhi

“Sure, and lastly, any indication of raw material cost influence in 2Q and what you expect in 3Q?”

Dheeraj Hinduja

“Naturally, material costs, with the volumes increasing, the economies will start kicking in as well, hopefully, with some of our larger suppliers so we do feel going forward with the softening of some of the commodity prices, this should help as well and of course, with the LCV volumes, we do have an initiative, I mean, on the value engineering of the products itself.”

Gopal Mahadevan

“I think what will happen is that it will be somewhere between Q1 and Q2.”

Gopal Mahadevan

“So the numbers will be somewhere in between Q1 and Q2.”

Kapil Singh

“So when we look at the business going forward, what is the steady state of Capex and investment that we should look at, say, next 1 or 2 years?”

Risks & concerns — 6 flagged

It looks like prices are softening further, which is good for us, and we will continue to monitor this, but we are expecting that steel prices should continue to soften as we move in the second half as well.

— Gopal Mahadevan

So Q2 has taken possibly the full impact of the catch-up that needed to be done.

— Gopal Mahadevan

In sum, really, the retail sales are more than the wholesale sales, which causes a concern for us.

— Gopal Mahadevan

But just to share with you, the reason why it is happening is not because of any concern, this is a very government Ministry of Defense offtake driven business.

— Gopal Mahadevan

But I do not think there is any concern on the inventory side that you should get worried about.

— Gopal Mahadevan

It is very difficult to say one segment one particular thing, whether we will continue to get a particular target like 40%.

— Gopal Mahadevan

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Q&A — 9 exchanges

Thanks a lot for the opportunity. Sir, my question is regarding some ICDs, which have cropped up again. Can you please help us understand why we are doing those and the rational for continuing to lend within the group and we also have debt on the balance sheet. So if you can just explain that bit, please?

Gopal Mahadevan

This is actually a short-term loan that has been given to our own subsidiary Switch and nothing more than that. So the entire amount of Rs.200 Crores has been given to help them execute some of the orders that they are getting. Switch has got orders in place, the BMTC, the BEST, double-decker plus the existing orders. So that is what it has been given for. It has not been given for any other group companies. It is to our own subsidiary. But, I am just trying to understand the funding bit here because we have been talking about raising money at Switch for almost a year now. So what is the way o

My first question pertains to the pricing trend in the market. So you alluded to the fact that prices have been increased and retention has been better. So can you quantify that in terms of what kind of price increases we took in 2Q and 3Q up till date? And how are the trends on discount?

Gopal Mahadevan

In Q1, I think, we have been actually raising prices. I just wanted to give, if you look at our EBITDA in relation to the market, you would see improvement even though we are playing in the same field, right? And this has been because of a conscious effort of 2, 3 things. One is price increase, where in Q1, we did about 1.8%, 1.9%. In Q2, we did another 1%, and very recently, we have announced almost another 1.5% price increase. So we have been consistently raising prices, and we will continue to do that, but at the same time, if you notice, we were the only large player to have gained market

Thanks. Sir, I have two follow up, small ones. On the employee cost, are you saying that the Q2 level is what will sustain going ahead? Or is it the H1 level?

Gopal Mahadevan

I think what will happen is that it will be somewhere between Q1 and Q2. The reason is we did a catch-up in Q2, right? So Q2 has taken possibly the full impact of the catch-up that needed to be done. So we will see some softening in Q3. So the numbers will be somewhere in between Q1 and Q2. Yes, and second, on the commodity costs, because the RM to sales have seen an improvement of about 100 bps or so, right? Yes. just wanted to say that the manpower cost absolute is what you look at it. The other thing is we are also expecting the growth in the industry, right? So we possibly will see growth

My first question was a clarification on the upcoming BS VI Phase 2 norm. So a, what is the kind of cost inflation you are anticipating? And b) is the implementation similar to what happened during BS IV to BS VI in the sense that will you have to clear all the inventory at the dealer end, which could lead to a few months of destocking and wholesale coming down? So if you can clarify that first?

Gopal Mahadevan

Let me clarify the latter part of it first. I will say one thing here, this is not stuffing the pipeline, and we have said that in the past. So we never stuffed the pipeline. Stuffing the pipeline happens when your wholesale inventory is more, where the retail sales are lower than the wholesale sales, right? In our case, the retail sales will be equal to wholesale sales. In sum, really, the retail sales are more than the wholesale sales, which causes a concern for us. Because then what happens is there is no sufficient inventory in the pipe and you see the other thing that has happened, while

Sir, I have joined slightly late, so apology if I am repeating the question. Sir, anything on the defense revenue plus engine driven in the quarter and how it has moved sequentially Q1 versus Q2?

K. M Balaji

Defence revenue is around Rs.50 Crores per quarter. But just to share with you, the reason why it is happening is not because of any concern, this is a very government Ministry of Defense offtake driven business. So we This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings are expecting that the offtake will start in the second, third and fourth quarter, See, what we will do from the defense side, we are far more well positioned than we were 2 or 3 years ago because 3, 4 years ago, we had only the VFJ kits or the Stallion kits which wer

This is with regard to working capital, sorry to repeat this considering that interest costs are going up. So it seems like almost like you added Rs.2000 Crores seem to the working capital side. How much of that is towards the raw material inventory and how much is towards finished goods. This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings

Gopal Mahadevan

It is reasonably spread out between raw material, FG and receivables. The point is we do not provide that level of granular details. All we can tell you is that our working capital situation is very much under control. We have given you two data points. One is we are ensuring and we have always ensured that in Leyland is that our retail must be equal to wholesale or retail should be higher than wholesale. Maybe a one-off month may happen where we have kind of wholesaled a bit in the last day and the retail has not happened. But we keep track that we are not pushing vehicles into the dealership

Sir, what is the share of spares business in our revenue?

K. M. Balaji

Yes, spare parts revenue will be around 7% to 8%. 7% to 8%. 8% of the overall revenue. Thank you.

Thank you sir for the opportunity. My first question was on tractor trailers. As you indicated that the company has been successful in gaining market share and slowly inching towards the 30% mark. Dealers indicate that Ashok’s 4-cylinder vehicle has done well versus competitors’ 6-cylinder vehicle. So just want to understand how do you see this market share gain trajectory because we used to have more than 40% share in FY2019. Do you see the recovery towards those levels?

Gopal Mahadevan

Yes, we will see. I mean, I am not too sure about the 4-cylinder, 6-cylinder that you mentioned. But certainly, all I can tell you is this predominantly across the spectrum of products. but certainly across all zones, we have been gaining market share in the current quarter, and we will continue to pursue that growth as we move forward. It is very difficult to say one segment one particular thing, whether we will continue to get a particular target like 40%. But certainly, we want to ensure that we are getting into a higher and higher presence in the market, which means we have to enhance, our

I would like to thank everyone once again for your interest. As we said, we are very much on an upward trend in this industry. Our products continue to perform well across all segments. The market share has grown in each and every zone and new products will be introduced on a quarterly basis, and we do feel that the growth that we have seen in the first two quarters will continue going forward as well. Thank you very much. This transcript has been edited for readability and doesn't purport to be the verbatim record of the proceedings

Gopal Mahadevan

Thank you.

Speaking time

Gopal Mahadevan

Moderator

Dheeraj Hinduja

Chirag Shah

Kapil Singh

Pramod Amthe

Jinesh Gandhi

Pramod Kumar

K. M. Balaji

Amyn Pirani

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Opening remarks

Annamalai Jayaraj

Thanks, Vivian. Good afternoon, everyone. On behalf of B&K Securities, welcome to 2Q FY2023 post results conference call of Ashok Leyland Limited. I also take this opportunity to welcome the senior management team of Ashok Leyland Limited. We have with us today, Mr. Dheeraj G. Hinduja, Executive Chairman; Mr. Gopal Mahadevan, Whole Time Director and Chief Financial Officer; and Mr. K. M. Balaji, Deputy Chief Financial Officer. I will now invite Ashok Leyland management for the opening remarks to be followed by question-answer session. Over to you Sir!

Dheeraj Hinduja

Thank you. Good afternoon, ladies and gentlemen. It gives me immense pleasure to be in touch with you, and I thank you very much for the interest shown in Ashok Leyland. I will quickly run through Q2 performance as well as some of the latest developments. I am extremely happy to share that Q2 FY2023 continues to be good, aided by a strong performance in domestic truck sales with a 32% market share. This is almost a 10% increase over our market share during the same period last year. This is the third consecutive quarter of 30-plus % market share for Ashok Leyland. In Q2, MHCV truck volumes have grown more than 1.5 times of the industry growth. AL growth at 102% versus TIV growth at 39%, resulting in Ashok Leyland market share improving to 32.3% as compared to 22.2% in Q2 of last year. Sequentially also, in Q2, AL’s MHCV truck market share has grown by 1.2%. Our market share has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at Rs.537 Crores, 6.5% as against Rs.135 Crores, whi

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