About the Company

Ashok Leyland is an Indian automobile company headquartered in Chennai, India. It is owned by the Hinduja Group. Founded in 1948, it is the second-largest commercial vehicle manufacturer in India, the fourth largest manufacturer of buses in the world and the 10th largest manufacturer of trucks globally. Operating nine plants, Ashok Leyland also makes spare parts and engines for industrial and marine applications. It is the second-largest commercial vehicle company in India in the medium and heavy commercial vehicle (M&HCV) segment, with a market share of 32.1% (FY 2016).

 

Q3 FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 4037.98 6346 -36.37% 3975 1.58% 13717.91 20309.88 -32.46%
PBT 54.17 483.57 -88.80% 19.11* 183.46% 434*** 1690.33 -74.32%
PAT 27.75 380.84 -92.71% 38.87 -28.61% 296.84 1330.21 -77.68%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 5188.84 7510.46 -30.91% 5121 1.32% 16932 23424.8 -27.72%
PBT 121.29 577.48 -79.00% 87.83** 38.10% 650.18**** 1912.97 -66.01%
PAT 57.11 428.76 -86.68% 69.95 -18.36% 402 1442.9 -72.14%

*includes an exceptional loss item of Rs 64.81 Cr where Rs 44.74 Cr was a voluntary retirement scheme

**includes an exceptional loss item of Rs 46 Cr which contains the same scheme as above

***includes exceptional items of Rs 87.1 Cr

 

Detailed Results

    1. The company had another dismal quarter with a fall in consolidated revenues of 31% YoY and a fall in consolidated PAT of 87% YoY.
    2. Total industry volumes fell 39% in the quarter.
    3. EBITDA margins for the quarter were at 5.6%vs 10.3% a year ago.
    4. The company has already seeded many of its BSVI products in the market.
    5. With the rollout of the BS-VI vehicles, the company will be introducing its Modular Business Platform to give customers the flexibility to choose vehicles as per their specific needs and enable a faster response from the company.

Investor Conference Call Highlights

  1. The drop in 9M volumes for the company was 42% YoY.
  2. The company also lost around 0.6% market share YoY.
  3. The management has stated that it was a deliberate decision on part of the company to see market share go down in order to clean the inventory in its system. The company will not push more vehicles into its wholesale dealers as it will only add on to the already elevated dealer inventory levels.
  4. The total dealer+company inventory was 27500 units in June. It is now at 6500 units only.
  5. The management also stated that another reason for the drop in volumes was that the company walked away from deals where it would lose money over variable costs. Thus rather than make a loss on the sale, it preferred to not make the product for the time being.
  6. The third major reason for the volume drop was the rise in material costs of 4.5% which put further stress on the company and affect margins for the quarter.
  7. The impact of the rise in material costs was Rs 250 Cr in Q3.
  8. The company also shed 250 people in the quarter through VRS (Voluntary Retirement Scheme) which the management stresses was necessary to cut overheads.
  9. The company has only spent Rs 960 Cr of its previous guidance of Rs 2000 Cr Capex for FY20 and has maintained its debt at Rs 2736 Cr as of end of Q3.
  10. The management believes that it will take at least 1-2 years for the benefits of the modular vehicle platform to accrue. The main benefits arising from this platform would be commonization of parts which will help reduce inventory costs and manufacturing complexity.
  11. For fully built BSIV vehicles, production shall go on till March end while for FES vehicles, it will only go on till the end of February.
  12. The breakup of the current inventory levels is 3100 at dealers and 3400 at the company.
  13. The management is aiming to reduce the dependence of the company on the domestic market by looking to grow internationally in the company’s dominant segment of CVs. It is also looking to broad-base its defense business profile in order to be able to cater to a larger addressable market. This should take 2 years at least to implement.
  14. The spare parts business has been growing reasonably at 10-15%.
  15. The K54 initiative has helped the company make savings of Rs 500 Cr in the year so far and is expected to save Rs 650 Cr on an annualized basis.
  16. The management is also very optimistic about its Phoenix model which is currently the only vehicle in the LCV market that is not been sold at discount. The management has further stated that the company will not be selling it at discount in the future as well.
  17. The management has also stated that the long term objective for the company is to crack to be one of the global top 10 CV makers in the next 6-7 years.
  18. Other than routine Capex, the additional Capex for each year should be at Rs 400-500 Cr each year for the next 4-5 years.
  19. In its international subsidiaries, the company has had a very successful launch of its Electric Double Decker Bus. The company has received orders for 90 such buses from Dubai. The company is also expecting other orders for Metroline Double Deckers from London and Australia.
  20. Other than Albonair, only HFL will be requiring cash investment from the company.
  21. Ashok Leyland and Hinduja Group have decided to buy off 7% of HFL from Everstone. At present, the company is offering an exit valuation of 2-2.5 times book for this stake.
  22. The total investment made by the company so far in FY20 is Rs 58 Cr.
  23. Defense revenue was 1% of total revenues while payers were 9% of total revenues. LCVs accounted for 14% while trucks accounted for 40-41% of total revenues. Domestic buses were 20% while exports were 9% of total revenues.
  24. The management believes that a mandatory scrappage policy would be good for the industry overall.
  25. Ashok Leyland Finance has grown to a book of Rs 27000 Cr and it is up 15-20% YoY. 50% of the book is domestic trucks while the rest is diversified.
  26. The management expects a demand uptick to take place by Q3 or Q4 of next year.
  27. The management has clarified that the company does not have any major exposure to China and the disruption due to coronavirus is indirect in nature only.
  28. At current inventory levels, it is not a concern but it can become a concern if the situation worsens past April when BSVI comes into place.
  29. The management is not worried by the fact that the company is the only player in the market who has hiked prices by 14% post BSVI as it is confident in the demand for its products at the elevated price levels. Any price action will depend on how the demand situation in the ground changes.
  30. The management has stated that in the current time of demand slowdown in the broader market, the company shall maintain its focus on becoming a leaner organization. It will also prioritize the reduction of services cost to customers and improving dealer profitability to improve the resilience of the company and its offerings.
  31. The target for the company for FY21 is to grow exports by 20%. The company aims to do so by concentrating on Africa, Bangladesh and Sri Lanka.
  32. The company has a total of Rs 1300 Cr of long term borrowing and Rs 522 Cr of short term borrowing. The company does not have any repayment due to for the next 2 years.
  33. The management has acknowledged that the discount levels for the industry is still very high at an average level of Rs 5.25 Lac per vehicle. The company will not stoop to aggressive discounting just to maintain market share as it will be unsustainable and damaging for the company in the long term.
  34. The management will now shift export operations to Chennai to be able to focus more on this side of the business. The company will also have a revised structure with 2 COOs on board. The management assures that the company will continue to maintain its position as the most profitable CV maker in India and not compromise on profitability for the sake of market share.
  35. The company will also look to expand its network in the North and the East of India and to leverage synergies in the LCV and MHCV divisions and their common dealer families.

Analyst’s View

Ashok Leyland has consistently proven itself over the years as the market leader in India for HCVs. They have remained resilient in the current auto market conditions and have pushed to maintain their margins and grow their market share organically. The company has been hit hard by the drastic volume decline in the LCV and MHCV industry and the high level of discounting prevalent in the industry. The rise in material costs has hit the company hard in such times and forced it to even do plant shutdowns. It is commendable on part of the company to maintain a prudent stance and forgo deals which are loss-making. Furthermore, the management’s focus on easing dealer conditions in the short term while concentrating on export markets in the medium term shows that it has been proactive in looking to develop other revenue alternatives in times of domestic demand slowdown. It remains to be seen how the company will fare in the near future given the ongoing demand slowdown, the BSVI transition, and the widespread economic disruption caused by the coronavirus situation. Nonetheless, given its market position and its resilient performance so far, Ashok Leyland remains a pivotal auto sector stock to watch out for all investors.


 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 3929.5 7621 -48.44% 5683.86 -30.87% 9613.36 13883.8 -30.76%
PBT 19.11* 670.8 -97.15% 360.74 -94.70% 379.85* 1206.75 -68.52%
PAT 38.87 527.74 -92.63% 230.22 -83.12% 269.1 949.37 -71.65%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 5096.13 8692 -41.37% 6576 -22.50% 11674 15833 -26.27%
PBT 87.83** 732.42 -88.01% 441 -80.08% 528.83** 1335.5 -60.40%
PAT 69.95 550.35 -87.29% 274.98 -74.56% 344.91 1014.13 -65.99%

*includes an exceptional loss item of Rs 64.81 Cr where Rs 44.74 Cr was a voluntary retirement scheme

**includes an exceptional loss item of Rs 46 Cr which contains the same scheme as above

 

Detailed Results

    1. The company had a dismal quarter with a fall in consolidated revenues of 41% YoY and a fall in consolidated PAT of 87% YoY.
    2. Total industry volumes fell 53% in the quarter.
    3. The company’s market share in the LCV segment grew to 35%.
    4. EBITDA margins for the quarter were at 5.8% and H1 were at 8%.
    5. The company launched many new products in the quarter.
    6. With the rollout of the BS-VI vehicles, the company will be introducing its Modular Business Platform to give customers the flexibility to choose vehicles as per their specific needs and enable a faster response from the company.

Investor Conference Call Highlights

  1. The company has brought down inventory (company + dealer) levels further down to 18,200 from 27,500 in the last quarter despite the massive drop of 53% YoY in industry volumes.
  2. The management has stated that they expect inventory levels to have bottomed out at current levels and they should see good sales traction post the festive season.
  3. The company has been the first OEM to be certified by ARAI across the entire M&HCV range.
  4. The company will appoint a new CEO by the end of FY20.
  5. Ashok Leyland saw a volume decline of 59% YoY in Q2 with a market share in M&HCV falling to 30.4% from 35% a year ago.
  6. The management has stated that its modular platform will also include the option of selecting a right wheel or left wheel drive thus indicating that this platform can be used for export sales as well.
  7. The company’s export sales have also been subdued as their major markets of the Middle East and Indian Subcontinent have been slow. The company expects export sales to start picking up in H2 particularly in Africa.
  8. The company has brought down its Capex plans to Rs 1800 Cr from the previously guided Rs 2300 Cr and the management is looking to reduce it further.
  9. The management expects to have cost savings of Rs 500 Cr for FY20 and the savings for H1 to be around Rs 200 to 230 Cr.
  10. The company will be following the old tax regime until its MAT reserves are used up. This is expected to take a couple of years at least.
  11. The management expects higher export volumes from April onwards when their Phoenix platform comes online.
  12. The company has participated in a tender offer for electric buses. The management has stated that it has been slow on bidding in this area as it wants to complete thorough testing of all products involved here.
  13. The management has claimed that it is the only EV supplier in the country that allows both the battery swap and fast charge options.
  14. The management sees demand in certain segments to remain stable like in buses and ICVs. In others like LCV and MHCV, they see markets reviving in the near future although at a very slow pace.
  15. Capex levels should go down significantly from FY21 onwards as the Capex in FY20 was mainly towards technology up-gradation and the platform development.
  16. The material costs have come down in the quarter and have helped the company shore their margins which have been battered by the high level of discounting in the industry. Average discounts have gone up to almost Rs 525,000 in Q2 from Rs 400,000 in Q1.
  17. The management stands cautious on the scrappage policy as there have not been any concrete developments on it and it will take time for the necessary infrastructure to be set up across the country. They believe that around 6-12 months are required for this setup to take place.
  18. The management believes that they stand ready to service any additional demand arising from any prebuying before the BS-VI comes into place.
  19. The management has stated that it will not focus on expanding its network aggressively. They will be enhancing their range of services to include service and spares in existing network instead.
  20. The management has stated that they expect the debt to stay stable at current levels until the end of the year.
  21. The company will extend the sales of fully built BS-IV vehicles into the last month of March ensuring that such vehicles get registered on time. As far as chassis sales are concerned, it will go on only till mid-February so that customers have enough time to build the whole vehicle and get registered on time.
  22. The management believes that the worst is behind them and they remain cautiously optimistic about the industry prospects in the near future.

Analyst’s View

Ashok Leyland has consistently proven itself over the years as the market leader in India for HCVs. They have remained resilient in the current auto market conditions and have pushed to maintain their margins and grow their market share organically. The company has been hit hard by the drastic volume decline in the LCV and MHCV industry and the high level of discounting prevalent in the industry. The fall in raw material prices certainly helped the company but this is just a temporary reprieve. Despite the dismal industry conditions, the company has done well to stay in line with their tech development plans and expect their new Phoenix platform to help them capture additional market share and expand export sales in the future. It remains to be seen whether the broad auto industry recovers as the company expects. Nonetheless, given the company’s resilient performance and its solid market positioning, Ashok Leyland remains one of the most dependable auto stocks in the country. Whenever the industry scenario improves, the company would be in the best position to take advantage and grow further.


 

 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 5704.93 6315.19 -9.66% 8855 -35.57%
PBT 360.74 535.96 -32.69% 806.47 -55.27%
PAT 230.22 421.63 -45.40% 653 -64.74%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 6612.42 7193.79 -8.08% 9903.28 -33.23%
PBT 441.06 803.07 -45.08% 961.23 -54.12%
PAT 274.96 463.78 -40.71% 763.18 -63.97%

Detailed Results

    1. The company had a dismal quarter with a fall in consolidated revenues of 8% YoY and a fall in consolidated PAT of 41% YoY.
    2. Total industry volumes fell 17% in the quarter.
    3. The company’s market share in MHCV segment grew 4% YoY to 34.1%.
    4. EBITDA margins for the quarter were at 9.4% showing effective cost management on part of the company.
    5. In the LCV business, the industry volumes fell 5% while the company’s LCV division grew more than 12% YoY.
    6. The company launched many new products in the quarter.
    7. Under the customer solutions business, the company ‘Sadak ka Sathi’, a breakdown assistance program with Hindustan Petroleum (HPCL), making the company one of the largest roadside assistance providers in the country for commercial vehicles.
    8. In July, the company launched ‘Oyster’, a next-gen AC midi-bus in the premium category.

Investor Conference Call Highlights

  1. The company’s main focus in current times is to maintain gross margins at current levels and increase market share in their operational areas.
  2. The overall drop in volumes for the company was only 6% as compared to 17% for the industry.
  3. Exports for the company have dropped to 1386 from 3800 a year ago. The company is concentrating on bagging projects and institutional order for exports mainly because retail markets are showing signs of softening.
  4. The company is expecting the defense orders to start coming in from the second half of the year onwards which should aid profitability.
  5. The parts business grew 10% YoY showing strong performance from the company in this sector. The power solutions business was mostly flat with a 1-2% YoY growth.
  6. The LCV segment showed a good growth of 12% YoY and the market share of the company in this segment has grown to 18-18.5%. This is a good thing for the company as they are looking to make this segment an important part of their export offerings.
  7. The company is concentrating on reaching as many export markets as possible even with low volumes in each. This is because it essentially diversifies the export risk for the country and enables them to keep margins stable at desirable levels.
  8. The search for the new CEO for the company is still going on but the senior leadership team is working to keep everything running as smoothly as possible.
  9. The management believes they can achieve the target of Rs 500 Cr in cost savings this year.
  10. The management has stated that the company shall stop selling front end structures by early February and shall only be selling fully built vehicles till March-end. The company will be taking action to ensure that at the end of March they do not have any inventory write-offs.
  11. The company has built inventory levels in Q1 and so they will scale back production in coming quarters to bring down inventory levels to desirable levels. In case, demand scenario picks up they shall ramp up production. The management expects inventory levels to normalize by the end of next quarter. Currently, they have an inventory of a month or month and a half depending on the dealer.
  12. Average utilization levels are at 50-60% for the company.
  13. The management has maintained that they will not be the ones to initiate any discounting actions and they will continue to maintain margins at current levels while growing market share organically.
  14. The management has shared guidance for a flat or small decline (<5%) year overall in terms of revenues but there remain a lot of uncertainties like GST resolution, etc which prevents them from making any concrete assurances.
  15. The management sees commodity prices softening in the near future.
  16. The management has stated that they are not concerned too much about the dedicated freight corridor (DFC) as it is early days for it and it would in turn spur road transport systems to keep pace and evolve and improve in parallel to survive.
  17. The company expects costs to go up anywhere between 13%-20% after the transition to BS-VI. They hope to get clarity on it sometime in the future.
  18. The company saw good margin improvement coming in from the LCV and the >25-ton segment mainly due to various measure to ensure better operational performance and cost reductions like improvement in foundries and warranty charges coming down.
  19. The cost reductions achieved in Q1 were about Rs 100 Cr which shows that the company’s actions are in the right direction towards their short term cost reduction goal.
  20. The management has stated that they are sure that any type of scrap scheme for old vehicles should be beneficial to the whole industry.
  21. The company will continue its capex programs in MBP, BS-VI and Phoenix projects while all of the others like IT Capex will be deferred. The amount of deferred capex comes out to be around Rs 200 Cr.
  22. The projects mentioned above are all developmental initiatives which are vital to the company and are expected to be one time expenditures. The company is also not putting efforts towards increasing core production capacity and electric vehicles as they are yet to get any certainty on important issues like concrete demand revival or definitive confidence on a battery technology that they can base their entire electric division on. Thus they are adopting a wait and watch stance on these issues so that they can rapidly move forward once they are certain.
  23. The company is working towards bringing a share out of the bodybuilder unit and offer fully built products at competitive levels.
  24. The management has stated that they can provide clarity on capex for FY21 only in H2FY20.
  25. In terms of volumes, ICV segment has been the best performing with a growth of 6-10% YoY. The tipper segment has also been doing moderately well as it has not been affected greatly by the axle load norms.
  26. The management has confirmed that they will institute temporary shutdowns in their plants to normalise inventory levels.
  27. The management believes that eventually in the long term, the commercial vehicle industry will revive given its importance in the overall economy and they expect the BS VI to be a little disadvantageous in terms of cost initially but it will bring things to a new normal for all participants involved. Thus the company expects a small blip in Q1FY21 when the norms come into place but demand should revive from Q2FY21 onwards.
  28. The operating working capital for the company at the end of June was Rs 800 Cr without taking advance taxes into account. The net debt for the company was at Rs 510 Cr.
  29. The company is planning to minimise any inventory losses during the transition and they will keep holding specific portion of BS IV inventory marked for export purposes.
  30. Hinduja Leyland Finance accounts for around 13-14% of the company’s portfolio. So far it has not faced any liquidity issues and provisioning at acceptable levels. Around 50% of their commercial vehicle portfolio is from Ashok Leyland. The company will prevent any overexposure to itself in this entity and they will not be pushing their products aggressively.

Analyst’s View

Ashok Leyland has consistently proven themselves over the years as the market leader in India for HCVs. They have remained resilient in the current auto market conditions and have pushed to maintain their margins and grow their market share organically. They are also staying ready to act on any important developments like BS-VI. The company is working hard on bringing down their inventory to optimal levels and they expect to have temporary shutdowns to do so. The company has been working well without a CEO figure mainly on the back of their excellent upper management team. The falling exports is a big concern for the company in a period of waning domestic demand. It remains to be seen whether the company will be successful in reviving exports and whether the defense orders will come in the time anticipated by the company. Nonetheless, given their dominant market position and the management focus on staying resilient and not pushing aggressively in current market conditions, Ashok Leyland is a stock to watch out for given its current valuation. However, the biggest challenge is to predict when the CV cycle will turn for the better.

 

 


 

Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 8855 8839.5 0.18% 6346 39.54% 29164 26839.6 8.66%
PBT 806.47 1005.65 -19.81% 483.57 66.77% 2496.8 2385.8 4.65%
PAT 653 743.12 -12.13% 380.84 71.46% 1963.2 1717.7 14.29%

 

     Consolidated Financials (In Crs)
FY19 FY18 %  Change
Sales 33324.9 30116 10.66%
PBT 2871.66 2564.9 11.96%
PAT 2196.6 1813.8 21.10%

Detailed Results

    1. The company saw a flat quarter with fall in PBT and PAT of 20% and 12% YoY respectively.
    2. The profits for FY19 were up 14.3% despite sales only rising 8.66% YoY.
    3. The consolidated performance of the group was good with almost 11% rise YoY in revenues and PBT & PAT rising 12% and 21% YoY respectively.
    4. The company posted an EBITDA margin of 10.8% for FY19.
    5. The domestic MHCV industry volume sold fell 4% while Ashok Leyland volumes grew 1%.
    6. In the LCV segment, volumes grew 8% in Q4 and 25% in FY19.
    7. Including exports, MHCV volumes for FY19 grew 9% YoY.

Investor Conference Call Highlights

  1. The company is looking forward to a growth of 10% to 12% in TIV business in FY20.
  2. The management feels that they are sufficiently prepared for the new vehicle norms of BS VI.
  3. The LCV business and Hinduja Foundries have started generating profits.
  4. The market share for the company also rose to 36.9% from 35.1% last year.
  5. On the capex front, the company expects to invest Rs 1500 Cr. The proceeds from this are to be used in their LCV project called Phoenix, capacity expansions and BS VI transitions.
  6. The Phoenix project is expected to address the high volume 3 to 5 ton LCV segment where the company does not have any dedicated products yet.
  7. The company expects to progressively add on to the capex figure given above in the coming years as the company forays into electric vehicles which the company has avoided till now.
  8. The company is expecting to penetrate into lighter vehicle segments in their existing export destinations and also launch operations in new geographies like Russia. The company is also expecting some demand to be fulfilled by defence tender offers.
  9. The company has already won almost 32 defence tender offers and have already completed 8-9 trials among these offers.
  10. The performance of Hinduja Finance has been good with the consolidated loan book at Rs 26000 Cr currently.
  11. The Board is currently in the process of searching for a new candidate for the vacated CEO position and currently does not have any specific timeline on any developments in this area.
  12. The company is expecting pre-buys before the BS VI rollout to take place in the 2nd and 3rd quarter of FY20.
  13. The company is also looking forward to updating their vision statement as they have already reached their previous vision of becoming one of the global top 10 in trucks and buses which was set in 2011 and achieved by FY’18-19.
  14. The company also plans to introduce a modular manufacturing platform with the BS VI rollout which shall not only provide improvements in their manufacturing process, it will also help in higher customization for new customers.
  15. The targeted production capacity for the company after the current capex schedule is around 180000 vehicles in MHCV.
  16. The management maintains that it is too early to make any assumptions on the raw material costs going forward and the company is just focussed on growing market share in the coming year.
  17. In the entire business, tippers constitute around 20% of overall volumes.
  18. The company is not working on any alternate fuel versions in their LCV segment. Rather they are focussing in developing electric variants in this segment and they want to stand ready to fulfil the demand for electric light vehicles as soon as demand arises for this segment.

Analyst’s View

Ashok Leyland has consistently proven itself over the years as the market leader in India for HCVs. They have shown that they are ready to tackle new issues like the upcoming BS-VI norms and stay proactive on new trends in the LCV industry like electrification. Even if the domestic auto market is largely expected to be muted, the company is looking for new sources of growth like the export market and other segments in the LCV segment where they have not penetrated yet. Thus, Ashok Leyland still stands as one of the most consistent players in the commercial vehicle industry of India.


Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19

Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18

9M% Change

Sales

6325 7190 -12.03% 7621 -17.01% 20209 17853

13.20%

PBT

484 693 -30.16% 671 -27.87% 1690 1380

22.46%

PAT

381 485 -21.44% 528 -27.84% 1330 975 36.41%

Detailed Results

    1. The current quarter has not been good for the company with drop in sales, PBT and PAT both in YoY and QoQ terms.
    2. This is mainly attributed to decline in total industry volume sold of 7% YoY and higher input costs.
    3. Despite the bad quarter results, Ashok Leyland have had a good 9M performance with 13% growth in revenues, 22% growth in PBT and 36% growth in PAT.
    4. Ashok Leyland have also achieved BS6 across their entire range of engines.
    5. The company is also expecting higher sales post elections as it anticipates military spending to rise post elections.
    6. The company is able to maintain EBITDA margins of 10.3% which they assert is indicative of their strong market position despite higher input costs and competitive pressure.

Investor Conference Call Highlights

  1. The Total industry volumes have declined 7% mainly due to high base of last year which was 42% up from the figure 2 years ago.
  2. The company’s market share has dipped slightly by 1.5% to 31.9%.
  3. The company has also successfully merged their LCV companies with the parent Ashok Leyland.
  4. The company also expects some tax benefits to arise from the merger along with reduced operational costs and synergistic benefits.
  5. The company has maintained double digit EBITDA margins for 15 of the last 16 quarters.
  6. The LCV segment has increased their market share to 19% in January ‘19.
  7. The LCV segment has only covered 40%-50% of the addressable market, thus highlighting significant room for this segment to grow and capture market share.
  8. The company is also looking forward to adding a new product in the LCV segment called the Phoenix which should get to the market within the next 1-1.5 years.
  9. The company is expecting a big spurt in sales before BS-VI regulations comes into effect.
  10. In international markets, the company is doing well in SAARC countries like Bangladesh. Sri Lanka operations have been down mainly due to the geopolitical uncertainty and the Middle East has remained steady for the company.
  11. The main concerns for Middle East comes from oil price volatility. The company maintains that oil price stability can lead to revival in demand in the Middle East.
  12. Aftermarket division has been doing good with 9M revenues for the segment of Rs 1000 Cr.
  13. This segment is growing at a steady rate of more than 25% and has much room for growth as market penetration in this category is still only at 30% according to the management.
  14. Channel inventory levels are expected to stay the same as last year.
  15. The company has net debt of Rs 1295 Cr as of December ’18.
  16. The tax benefit from the LCV merger should be upwards of Rs 250 Cr for the company.
  17. Currently the company is keeping 12760 units in its inventory.
  18. The capex done for the current year stands at Rs 600 Cr and the management expects another 200-300 Cr more.
  19. The company expects raw material prices to soften in the coming quarter which should help improve margins.
  20. The revenue split for the current quarter revenues is as follows:
    • Trucks: Rs 4300 Cr
    • Buses: Rs 439 Cr
    • LCVs: Rs 572Cr
    • Others: Rs 1014 Cr
  21. The company is readying itself for a pan India BS VI rollout as the exact details of the rollout have not been announced.

Analyst’s View

Ashok Leyland have been consistently proven themselves over the years as the market leader in India for HCVs. They are also expanding their operations into LCVs which has seen good growth in the recent past. The company has had a bad quarter just by looking at the top line figures but they have showed much better performance in the 9M of FY19. Ashok Leyland have showcased their position as a resilient player in the HCV industry by maintaining a double digit EBITDA margin despite competitive pressures and rising raw material prices. Like the rest of the industry, it remains to be seen how the change in HCV norms in BS VI will affect the company. The recent fall in volumes remains a concern in the near term for the company. Let’s see how Ashok Leyland finds its way back on the growth path.

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