Was the response that discounting trends are getting better post-GST cut, or status quo remains on discounting?
It is too early to say. Most October orders were frozen prior to GST effect since deals take a month or more to finalize. Theoretically with 10% price reduction, discounting trend should be better, but it depends on various factors including limited players in every deal where customers play one against another.
Any update on the promoter pledge - especially after the IndusInd Bank development?
We don't have exact numbers right now. Promoters are fully committed to Ashok Leyland - that should not be a concern. They are trying to reduce the pledge shares - some reduction has already happened in the recent past, and they are committed to reduce it further. Other than that, we don't have any further information.
Any view on industry truck utilization level, present Ashok Leyland inventory and price increases taken in Q2?
No specific price increase action was taken in Q2. We are focused on better NSR through mix and reduction in discounts, which has continued. We may consider price increase in Q4 or Q1 next year, not Q3. We had lost some Tipper market share where margins are highest, and the new 320/360 HP Tippers should enable a big comeback. On utilization, monsoon dips by about 10 percentage points but right now it is very stable, and if October-like demand continues, utilization will keep improving during the year.
For Hinduja Leyland Finance, what is the mix of small truck operators and large truck operators in the disbursement AUM?
Commercial vehicle finance is only a decent portion of HLF's overall portfolio. They have a housing arm Hinduja Housing Finance which does about Rs. 16,000 crores funding, and they also fund heavy earth equipment, two-wheelers and to some extent three-wheelers. The entire portfolio is not fully CV - they are into other businesses also.
Can you quantify the EBITDA and PAT positive numbers for Switch India in H1?
We don't normally reveal those numbers. Let the company grow to a sizable volume on the topline, and then we will start sharing those. The next-level target is to make Switch free cash flow positive by FY '27.
With improving fleet owner confidence, freight rates and GST cut, what is the discounting situation now and what is the potential reduction further to give visibility on margin accretion?
It is too early. Theoretically discounting should come down because of huge GST-related price reduction. We have to see how the market and customers behave. If October-like demand trends continue, there will be opportunities to increase prices or reduce discounts at some point in time.
What is your full year outlook for MHCVs and LCVs - what kind of growth are you expecting for the full year or second half? And at the time of GST cut, there were concerns input credit may not be available to organized fleet operators. Is there a change in demand pattern between retail and fleet?
We are very optimistic about the post-GST 2.0 uptick. October MHCV grew about 7% and LCV 15%, and we expect H2 to be much better than H1 in absolute volume and growth. On the GST issue, three factors matter - truck prices are down 10% improving TCO, GST 2.0 across goods categories has driven a consumption boost which should drive higher freight demand, and while organized fleet operators have input credit apprehension, the freight demand and 10% price cut effects will be larger than the input tax factor.
What are the drivers for margin expansion from here on - will it be more gross margin led or operating leverage led? How to think about discounting?
All our initiatives on price recovery, commodity cost movement and material cost reduction continue. The non-truck segment growth has been good - exports grew 45% in Q2 and 30% in H1, spare parts continue 25%+ growth for the third consecutive year, defense has good improvement scope, and power solutions grew 12%+. The overall revenue mix is good. Truck demand is also going up - October showed 7% growth and you can do the math on the impact for the next 5 months.
What is the average age of the truck fleet?
Average age of the fleet is around 10 years right now, between 9.5-10.5 years. There are huge numbers of BS-4, BS-3 trucks still available. BS-6 trucks are much more efficient with better mileage, power and torque resulting in higher TAT. Age has exceeded 10 years versus the historical 7.5-8 years, and GST 2.0 plus infrastructure activities and government CAPEX in H2 may start opening up replacement demand. The sentiment is very positive on the ground.
Can you give a sense on how big non-truck revenues are as a percentage of revenues now? Particularly spares, defense, engine, exports, and LCV?
Roughly 50% of revenue comes from non-truck businesses. Buses about 13%, light commercial vehicles about 12%, spares about 10% and exports about 7%-8%.
Is it fair to assume these non-truck businesses are accretive to margins in terms of mix?
Certainly. The margins from these businesses are higher than the domestic truck margins.
What was this revenue mix percentage a year back or a couple of years ago - how big has this become relative to last year or the last couple of years?
It was about 55%-58% about a couple of years ago. Now it has moved to 50% domestic trucks revenue. In FY '22, the share of domestic truck business was 60%. It is 51% now. Shenu added that break-even MHCV truck volume has dropped from about 6,000-7,000 units a month to 1,000-1,200 units a month, due to reduction in fixed cost and growth in non-CV/non-heavy-duty businesses.
On the LCV business - you spoke about a significant change post-GST. What sort of growth are we looking at, and what about the product launches and capacity to ramp up volumes?
Current LCV capacity is close to 80,000 units. We have a plan to increase it to 110,000-120,000 units without much investment - mainly process changes - in 6-9 months once we get closer to 80. LCV was expected to be the biggest GST gainer because it is a retail market with single-owner operators and smaller fleets without input credit issues. We will try to beat market growth, and SAATHI is doing really well with much more potential to be exploited.
What percentage of LCV sales now comes from the recently launched SAATHI product? And on the sub-2-ton LCV pipeline - what is the timing of that launch?
SAATHI is doing beyond expectations - we hoped for 1,000 units a month within 5-6 months but it has crossed that significantly. Average LCV sales in 2-4 ton category is roughly 6,000 units and SAATHI is already 22%-25% of those sales. Cannibalization of Dost and Bada Dost has been low single digit. SAATHI addresses a white space - sub-2-ton replacement customers wanting more loading, power, comfort. Whether to extend SAATHI down to a 1-ton sub-2-ton variant is still under consideration.
Other expenses control has been pretty strong with Q-o-Q revenue growth - what were the drivers? And there is a pickup in other income this quarter - is that the new sustainable rate or a one-off?
Look at profit before exceptional items and tax, not post. Last year we had Rs. 117 crores gain from an investment valuation, and this year we provided for a long-pending litigation - so a Rs. 157 crore negative variance versus last year. We have exercised tighter control on production, sales and administration overheads. On other income, fair valuation of Switch India and another subsidiary investment resulted in Rs. 50 crores income; other than that no one-offs.
Senior financiers suggest CV discount rates may have come down post GST cuts - is there positive margin potential? And on the AC cabin cost hike, is there potential to pass that to customers?
On the AC cost hike, we have already passed it on to the customers, which is why margins are holding out. Shenu added that the new product range with in-house engine going from 250 HP to 320 and 360 HP will deliver peak torque 20%-30% better than market average, will be priced at premium and command best market prices. Margin accretion from new products will come within 2-3 quarters. Also launching a 13.5 meter 6-cylinder 4-valve bus and a unique 15 meter sleeper bus.
Can you talk about the financial metrics for first half of this year - ROCE, ROE, and where are we on the cash levels?
ROCE was about 34% last year and ROE about 32.5% - these are published numbers. First half will be tied lower because 40% happens in H1 and 60% in H2. On cash, we continue with Rs. 1,000 crores favorable cash. Last year same period we were at Rs. 500 crores debt - so a Rs. 1,500 crores advantageous swing. Shenu added receivables alone reduced Rs. 500 crores YoY September 24 to September 25.
Any thoughts on the commodity basket - how do you see that playing out in the near term?
On commodity side, we think Q3 will be better than Q2. We are already having indications of advantage in Q3 over Q2, though final picture gets determined in December. We will see margin uptake from there in Q3 at least. Hard to say how Q4 will respond, but we don't see major reason to be concerned even for Q4 right now.
Anything to read into the working capital, which seems to have increased resulting in negative OCR?
We have been working on three aspects of working capital - receivables, inventory and payables. Payables we don't have much option left. Receivables reduced by about Rs. 500 crores YoY. Inventory we cannot bring down to year-opening level since we need to maintain a minimum level to meet demand increases like the 7% October growth. Shenu added that since this is a seasonal market, compare operating working capital to same point last year rather than year beginning.
Within small commercial vehicles, how much presence does Ashok Leyland have and do you see any product gaps especially in the 2-5 ton segment - any plans for launches?
2-4 ton is more than 50% of the overall market and we don't think we have any gaps within it. The only gap was a bi-fuel product (CNG and petrol or CNG and diesel) which is becoming popular in NCR, parts of Mumbai and Gujarat. We will be launching that product within the next 1-2 quarters - product is ready and we are testing it. In 2-5 ton, we are sufficiently covered.
What is the network presence across the North-East and West-South regions and what are the network expansion plans?
MHCV touchpoints went from 800 at end FY '24 to roughly 1,100 now. LCV from 600 to roughly 900 touchpoints, plus 2,300+ ALTTs (Ashok Leyland Trained Technicians). Project Dhruv is benchmarking service processes with global best including the car industry to improve customer experience, turnaround time, first-time-right repairs, and digitize service across 1,000 workshops. Full embrace will take 12-18 months but it will be a game changer.
On exports, you indicated growth in GCC, SAARC and Africa - how do you see growth on a full year basis and how will the share of exports (now 7-8%) evolve over next 2-3 years?
Three years ago volume was 8,000. At Investor Day we set a mid-term target of 25,000 units. Last year was 15,000+ and this year we are targeting about 18,000 units. We have grown more than 35% in H1 so 18,000 over a base of 15-15.5 should be achievable. Over next 2-3 years we want to touch 25,000. Export margins are fantastic and help the margin equation.
On CAPEX side - first half was Rs. 658 crores with no investments. How do you see the full year CAPEX and investment numbers and areas of utilization?
CAPEX guidance is between Rs. 800 and Rs. 1,000 crores - expect around Rs. 1,000 crores. Spend areas are the center of excellence, the higher horsepower engine nodes development, and a recently purchased five grounds piece of land next to corporate office for a new building. On investments, depending on group company requirements particularly Hinduja Leyland Finance Tier-1 capital needs, but I don't foresee anything beyond Rs. 500 crores at this point.
Any timeline for the Hinduja Finance listing?
As we said earlier, it could take a minimum of Q1 of the next financial year. That is the minimum time limit required.
How are you seeing behavior in small truck guys - is profitability improving and loan servicing superior in recent weeks/months?
We don't see any kind of spurt in delinquency or provisioning in Hinduja Leyland Finance or Hinduja Housing Finance. Their GNPA and NNPA are at very reasonable levels.
On Switch, what new products do we look forward to in second half or FY '27 to sustain momentum?
We are launching 9 meter buses in two formats - standard floor and low floor - with a lot of quantity available through the PME drive tender being bid on 14th of November. We are also working on 1-2 nodes in light commercial trucks for FY '27, a smaller bus (smaller than 9 meter) for FY '27 or early FY '28, and we are shifting production of the E1 European/UK electric bus from UK to RAK because UK cost structure was unviable.
Exports moving from 12,000-18,000 and target of 25,000 in 2-3 years is fabulous. What suddenly picked up this fiscal that growth was almost 35% in first half? And how will growth taper to reach 25,000 - explain what changed?
While we achieved 35% in H1, our target remains 20% CAGR for next 3 years. Some periods will be more than 20%, some less. Three things working in our favor - GCC and SAARC presence for 20 years with local production and supply chain investments, products specifically tuned to these markets including a small RAK R&D center, and acute focus to grow exports.
With one of the key market leaders acquiring a global CV maker giving them access to higher GVW commercial vehicles, is there a need to go beyond 50 GVW ton trucks down the line, or will the Indian market evolve in that segment?
GVW is not our choice - it is limited by regulation. Maximum is 55 ton for tractor trailer only, and 48 for the rest. We cannot improve by regulation. What we can do is improve turnaround time and average speed since highways are better - if a truck was running at 40 km/hr we can see if it can run at 50 km/hr. This requires higher power and torque. Our technology and product roadmaps are laid out for the next 10-15 years across performance, aggregates, chassis, safety and comfort - we want to maintain our position as technology leader in the CV space.