Given the down cycle wasn't very steep this time, should we assume the up cycle will be modest? Should we extrapolate recent numbers into fiscal '27 or temper down?
Next year is also a year of two halves - April to October has a low base from last year so we should see really phenomenal growth, although exact numbers will come at fiscal end. In the second half (November-December onwards) there is a high base. Overall industry should stay strong next year. Balaji added that in the past, while overall TIV looked stable, there was movement between truck and bus - trucks were down to 3,13,000 from 3,20,000 but bus surge compensated, masking fluctuation.
On longer term - ADAS will be mandatory next year and there are increasing regulations on emissions, driver comfort, road safety. Will this lead to vehicle price increases over 3-4 years? Are transporters in a position to pay more?
The last big regulation was air conditioning of trucks and we worried about cost absorption but the industry welcomed it. With ADAS, which is largely safety-oriented, customers will see value when accidents and collisions can be reduced and fatalities and goods damage are lower. Industry dynamics have changed - mileage and reliability remain important but comfort and safety are now playing a bigger role too. Balaji added that quarter-on-quarter sequentially, tipper, MAV and ICV all grew with uniform growth in haulage and tractor.
Can you tell us what is your capacity in MHCV and LCVs currently?
Kapil, we'll not be able to disclose the capacities.
On OHM news today regarding valuation - what kind of investments may OHM require? Can you share financial metrics like revenue or PAT and what investments you have already thought about for the next couple of years?
We are focused on building this business model around E-MaaS for both buses and trucks. We have already invested INR300 crores in OHM and have earmarked another INR300 crores for OHM as and when needed. Beyond this INR600 crores we will be open to looking at other fundraising options. Some GCC contracts in the market are not viable - we have minimum threshold margins; if those criteria are met we go for these contracts. Balaji added year-to-date investment is INR16 crores and decisions on capital infusion to OHM, HLF, HHF and Optare loan repayment depend on requirement and cash situation.
In previous up cycles ('15-'16, '22-'23) tonnage growth outpaced volume growth. In Q3 FY '26 it appears tonnage growth has underperformed volume growth - do you expect this up cycle to be different in quality of growth or will tonnage growth converge and outpace?
Tonnage growth will continue at a regular pace but not very strong. Lower and middle segments have long-term potential because of last-mile delivery and e-commerce. Tonnage will keep going up and down with sectors. The key question is whether this is a fresh replacement cycle or just short-term fillip from GST. Three months in, with February also seeing strong leads, inquiries and cases locked in with banks/NBFCs, it seems this will sustain for a longer period.
On average age of about 10 years - with better quality of roads and vehicles, is it necessary that average age comes down? Or is 9-10 years the new norm where fleet operators are okay with this age?
Averages can be misleading. We should look at how many vehicles are now over 15 years or over 12 years, and how many are still on BS II, BS III, BS IV regimes - those are better data points. Balaji has shared those numbers in the past and we can share them separately. When you look at those details, you will realize this has to change.
On the financing business - segmental results show profits down Y-o-Y. Can you comment on what is happening?
Actually it has gone up - Q3 vs Q3 last year, HLFL standalone profits have gone up from about INR107-108 crores to INR130 crores. On the financial services segment showing INR231 crores last year, I will clarify that separately based on which segment you are looking at. As such there has only been an increase in HLFL standalone.
On industry growth outlook - how should we think about sustainable growth into fiscal '27 with the bunching up post GST? And are larger truck operators / bulk buyers also coming back to the market after GST clarity has settled?
When GST was announced, retail buyers were the first movers; in November-December growth came largely from retail. In January, bulk buyers are also coming forward and even projecting purchases for the next 3-4 quarters. Freight demand is going up and freight rates are also slightly increasing - a unique situation building positive sentiment. We are very confident this could be the start of a new replacement cycle in the CV industry given the average fleet age has gone from 7-7.5 years to 10-10.5 years.
On commodity headwinds in this quarter and metal inflation, particularly precious metals - what was the impact in Q3, what do we see in Q4, and what pricing action have we taken to mitigate?
Q3 saw increases in PGM, copper and aluminium while steel was benign. Adding to this was the change in mix - truck revenue went from 50% to 55% overall. We have started increasing recovery from customers not by way of price circular increase but by reducing discounts. We have been successful in getting some price increase in January and will wait to see how this unfolds in coming 2 months.
Can you quantify the commodity impact reflected in Q3 and any calculations for Q4?
It was roughly 50 basis points in Q3 - we suffered 50 basis points because of this increase. We are trying to recover it from the customer by way of increasing prices by about 60, more than 60 basis points, including the margins.
On profitability and margins - volumes are expected to be good but commodity prices are surging. How should one think about margins versus the long-term margin guidance?
There are four elements - price, mix, commodity, and internal cost savings. On pricing, the notion was to not raise prices soon after GST cuts but ability to take better pricing exists with rising demand and freight rates. On mix, ICV contribution surged close to 30% versus the usual 22-24%; this should normalize back to 23-24%. On commodity, there are possibilities to hedge with future price increases plus internal cost saving and value engineering opportunities from new product launches. The temporary concern is not fundamental in nature.
On steel contracts - how are these structured (duration and pricing)? And on staff costs which came down sequentially despite higher production and salary inflation - please explain.
Steel contracts are half-yearly contracts; whenever spot rate or market changes, either purchaser or seller approaches the other party for reduction or increase. On staff cost, we had to tone down our variable performance pay with reference to the overall full year targets and achievements - no one-off involved but had to align with overall full year targets.
Can you quantify the staff cost reduction? And does that mean Q4 will revert to normalized run rate?
Quantification will be approximately INR20 crores which would have got reduced. There is no one-off except for the wage code amount of INR308 crores. The 3Q wage code component has been accounted for in 3Q results.
On the CV cycle - we have seen growth in ICVs and lower tonnage vehicles but not so much in high-tonnage vehicles. Typically at the start of the cycle larger tonnage grows faster - why is the mix not improving?
November-December saw higher offtake from the retail segment which skews to low and middle segments; in January much better traction is coming from bulk-buying which leans to heavy-duty. This should correct itself, and the infrastructure and construction momentum will help heavy-duty segments of tippers and multi-axles until monsoon arrives. Balaji added that even MAV segment registered 34% growth Y-o-Y in Q3 - it is not only ICV which has grown.
On fleet age which is at a historical 10 years - given better freight, infrastructure and uptime advantages of new trucks, how do you see the blended age moving over the next 2-3 years and will replacement demand be a big factor?
There is only one way ageing can move - back to normal because 10-10.5 years is not sustainable for the industry. If GST and other macroeconomic factors have triggered a replacement cycle, we'll have very good times ahead. There is also government consideration on scrapping for metro cities given the pollution problem in larger cities. To bring age back down to even 8 years from 10.5 will take a few years - so until then there is potential demand we can see.
On efforts and potential in the non-South markets - how can you further gain market share and replicate the success in South market?
We have done substantially well in increasing penetration in North, East and Center. Our market share in North used to be 15% and is now over 25% with average all-India share of 31%. Other than East where more work is needed, we are very strong in West, Center and North. We have tied up with TVS Group for distribution in NCR with 13 outlets coming up. By taking such steps we should have at least 30% market share in the zones where we were at 15-18%, and that should happen very soon.
On capacities for MHCVs and LCVs - how are you placed? Do you need to trigger capex to enhance capacities for a potential up cycle, both Ashok Leyland and vendor capacity? Will you be able to service demand or is there supply challenge coming up?
We do not have an overall constraint on capacity - even with strong positive forecast for FY '27 we should be more or less fine in any segment we operate in. There may be some challenges in smaller niche areas like a particular machining setup or a supplier where we may have to invest INR50 crores to INR100 crores in one or two areas. We don't see any major investment in capacity expansion in the next 2 to 3 years.
On non-truck business mix - in this faster growth period for trucks, can the non-truck components also grow equally fast and maintain the mix in the way you plan margins over the next 12 months?
It is happening - truck portion of overall revenue is around 55% same as last year. But IO businesses share has grown from around 6% to 8%. This shift in mix is helping the margin go up from 12.8% to 13.3% Y-o-Y. Shenu added Power Solutions business was 45% up Y-o-Y and defense business 84% up Y-o-Y. Balaji added defense share of revenue went from 1% to 1.5% and Power Solutions from 3% to 3.6%.
On the dedicated Western freight corridor extension to JNPT which is getting pushed out - is this likely to happen in CY '26? How do you think about that event and what are options to offset its impact?
The deadline for completion of the last 100 km of WDFC has been extended multiple times - we will wait for actual commencement. WDFC is operational by about 95% and has been operational for more than a year. DFC does not address full last-mile connectivity - while it could have impact on tractor-trailer volumes, there will be positive impact on ICVs and LCVs needed for last-mile connectivity. Even on tractor-trailer side, impact will be very minimal over the next 2 to 3 years.
On product profile considering the new up cycle - do you need to address product gaps or advance new product launches versus your earlier plan?
We are taking actions to increase agility of new product development - institutionalized a digital tool to track daily activities which creates collaboration, transparency and ownership. Our overall product development pipeline is very strong - we just launched HIPPO and TAURUS, and 4.1 ton BADA DOST with best-in-class payload, with many more launches in this calendar year. Our product and technology road map is clear and actions to address white spaces in LCV and increase LCV coverage from 50% to 80% are being undertaken.
On subsidiary investments - they seem low compared to your guidance or historical trends. Are subsidiaries performing better and hence ask rate is low, or is last quarter where you finish things?
Subsidiaries are doing fine - we got out of the Switch UK assembly facility last year which was the main cash guzzler. There could be requirement of capital for OHM (INR300 crores plus another INR300 crores - we may release about INR100 crores to INR150 crores). HLF and HHF AUMs are growing around 20% so we may invest there. There are unfinished loans outside India relating to Switch UK we'd like to finish off - the loan can be paid in bullet at FY '29 or in 2-3 installments. No surprises - this is per earlier disclosure.