Entered FY24 With A Strong Momentum

Q. The fiscal year has changed. In hindsight, how was FY23 For Ashok Leyland?

A. FY23 has been a remarkable year for us in every which way. If you look at our market share, we have been able to increase the M&HCV market share by over five per cent. Even in our other business segments, whether it is L&ICV or the Defence segment, we have done well. So, overall, it has been a very wholesome performance not just in product segments or business units, but even geographically. In the north and east, we have been traditionally weaker than in the south and west, despite that in the north and east, we have been able to increase our market penetration very well in FY23. Another focus area for us has been profitability. We started our mission on cost last year and have created some wonderful results even in cost compression. Overall, you have seen up to the third quarter (Q3-FY23), our profitability has improved quite a lot. We hope to continue that momentum in order as well as going forward. The performance has been wholesome as an organisation and the year was one of the best in the last few years.

Q. If you could further break down the performance from a supply and demand standpoint?

A. On the demand side, we have had good takeaways from the overall industry or the macroeconomic environment. Most of the sectors that affect us, including the overall economy, and overall GDP have been very bullish last year. While the M&HCV segment has grown by 40 per cent plus, Ashok Leyland has been able to grow by about 70 per cent plus. So, we have grown better than the industry. And that is why we have been able to increase our penetration, in the markets, whether it is south or north or east. In all those zones, we have increased the market share considerably. On the supply side, we have posted our highest-ever sales volumes including all segments. While there were challenges on the supply side from time to time, I don’t think we have lost any sales at all. Our operations team has scrambled quite a lot. Because many times this industry movement was kind of unexpected. We were not hoping at the beginning of the year that the industry would go as high as 40 per cent plus but when the industry started moving in the right direction, we got to manage our supply chains well and cater to that demand. So from both the supply side and demand side, I think we have had a good year. we are back to 30 per cent plus levels on the M&HCV market share. Other segments including power solutions, defence or international operations also did well. International relations particularly were not supported by the market movement as much because we

Q. Speaking on a segment-wise basis, how have you grown vis-a-vis the TIV?

A. M&HCV is our largest business. That market has grown by about 40 per cent plus, I think the exact number is ~44 per cent. As I pointed out above, Ashok Leyland has grown beyond 70 per cent. So, that is the kind of jump we have had over the industry that resulted in a five per cent increase in our market share.

“Overall, as you have seen up to the third quarter (Q3-FY23), our profitability has improved quite a lot. We hope to continue that momentum in order as well as going forward.” of the South Asian Association for Regional Cooperation (SAARC). Especially because of the overall macroeconomic conditions prevailing there. Nepal, Bangladesh, Sri Lanka, all of those. But I think despite all of that, while the exports industry took a nosedive, especially in the last six months, our export performance was good. We registered a small growth in FY23 over the FY22 numbers, while our peers registered overall, you know, the satisfaction from international operations is that we have grown despite all these headwinds in some of these markets. As the market starts to appear, we should be able to register good volumes.

Q. A word on the growing trend of contract manufacturing. Any such developments and partnerships at Ashok Leyland?

A. Our thinking is contrary to this. Ashok Leyland has the right resources and capability and also the structure to in source a lot of activities. Or in other words, I would say that some of these activities which we have not been doing so far or have not focused on, we want to focus on those as well. We are looking at subsidiary companies, which are focused entirely on bodybuilding for example. Right now, mainly around the buses, we have one company called BPCL out of Alwar, and we have another company called GTVS. We want to see how we can get more business into these companies. Not just through bodybuilding but also through other load bodies. We are contemplating that idea, and are not looking at outsourcing these at all. It’s not just because we want to generate more revenue or more margins out of this, but it’s also a factor in customer demand.

I have been on the field over the last few weeks meeting a lot of customers. All of these customers, they don’t want to get into bodybuilding themselves. They don’t want to get into partnerships with other bodybuilders as well where they are required to keep their chassis for several weeks or months. They want to be supplied by Ashok Leyland because it makes it very simple for them. In another trend, a lot of these fleet owners, especially the large ones, used to have their workshops. Now, they are, I think, realising that having their own workshop is making their business very complex. I think they are realising that they need to focus more on getting more customers or clients and on managing the operations of their fleets. That is what they need to focus on and maintenance of the trucks is something that they should not focus on. These are the changes we are seeing in the way that customers are thinking.

Q. Are you banking on the segments that have done well in the last fiscal to carry the momentum into the next fiscal as well?

A. This is the first year of this positive cycle. I’ve met a lot of people. People tell me that this positive cycle normally goes on for two to three years in the CV industry. Having met customers and having looked at the pulse on the ground, I think this could be a longish positive cycle. I don’t see anything that is going to hinder the momentum that we have right now in the CV industry. The pace of growth may not be as much because the base effect may go away. I think this growth momentum will continue in FY24.

Q. Which segment are you most optimistic about in FY24?

A. I think growth would happen both at the bottom and top. So while on one side, the tonnage as we have seen in FY23, the tonnage per vehicle will continue to increase. So we are seeing a lot of momentum in favour of the higher tonnage vehicles. Whether it is a prime mover or tractor trailers, or even MAVs. I think the same is true for the bottom end of the market, the ICV market is also going to do well. Similarly, buses are going to see a lot of positive momentum. There’s a lot of pent-up demand that is left to be addressed. That market is also going to do well. In the case of LCV, we are a little bit more conservative just for FY24. I think over the long term, I’m very optimistic about the LCV business but just for FY24, it might see a lower growth rate as compared to M&HCV. But it will still be positive growth. It could be in the mid single-digit range.

“While the M&HCV segment has grown by 40 per cent plus, Ashok Leyland has been able to grow by about 70 per cent plus.”

Q. Any takeaways from last year’s micro and macroeconomic perspective that could have a direct bearing on the outcomes of FY24?

A. The only thing which might hurt the industry is that we are hearing some reports about the El Nino effect. I don’t think it will have a more significant impact on M&HCVs but on LCVs, it might have a small impact. And that is why our forecast on LCVs is slightly more conservative than on M&HCVs. I think we have already seen the geopolitical situation, with the Russia-Ukraine geopolitical issues panning out the way they did. I think the worse is behind us and won’t impact the market. On the diesel price side or the crude oil price side, the recent calls taken by OPEC might have some impact but not a major one. I can’t think of anything else really that would pull the market down in FY24. I think everything else, whether it is the infrastructure spending, whether it is the

“Having met customers and having looked at the pulse on the ground, I think this could be a longish positive cycle. I don’t see anything that is going to hinder the momentum that we have right now in the CV industry.” government, whether it is the update in investments, we are sensing a positive growth cycle.

Q. With the RDE norms rolled out, the bone of contention for everybody was to try and avoid a pass-through for the customer. What has been the strategy at Ashok Leyland?

A. We do recognise that there are challenges in the market. And therefore, I mean, pricing is not a game we want to associate with. We do hope that our peers, especially the leader in the industry, goes ahead with some scale of a price increase to offset this impact on the cost. And then we will just follow.

Q. Do you also expect it to have a direct bearing on fresh demand, at least from a near to mediumterm perspective, as we saw in the transition from BSIV to BSVI?

A. No, I think the momentum in the market is so strong, as I mentioned, I have met a lot of customers in the past few weeks in the northeast and central India, and I think this will not have any bearing on the demand. The speculation around price hikes and the pre-buying might result in a blip for a few weeks, just to accommodate for that pre-buying. Overall, I think we will have a very healthy quarter in terms of demand.

Q. You showcased a range of products at Auto Expo 2023. How have those plans fructified from the last time we met?

A. As you know, all those were concept vehicles, right. We are some distance away from getting those to the market. So, we are working on maturing all those concepts, all those technologies. I intend to be a challenger; the intent is always to go to the market first and take that advantage because these are the times when we can do something different to align with the change. So, there is a huge amount of focus, a huge amount of investment and resource allocation that we are doing on these new technologies. Post Auto Expo 2023 what we have also started doing is trying to talk very seriously to some of our customers, some of the large fleet operators. Some corporations are very keen on the adoption of these technologies. We are spotting those early adopters in the market and carrying out some serious rounds of discussions with them and create some use cases of these technologies. These technologies would go through our adoption cycle, it will not just be a straight ride to the market. So, we are trying to take the lead and trying to create those partnerships within the ecosystem. So that all the partners can come together, whether it is a customer or a weaker OEM or a fuel supplier, etc, they can come together and they can prove that this thing can work. So, that is our intent and that is our focus going forward. And this year, of course, we will continue to mature the technology and bring the technology to the level of commerce. At the same time, we want to focus on the market side now and start meeting that demand and that pull.

To meet that demand and pull we are also working on optimising capacity utilisation and augmentation. So as far as the traditional business like the diesel and petrol business is concerned, we have enough capacity to last for two or three more years. Depending, I mean, in line with our business plans, of course, there are small niggles that we have to take care of which will require small balancing. The capacity will not involve a huge amount of CapEx or investments. Now in the case of the new businesses on the alternative fuels side, of course, our first attempt is to create some of these use cases. So we can put some of these vehicles out in the market in actual conditions, and make sure that

“Some corporations are very keen on the adoption of these technologies. We are spotting those early adopters in the market and carrying out some serious rounds of discussions with them and create some use cases of these technologies.” not just the technology behind these vehicles, but also the entire ecosystem is put in place. That will be the focus going forward at least for the next few quarters. After that, once we have a better idea of the sizing of the market and the timing of the market, we would invest in building capacities around alternative fuels as well.

Q. What is your take on this whole shift of OEMs looking to turn into transport solution providers? The wet leasing model seems to be the flavour of the day, do you think a lot rests on the contractor responsible for the execution and in turn the success of that particular GCC agreement?

A. You’re right. It is a very exciting model. If we can get the model right, for all the stakeholders, it can transform the shape and form of public transport, at least in the country. I’m not saying it cannot go into private fleet operators, it can potentially go there as well. We are in the process. We did not want to just sit on the fence and watch this model, we wanted to participate in it. Unless you participate, it’s hard to learn and improve the model. There are three components that we have to get right. One is that companies like ours have to learn how to operate these buses correctly. There is this operating model that we have to master, we have to learn.

We have already created a structure. Ashok Leyland created this company called OHM Global Mobility, which is focused on e-mobility solutions, wherein we are operating a few 100 buses in the country.

There are more orders in the pipeline that they are negotiating with the various STUs. And the whole idea is to have an entity like that, who kind of masters that particular part, which is the operating part. The other part is the balance sheet part, where instead of the customer, now the OEM itself is required to hold the asset on the balance sheet. And I think Ashok Leyland has enough capacity to do that. So we are not too worried about that aspect. At some point in time, if the business becomes bigger, and we have to raise funds, I think that capability also rests with us. Our debt-equity situation is very healthy. The critical part is the cash flow part.

Now, all these GCC models expect you to take a cash flow risk running up to 10 or 12 years. So while you can, you assure the customer that you can operate the bus and you can take the asset on your balance sheet. However, there must be some kind of assurance on the cash flow that has to be there for this whole model to be successful. I think it’s like I said, a very exciting model. We have covered or provided answers for at least two-thirds of the whole model. I think there’s one part which is the cash flow part, we still have to find the right answer.

Q. You mentioned that this could apply to a private fleet operator. Do you see it in the foreseeable future applying to trucks at least to the lower end of the segment?

A. I think if this model gets extended, the large fleet operators with M&HCV trucks, it could be the next opportunity for this model. I have spoken to a lot of fleet customers, and some of them are telling me that the demand is so high right now in the market that they can go much more aggressive on their fleet additions. Their balance sheets are not supporting the kind of momentum that the market requires. Therefore some of these fleet owners, not everyone, but some of the large ones, with very large balance sheets are looking at options on the lines. If somebody else can take it on their balance sheet, they would like to operate the fleet themselves, unlike the STUs in the case of the buses. They would also provide a cash flow which is better than what the STUs are providing.

They don’t want to stretch it to 10 or 12 years, they are saying if you can provide a solution, which can go to five or six years, they would be more than keen to consider the model. So of course, this is a very early stage and we still have to find a lot of answers. From an Ashok Leyland perspective, we are very willing to experiment with something like this, as long as we can get into good partnerships with some financial institutions, and also with some large fleet operators.

Q. How are you looking to enhance non-core revenue streams?

A. Ashok Leyland is looking to diversify quite a lot. 10 years ago we were just an M&HCV player and then we got into the LCV space. Then entered the ICV space. The focus extend to the parts business that has quadrupled. Then the focus on services, the delaership workshops business also took off. The power solutions business and the defence business is the same core of Ashok Leyland but offshoots as largely unrelated to the M&HCV business. There is a whole lot of potential on customer services business like Re-AL. Similarly the telematics programme under iAlert. It is taking a significant mass with every CV shipped out with it. We are looking to leverage it as a huge value proposition for the customer. This will continue to be a focus area going forward. ACI