Ashok Leyland Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gunjan Prithyani - BofA Securities - Analyst : My first question is on industry growth. I understand there is an expectation on government CapEx normalization, but I think recently, we have continued to disappoint, right? I mean October itself was quite weak when I look at the wholesale that came through. So if you can give us more insights on what is really happening on ground in terms of transporter sentiment? And also the trend across various segments, because when I look at the vehicle segments, intermediate seems to be doing pretty well, while tractor trailers, tippers are languishing a lot. So some color on what's really happening on ground and what is driving the optimism that things will come back in the next few months. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2024 / NTS, ASOK.NS - Q2 2025 Ashok Leyland Ltd Earnings Call

Question: Gunjan Prithyani - BofA Securities - Analyst : Okay. Got it. That was quite useful. And when you look at the 0% to 3%, which you mentioned, I mean are we confident that we'll actually end the year at a low single-digit growth, is that something...?

Question: Gunjan Prithyani - BofA Securities - Analyst : But degrowth for full year or degrowth in H2?

Question: Gunjan Prithyani - BofA Securities - Analyst : Which would still mean that on full year basis, we'll be negative, right? Because first half. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2024 / NTS, ASOK.NS - Q2 2025 Ashok Leyland Ltd Earnings Call

Question: Gunjan Prithyani - BofA Securities - Analyst : Okay. Got it. My second question is on the margins. Clearly, commendable delivery there and consistently for last many quarters now. If you can just share some color on the gross margin improvement that we've seen in this quarter. What are the key variables driving this in terms of commodities, mix, et cetera? And how should we be thinking about this going into the second half? Are there any tailwinds beyond operating leverage that we should keep in mind for second half?

Question: Gunjan Prithyani - BofA Securities - Analyst : Sir, can you give a quantum as to how much was the commodity tailwind, metals tailwind per se on a quarter-on-quarter basis and also percentage of non-vehicle business that is high-margin business that you typically call out, how has that moved maybe from last quarter to this quarter?

Question: Chandramouli Muthiah - Goldman Sachs Group, Inc. - Analyst : My first question is just trying to understand the back half of this year and the base effects from last year. I think in the December quarter, we had 4 to 5 state elections last year. This year, it doesn't seem to be recurring. Also in the March quarter, which is seasonally stronger, I think last year, there was pre-general election sort of factors, which maybe subdued the base. So just trying to understand at the current run rate of demand that we are heading into, maybe the seasonally stronger back half, how do you think about the base effects? And is that supportive for potential outperformance on growth going forward?

Question: Chandramouli Muthiah - Goldman Sachs Group, Inc. - Analyst : Got it, that's helpful. My second question is just around the mandatory AC cabin norms. So just trying to understand that slightly better across MHCV and LCV, if you could just give us some color on presently, what is the share of vehicles, the vehicles that you sell that already is air conditioned on the cabins, LCV and CV? And also, by what time would this potentially become 100%? And if so, what is the kind of ASP delta on non-AC vehicles versus AC vehicles on your fleet?

Question: Raghunandhan N. L - . Nuvama Wealth Management Limited - Analyst : Sir, firstly, on the non-vehicle business, power solutions and spares have done well. How do you see the outlook ahead for the non-vehicle business and if you can also talk a bit about the defense outlook? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2024 / NTS, ASOK.NS - Q2 2025 Ashok Leyland Ltd Earnings Call

Question: Raghunandhan N. L - . Nuvama Wealth Management Limited - Analyst : Just a clarification. On the export side, you had earlier indicated that efforts will remain that the share will continue to increase in the overall revenues. How do you see it 2, 3 years down the line?

Question: Raghunandhan N. L - . Nuvama Wealth Management Limited - Analyst : And how do you see the support to electrification from PM E-DRIVE scheme and payment security mechanism? I understand that you have 2,000 pending orders in buses and you also indicated 180 orders for electric trucks.

Question: Raghunandhan N. L - . Nuvama Wealth Management Limited - Analyst : Great, sir. Good to hear that. And lastly, Balaji, sir, if you can share the tax rate we can work for the year? Yes, I'll fall back in the queue.

Question: Amit Hiranandani - SMIFS Limited - Analyst : Congrats, team, for good operational performance in this tough environment. Sir, based on our on-ground checks, the replacement demand is not that significantly growing as per the estimates. So can you please share your findings and views on the same?

Question: Amit Hiranandani - SMIFS Limited - Analyst : All right. And sir, how was the discounting situation in Q2 vis-a-vis Q1? And sir, would you be comfortable in sharing the average discount number for Q1 and Q2?

Question: Amit Hiranandani - SMIFS Limited - Analyst : Sir, additionally, have you taken any kind of price increases in Q2 and so far in October and November?

Question: Pramod Kumar - UBS Investment Bank - Analyst : Shenu, first question to you, sir, on the demand. We've been optimistic about demand. But hypothetically, let's assume the demand doesn't kind of recover that well. Then what is the plan? Because we are currently prioritizing profitable growth. But in the context where industry starts underperforming expectations, so, will we continue to prioritize profitability over market share and at the expense of operating leverage? So I'm just trying to understand this because the margins are pretty solid, given the industry performance and what your peers have performed in terms of profitability, no doubt about that. But I just was wondering how long will we kind of prioritize margins over volume? Because at the end of the day, losing a customer is not a great thing and winning them back is normally not that easy either. So if you can just help us understand this, how long will we kind of continue with the strategy? And if push comes to shove, if volumes don't recover, could there be a rethink? Because that is something which has been in the mind of a lot of investors. And volume is something which is quite important for even investors for the company's growth. So I'm just trying to understand how are you thinking about this from your position, sir?

Question: Pramod Kumar - UBS Investment Bank - Analyst : Okay. And on that note, Shenu, I think I have to compliment Balaji and the team and yourself for the kind of cost control. I think it's unprecedented the kind of cost controls what we've seen here over the years, actually. And in that sense, is it true for you and the industry also that even in a not-so-great volume scenario, the industry profitability has clearly moved to a higher trajectory? And also, at the same time, has the volatility or the up cycle, down cycle, the fluctuations have also kind of moderated reasonably? Is that a fair assessment? Or it's still too early to call, Shenu, as an industry?

Question: Pramod Kumar - UBS Investment Bank - Analyst : And sir, final question on LCV as a category. Some of your peers have called out the reasonable recovery what they see in the CV category. So what are you seeing, especially in the last-mile mobility segment? And how are our launch plans there? Because that is one segment where we are underrepresented. Then, there's potential for market share. So if you can just talk more about the LCV categories, what's happening on the ground, like what you talked about there MHCV utilization rates and others and also your plans for this particular segment, sir.

Question: Amyn Pirani - JPMorgan Chase & Co - Analyst : Actually, the first question is on the point that you mentioned about Hinduja Leyland Finance. You mentioned that you expect it to complete by 1Q FY '26. Now I just wanted to understand if this process has been delayed quite a bit. So is there anything which is delaying the process specifically? Also, since you had tried to do an IPO several years back, but then you changed your plan, given the kind of market that we've had in terms of new issues being subscribed, is there a rethink that you can have? Or now you are sticking to that original plan? And if yes, then what is causing these significant delays in the process? Dheeraj Hinduja - Ashok Leyland Ltd - Non-Independent Non-Executive Chairman of the Board If I can answer that, Dheeraj here. The delays have really predominantly been in just the normal regulatory approvals and nothing more than that. There is no change in the plan. We will go ahead with this. We are going by based on the indications that have been given. So there are regulatory approvals coming from RBI on, of course, the listing as well. But nothing more than that. I think we are quite optimistic in terms of the company, its performance. We don't feel that the true value of the company is captured today in Ashok Leyland. And I think once this does get listed through the reverse merger route, there will be a better appreciation of the company and its performance.

Question: Amyn Pirani - JPMorgan Chase & Co - Analyst : Okay. Okay. And any broad number for either Switch or OHM? Dheeraj Hinduja - Ashok Leyland Ltd - Non-Independent Non-Executive Chairman of the Board You mean in terms of investment?

Question: Pramod Amthe - Incred Research Services Private Limited - Analyst : So this is with regard to the EV trucks, which you have launched. Wanted to know what use cases you are trying to target? And what's the IRR and the customers looking at per se? First. And second, if you have to look at it in the medium term, 3 to 5 years, in those subsegments where you're trying user case, whatever penetrations you are looking from your product?

Question: Pramod Amthe - Incred Research Services Private Limited - Analyst : And the second question is with regard to the LCV portfolio expansion. In the last analyst meet, you had talked about a smaller LCV to come through. Any timelines for the same?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : My first question was on the second half demand outlook, which you spoke about, that you are hopeful that we should see a better growth. But you talked about multiple drivers which you think could play out, but have you started seeing on the ground any of those drivers to start changing? Because in the first half as the utilization seems to be reasonably okay although the government spending was not there, which you spoke about, and also the cash outflow from the government was restricted. So have you started any movement to happen in any of those fronts between last month to this month? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2024 / NTS, ASOK.NS - Q2 2025 Ashok Leyland Ltd Earnings Call

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : Great. My second question was on the bus segment. So that is one segment which has definitely been seeing much stronger growth while other segments have been struggling. So what is driving that growth? Is it STAs upgrading their buses across the state and you see that to continue in the second half or beyond that as well? And we have also gained market share in the bus segment. So what is helping us to gain market share? What is different that we are doing in the bus now?

Question: Kapil Singh - Nomura Securities Co. - Analyst : I had a question on Switch. We have an order book of about 2,000. Over what period are we expecting to deliver this? And when you talk of EBITDA breakeven, what kind of volume levels will the company need to do for that EBITDA breakeven on a quarterly basis or annual basis? Also, does the breakeven include the PLI benefit or it doesn't? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2024 / NTS, ASOK.NS - Q2 2025 Ashok Leyland Ltd Earnings Call

Question: Kapil Singh - Nomura Securities Co. - Analyst : Okay. So that will be over and above this EBITDA breakeven?

Question: Kapil Singh - Nomura Securities Co. - Analyst : Okay. And does Ashok Leyland standalone have any revenues from Switch or it doesn't?

Question: Kapil Singh - Nomura Securities Co. - Analyst : Okay. All right. The second question is on OHM. Do you see this as a new revenue stream? And what kind of profitability in a steady state can this business generate? And also in terms of funding requirements, what are your thoughts here? Just some broad thoughts here will help.

Question: Kapil Singh - Nomura Securities Co. - Analyst : Sir, is it a profitable business? Or any color on ROCEs or margins in steady state for this kind of business that you may have with that?

Question: Kapil Singh - Nomura Securities Co. - Analyst : Understood. Sir, just a last housekeeping question. If you could give overall targets for both CapEx and investments for full year FY '25, that will be great.