Ashok Leyland Ltd Q3 2025 Earnings Call Transcript

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

Question: Chandramouli Muthiah - Goldman Sachs - Analyst : Hi, good evening, and thank you for taking my questions. My first question is just around industry growth. So I think previous quarter, I think the expectation was that on a full year basis, FY25 might be closed to sort of flat volume growth for the CV industry. And for that to happen, I think the fourth quarter potentially will be 4% or 5% volume growth. I think January has started off, as you said, slightly better than that. So I just want to understand how you're thinking about is there any update optionality or downside risk to this flat volume growth for FY25, the way you're seeing it? And how that leads your view into what potential magnitude of growth you would expect in FY26 as things stand. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:30AM, ASOK.NS - Q3 2025 Ashok Leyland Ltd Earnings Call

Question: Chandramouli Muthiah - Goldman Sachs - Analyst : Got it. That's helpful. My second question is just around the margin upside that we've seen this quarter from CV companies operating in the Indian market. I think the last two quarters, we had YoY ASP declines. But our ASP at sort of a control level, this is up 4% YoY this quarter. We've had similar volumes quarter-on-quarter but margin has been much better quarter-on-quarter. So just trying to understand what the factors were in delivering some of this margin upside this quarter.

Question: Chandramouli Muthiah - Goldman Sachs - Analyst : Got it. That's helpful. And just the last question I had is--

Question: Binay Singh - Morgan Stanley - Analyst : Hi, team, thanks for the opportunity. Just continuing actually on the previous chat. So if you look at gross margin versus mix, ideally, this quarter we should have had some gross margin expansion. (inaudible) when we talked about product mix is better with more trucks is lesser buses, exports were very strong. But our gross margin has actually come down quarter-over-quarter. And a lot of the margin expansion is coming from other expenses being down on a YoY basis. So could you just help us tie this up that why is the gross margin not showing the expansion? And is this other expenses YoY decline despite a revenue increase sustainable? Maybe defense has something to do, that defense has fallen this quarter or something.

Question: Binay Singh - Morgan Stanley - Analyst : And sir, how has defense turned for us this quarter, like any percentage revenue mix? Or -- because the earlier quarter, it was weak. So how has it done this quarter?

Question: Binay Singh - Morgan Stanley - Analyst : Yeah. So that, in a way, would have hit your gross margin .

Question: Binay Singh - Morgan Stanley - Analyst : And sir, secondly, just in the opening remarks, we talked about net cash and we talked about two investments. Could you sort of -- sort of net cash is post this INR700 crore investment that we talked about?

Question: Binay Singh - Morgan Stanley - Analyst : And could you repeat that number again for net cash. What is the number you gave, INR900 crore?

Question: Binay Singh - Morgan Stanley - Analyst : Okay. And sir, just lastly on just two trends we are seeing. Bus volumes being very strong in the last few years, were supporting profitability. They've started to -- sort of growth has gone in the last two, three months. Whereas exports have seen a pretty stellar growth, 33%. And in the previous conference call, you had talked about 50,000 target for exports for the company eventually. So could you comment a little bit about these two trends that we are seeing, slowing bus growth. I know base is getting tougher. But how do you see that going ahead? And at the same time, sustainability of this export jump that we've seen. Thanks.

Question: Binay Singh - Morgan Stanley - Analyst : Great, thanks team. I appreciate the response.

Question: Pramod Kumar - UBS - Analyst : Yeah, thanks a lot for the opportunity and congratulations on excellent operations metric. Sir, my first question is regarding the nonvehicle revenue mix, as to how should we see it going forward. Because this quarter, you had a defense decline. I can understand it could be lumpy. But how do you see the near-term nonvehicle revenue piece in terms of especially the pit supplies to defense and other different supplies? Because they kind of come with higher margins. So how should one look at that particular piece evolving over the next one or two quarters.

Question: Pramod Kumar - UBS - Analyst : And sir, if you can just help understand because everyone was worried about the cyclicality of the business and whether we are in a down cycle or up cycle, we don't know. So if you can just help us understand at this point of time, how much is the revenue component, which is not cyclical, which basically domestic -- excluding -- basically what is the percentage of revenue coming from excluding domestic trucks, including international, including buses and everything? If you can just help us understand. We used to share this historically back in the time. But if you can just help us, where are we there? And because that kind of gives us ideas to what piece of the business is going to remain resilient. And there, of course, it depends on the macro and the recovery in freight rates and all that stuff. So if you can just help us understand that better, sir.

Question: Pramod Kumar - UBS - Analyst : And if I were to include LCV and buses in this side, Balaji? I mean, because they are not that cyclical. And I believe they should do well, especially with the LCV portfolio expansion, what you're doing. So anything there which you can share, if you don't mind? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:30AM, ASOK.NS - Q3 2025 Ashok Leyland Ltd Earnings Call

Question: Pramod Kumar - UBS - Analyst : 55% to 60%. So the percentage exposure has kind of come down over the years. .

Question: Pramod Kumar - UBS - Analyst : Okay. So effectively, a big chunk of the business is not that deep cyclical anymore. And even the cycle -- the nature of the cycle has changed, right? We are not seeing that sharp up move and down move as such. But I believe you guys are constructive on CV demand incrementally, so is (inaudible). So if you can just help us understand, when you look at 4Q, are you looking at the industry level, the DIB to grow on a year-on-year basis despite the higher base? And from when you look at FY26, do you expect the volume momentum to be more back-ended? As to how you -- when you're doing the business planning, how you're looking at the FY26 period? Because there's a lot of concern around whether FY26 will be a big volume correction again or very muted or a small decline, for that matter. So if you can just help us understand how are you navigating the business running side for FY26?

Question: Pramod Kumar - UBS - Analyst : Thanks, Shenu. And just one quick clarification, the price discipline holds in the industry?

Question: Pramod Kumar - UBS - Analyst : The price discipline. In terms of discounting, there's no cut competition as such, right? Or do you see some improvement or -- yeah?

Question: Pramod Kumar - UBS - Analyst : Great response. Thanks a lot, wish you guys all the best.

Question: Kumar Rakesh - BNP Paribas - Analyst : Hi, good evening, and thank you for taking my question. My first question was around the budget business which you spoke about that you are quite confident in the coming quarters and, yes, it should continue to do pretty well, given the pipeline, which we're looking at. Now looking at the budget allocation from the government for vehicle procurement for the different sources, it's lower for next financial year compared to the current financial year. So do you think that could create a headwind for you? Or do you have enough visibility on your pipeline that this growth could continue to expand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:30AM, ASOK.NS - Q3 2025 Ashok Leyland Ltd Earnings Call

Question: Kumar Rakesh - BNP Paribas - Analyst : That's right, yeah, defence.

Question: Kumar Rakesh - BNP Paribas - Analyst : Great. My second question was on the Switch investment which we are making in the quarter. So last quarter, you had spoken about that in second half, you would need about INR500 crore of investment, which is what you have already announced. So it's fair to expect that for now the investment is done. And also you were looking at EBITDA breakeven in the business this year. So where are we trending on that?

Question: Kumar Rakesh - BNP Paribas - Analyst : Great, thanks a lot for that answer.

Question: Kapil Singh - Nomura Securities Co. - Analyst : Good evening, sir, and congratulations on a very strong performance in a tough quarter. Just one clarification on the previous question. This INR500 crore investment is going in Switch UK or Switch India?

Question: Kapil Singh - Nomura Securities Co. - Analyst : Okay. Because you seem to say that there is some uncertainty there. So I was just wondering why we are making this investment right now.

Question: Kapil Singh - Nomura Securities Co. - Analyst : Understood. Sir, my question is on the financing side. We have seen pretty good performance by Hinduja Leyland Finance with improvement in segmental results as well. So just want to understand that how is the financing situation for commercial vehicles. And we heard or read about certain problems in financing either on personal loans, two-wheelers. So just trying to understand, if you could give some perspective on this. .

Question: Kapil Singh - Nomura Securities Co. - Analyst : Okay. And sir, the second question is on LCVs. I think you mentioned close to achieving 20% market share in the near term. Is that on the overall LCV where currently, we are at about 11%? So if you could just talk us through how you are thinking about gaining market share? Or what are the salient points of the new product that we have launched?

Question: Kapil Singh - Nomura Securities Co. - Analyst : Okay, sir. Thanks, and wish you all the best.

Question: Amit Hiranandani - Phillip Capital India Pvt. Ltd - Analyst : Yeah, thanks for the opportunity and congrats to the team for good operational performance. Sir, my first question is basically the quick commerce segment is emerging very fast. So do you see a positive or a negative impact on any of our segments?

Question: Amit Hiranandani - Phillip Capital India Pvt. Ltd - Analyst : Right. Sir, my second question is on the -- what will be the growth driver in the company strategy, especially on the LCV side? And continuing with that, where do you see the product gaps and largely in which segment? And would you like to share any launch pipeline for the next two to three years, please?

Question: Amit Hiranandani - Phillip Capital India Pvt. Ltd - Analyst : All right. That's helpful, sir. Sir, lastly, as per your assessment, how much presently is the impact of DFC on the CV industry?

Question: Amit Hiranandani - Phillip Capital India Pvt. Ltd - Analyst : Great, sir. All the best. Thank you so much.

Question: Mukesh Saraf - Spark Capital Advisors (India) Private Limited - Analyst : Good evening, and thank you for the opportunity. My first question is on the tipper segment. When I look at your volumes in 3Q, sequentially, tipper seems to have grown significantly. So is this -- could you kind of comment more on this? Is this more just a seasonality? Or are you seeing some significant revival in the space?

Question: Mukesh Saraf - Spark Capital Advisors (India) Private Limited - Analyst : Okay. So we can expect you to kind of gain back some of that market share loss in this tipper--

Question: Mukesh Saraf - Spark Capital Advisors (India) Private Limited - Analyst : Got that, got that. And I think secondly, you had alluded something on pricing, but could you give, say, some more details what was the net price realization increase in 3Q [ex] of discounts, et cetera? .

Question: Mukesh Saraf - Spark Capital Advisors (India) Private Limited - Analyst : No. In third quarter, what would have been your net realization increase, sir, pricing [ex] discounts?

Question: Mukesh Saraf - Spark Capital Advisors (India) Private Limited - Analyst : All right. Thanks for that.

Question: Joseph George - IIFL Securities - Analyst : So I have two questions. One is in relation to what you're hearing on the ground from fleet operators. Are there any cases of NPAs going up? And secondly, when you look at fleet utilization rates and freight rates, what are you seeing on the ground? . REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:30AM, ASOK.NS - Q3 2025 Ashok Leyland Ltd Earnings Call

Question: Joseph George - IIFL Securities - Analyst : All right. Okay. And the second question that I had was in relation to Optare. So right now, you said that things are challenging. Can you let us know what is the annual cash burn that you're seeing in Optare?

Question: Joseph George - IIFL Securities - Analyst : Okay. But the last two, three years, you've seen a lot of fluctuations in your revenue numbers. But is it right to assume that the last two, three years, it's never been FCF positive, as such? .

Question: Joseph George - IIFL Securities - Analyst : I'm talking about Optare plc, the UK operation. .

Question: Joseph George - IIFL Securities - Analyst : Understood. Thank you.

Question: Jay Kale - Elara Securities Pvt Ltd. - Analyst : Yeah, thanks for taking my question. Sir, my question is on the replacement demand. I mean we have mentioned that the average age of the holding period of the vehicle has moved up and hence, eventually the replacement demand should kick in. But what we also hear is that because of the price increases that we saw over the last three, four years because of admission norms, et cetera, the tenure of the loans of the CVs have also moved up to cover for that price increase. And hence, structurally, there is an increase in the average holding period. And hence, the replacement demand may not be as fast as what we are expecting. Has that played out in the last one or two years? And how do you see that impacting replacement demand going forward?

Question: Jay Kale - Elara Securities Pvt Ltd. - Analyst : Okay. Understood. And sir, in the last 1, 1.5 years, how would you have seen the replacement growth versus -- I mean, have you seen acceleration of easement growth and the first-time buyer growth probably has softened? Or how have you seen that trend?

Question: Jay Kale - Elara Securities Pvt Ltd. - Analyst : Understood. Great, thanks and all the best. That's all for me.