- 2 years ago
#AshokLeyland's profit surges 61% in third quarter as margin expands.
MD & CEO Shenu Agarwal and Whole-time Director & CFO Gopal Mahadevan talk about the earnings and more, in conversation with Niraj Shah.
For the latest news and updates, visit: https://ndtvprofit.com
MD & CEO Shenu Agarwal and Whole-time Director & CFO Gopal Mahadevan talk about the earnings and more, in conversation with Niraj Shah.
For the latest news and updates, visit: https://ndtvprofit.com
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TVTranscript
00:00 Ashok Lelen is a business in focus.
00:03 They've had what you could argue has been a strong quarter
00:06 for them in quarter three as well.
00:08 This follows an inline but a robust growth
00:10 in quarter two as well.
00:12 What does this portend for the year at large?
00:14 Wherein there are mixed trends around what could happen
00:17 to the industry demand and the MHCVN and the market shares
00:20 that each of these companies have.
00:22 Mr. Shainu Agarwal, MD and CEO of the company
00:25 and Mr. Gopal Mahadevan, whole time director and CFO,
00:27 join us right now to talk about the quarter,
00:30 albeit the last nine months and what could happen
00:32 in the calendar year 24.
00:33 Gentlemen, thanks so much for taking the time out.
00:35 At the outset, did the quarter meet the guidance,
00:38 Mr. Agarwal, or would you have hoped for some more optimism
00:42 in the reported numbers?
00:45 - No, we are very happy with actually the achievement
00:48 on the margin front.
00:50 You know, when the year started,
00:52 we had aimed at achieving a double digit EBITDA
00:56 for the whole year, but we could achieve 10% EBITDA
01:00 in the very first quarter of the year.
01:02 Then in second quarter, we went beyond 11%.
01:05 And in third quarter, we are already at 12 now.
01:08 Quarter four is probably the strongest quarter
01:11 for the CV industry in terms of top line and volumes.
01:14 And therefore, we will have additionally
01:16 some economies of scale there,
01:18 plus our efforts on pricing, our efforts on cost reduction
01:22 will also play out a little bit better going forward.
01:25 So I think we will only improve
01:28 on the trajectory of the first three quarters here.
01:32 We are very happy also because, you know,
01:34 in the investors meet last year,
01:36 we said that we want to move to mid-teen EBITDA levels
01:41 in the medium term, which is like three, four years out.
01:44 But already having achieved 12%
01:46 and hoping for even a better performance in quarter four,
01:49 we think we are moving very well on our plans.
01:53 - So multiple factors that people
01:56 in the research industry as well as us houses
02:00 kind of think about, maybe an industry upcycle,
02:03 maybe better realizations,
02:05 in your case, even higher defense revenues,
02:07 all of these contributing, a heady mix,
02:09 and you reckon that this could last
02:12 for the foreseeable future?
02:14 - See, what gives us confidence is also,
02:17 it's not just the MHCB story,
02:19 which is playing out well for us in terms of margins
02:22 or even in terms of penetration,
02:25 but also all our other businesses
02:27 are doing fantastically well.
02:28 And I think they will continue to do well.
02:30 And I'll give you some examples.
02:32 So for example, LCB business,
02:34 actually the market is slightly down,
02:36 but we are doing well above the market growth.
02:39 And therefore we have been able to increase
02:41 our market share in the LCB business.
02:45 Now we used to be number three player
02:46 in the two to three and a half ton segment,
02:48 but we have now jumped to number two, right?
02:51 So that is a great progress.
02:54 On the defense side,
02:55 we have been able to more than triple our top line
02:57 this year as compared to the last year.
03:00 On the parts business,
03:01 which is very high margin business,
03:02 last year we had mammoth growth in our parts business,
03:06 and we were afraid that whether we will be able
03:08 to top it up this year,
03:10 but very happy that more than 30% growth,
03:12 we have been able to clock in the parts business as well.
03:15 And finally, power solution business,
03:17 which is also a good margin business
03:19 and strategic to us as well.
03:22 We have a record year this year so far,
03:25 and I think by end of the year,
03:27 we'll create a high all time high record
03:29 in that business also.
03:30 - Mr. Madhavan, sweet spot to be in such a case.
03:33 You've seen many cycles like these.
03:36 I mean, does it look very strong?
03:38 Because, and again, your role within that, right?
03:40 Because, well, MHCV cycle looks strong,
03:42 but unless I'm wrong,
03:45 and if at the cost of sounding lamb nitpicking,
03:49 have the shares come off a little bit,
03:51 and is this cyclical in nature?
03:53 How do you play a part in that cycle as well?
03:56 - You see, while to look at the market share
04:02 is very, very important,
04:03 and we have a very clear focus on that,
04:05 we have shared with investors
04:06 that we would want to grow faster than the market,
04:10 and that's our strategy.
04:11 But to measure it quarter on quarter
04:13 may not be the best thing to do,
04:14 because there are factors in a quarter where you may,
04:19 for example, that could be geographical factors,
04:21 for instance, right?
04:21 If the South grows more, our share could grow more,
04:23 if the South grows a little less,
04:25 you technically see that the maths don't work out.
04:27 And the larger trajectory is,
04:29 are we doing all the right things to get,
04:32 you know, get post growth, which is faster than the market?
04:34 And that's exactly what we're doing.
04:36 We are enhancing our presence even further in the North.
04:39 We want to ensure that, you know,
04:41 we have a much larger footprint in the North and the East,
04:44 and we are rolling out, you know,
04:46 dealerships and service centers, right,
04:48 across, and I believe that this should start
04:51 paying off dividends in the short to medium term.
04:54 The second thing is industry leading products,
04:56 you know, so it's very important.
04:58 You know, we have been raising the bar on the industry
05:01 for quite some time now, maybe even the past 50 years,
05:04 and we will continue to do that as a strategy,
05:06 and we have done that in EVs as well.
05:08 And we will continue to do that,
05:09 because I think that's another great way
05:11 to actually get the customers inside.
05:13 The third bit is, you know, on the pricing front.
05:17 I think while we will do all of this,
05:19 we would want to ensure that, you know,
05:20 we keep adjusting the prices, you know,
05:23 increasing them, improving the margins,
05:25 so that on a whole, you know, on an overall basis,
05:28 not only does the company grow,
05:29 but the profitability of the company is also enhanced.
05:32 And there comes in what we shared
05:34 in the earlier part of the year,
05:36 that our aspiration is to grow faster than the market,
05:39 and at the same time also try and reach
05:41 for that mid-team EBITDA.
05:43 Got it.
05:44 And I'll come to the EBITDA,
05:44 but just a clarification here,
05:46 and, you know, if my numbers serve me right,
05:49 from in Q3 FY23, if I'm not wrong,
05:52 it was about 32.9%, MHCV, just MHCV,
05:55 and it's come down to sub 30.
05:57 So it's not technically just the QOQ comparison
05:59 I'm referring to.
06:00 Are you comfortable with that?
06:01 Because you may have in your targets,
06:03 as you mentioned, profitable growth happening
06:05 at a good pace and not necessarily looking
06:07 at the MHCV market share in absolute terms.
06:10 Well, let me answer it this way.
06:11 We are not uncomfortable with that,
06:14 but we are not comfortable with it either.
06:15 So we will possibly try to stretch it
06:18 in the coming months, but we will do it the right way.
06:21 Fair call.
06:23 Just a word on EBITDA,
06:23 because that's obviously stood out,
06:25 I think in some sense, Mr. Agarwal started talking
06:28 about it as well.
06:29 You eclipsed the targets that you may have set out
06:31 over a three-year period.
06:33 I'm sure you're not gonna, you know,
06:37 over-promise and under-deliver in any fashion.
06:39 So are you kind of still sticking
06:40 to the earlier targets that you had laid out,
06:43 or is the cycle and the cost structures
06:45 and the pricing strong enough for you
06:47 to be a bit more optimistic about the two,
06:51 three-year target as the case may be?
06:53 I think we are well on our course
06:56 for the target that we set ourselves
06:58 and we'll keep you updated.
06:59 I think we're doing all the right things.
07:01 I think the team has done a wonderful job
07:02 in terms of, one, of course, enhancing our top line.
07:06 We are, you know, as I mentioned about our distribution,
07:09 our products.
07:10 The second bit is on the huge cost reduction initiatives
07:13 that we have taken up as a program.
07:15 It's not one-off, it's not for a quarter,
07:17 it's not for six months,
07:18 where methodically we are taking out cost
07:20 out of the material,
07:21 but enhancing the performance of the vehicles
07:24 and also working very closely with our vendors.
07:27 You know, we are kind of seeing
07:29 how do we actually offer better solutions
07:31 to our customers even when we take cost out.
07:33 The third one, of course,
07:34 is astute middle-line management.
07:37 I think if all of these things work,
07:40 I think there is still enough steam left for us
07:43 to deliver on the mid-team margins
07:46 that we have been looking at.
07:48 - Okay.
07:49 Mr. Aggarwal, as much as the conversation
07:54 around CAPEX in the budget was very loud,
07:59 it's still a very large, heady number.
08:02 Private CAPEX yet to see a meaningful fray,
08:05 but if government and central and state CAPEX
08:08 continues the way it is,
08:10 at some point of time,
08:11 private CAPEX, infra projects, et cetera,
08:13 all actually become even stronger.
08:18 Does this set the stage for a slightly longer up cycle
08:22 than what previous cycles might have been?
08:24 Do you guys give this any kind of thought
08:27 about whether the length of the cycle
08:28 could be longer this time around
08:29 simply because corporate India balance sheet,
08:32 D-Leverage, they will invest,
08:33 hopefully the global growth means itself
08:35 and therefore there will be some animal spirits back.
08:37 Any thoughts that you have on this?
08:40 - Definitely, I think I would like to start by saying
08:43 that the way that our country is moving,
08:46 it would be very, very wrong to project the future
08:48 looking at the history.
08:50 So even I get asked this question very often,
08:53 I'm very new to the CB industry,
08:56 but they tell me, okay, this has been the cycle,
08:59 this has been the history and therefore,
09:02 something would happen later.
09:03 I think the way our country is growing,
09:06 we should not be looking at that.
09:07 I think we should be looking at
09:09 more macroeconomic factors going ahead.
09:12 We should be looking at the trend,
09:13 we should be looking at the focus of the government.
09:16 You rightly said that interim budget
09:18 gave us even more confidence about the things to come
09:23 because of not just the higher allocations,
09:25 but also because of the consistency of the government
09:27 in the way it is approaching to build this economy.
09:30 And you know, CB industry is very well kind of intertwined
09:34 with the overall economic activity of the country
09:37 for the GDP growth.
09:38 And we are in the, I think the best phase
09:40 that this country has ever seen.
09:43 I think I really am very, very optimistic
09:46 about the medium and long-term prospects of the CB industry.
09:49 - Okay, and in which case, Mr. Mahadevan,
09:54 I'd like to come to you and then the follow up
09:55 to Mr. Agarwal before we wrap up this conversation.
09:59 Some estimates talk of how the quantum of free cash flow
10:03 that you'll generate over the next two or three years
10:05 is seriously large.
10:06 I mean, average annual free cash flow as per one note
10:09 is close to 3000 odd crores
10:12 over the course of the next three years.
10:14 That is serious money getting generated
10:16 to be invested or returned.
10:18 Are these numbers largely in line?
10:23 And what do you do with this kind of quantum
10:26 of free cash flow generation?
10:28 - Well, I think if we start, you know,
10:30 kind of delivering and achieving the numbers
10:33 that we talked about in profitability in a bit,
10:36 I think your cash flows would also start coming in.
10:38 But we would use it, I mean, both for returning
10:42 as well as for investing, as you rightly put it.
10:44 So there are investment plans.
10:46 Capital allocation is an important discussion
10:48 that the entire senior leadership is addressing.
10:51 We need to make investments into alternative technologies
10:54 like hydrogen ice, hydrogen fuel cell, EV trucks,
10:58 battery electric vehicles and trucks.
10:59 And then after that, we've got switch.
11:01 So I think we have our plans pretty well laid out,
11:04 but at the same time, I can let you know
11:07 that the balance sheet of Ashok Lalit
11:09 is very, very strong today.
11:11 The debt equity is hardly 0.2.
11:12 We have about 1700 crores of debt at the moment.
11:15 And that is, you must remember,
11:17 after investing nearly 950 crores
11:19 into both switch and EV businesses.
11:23 So we believe that if we continue on that trajectory,
11:27 we should be able to fund all our growth
11:29 from our internal accruals.
11:30 And if there is a minor borrowing required, we'll do that.
11:33 - No, actually, hence my question,
11:34 because you are not heavily indebted at all.
11:36 In fact, we were doing this analysis
11:38 of the top 100 corporates in India
11:41 and auto sector has seen some substantial jump
11:43 in cash on books as well, free cash flow generation.
11:45 So is there a large investment plan in the offering
11:48 because of this whole growth around EV
11:50 that is being spoken about?
11:51 I'm just trying to understand what would you do?
11:53 I mean, would the CapEx plans get enhanced
11:56 because of the availability of cash
11:58 and the growth prospects that you foresee
11:59 over the next three years?
12:00 Maybe Mr. Agarwal can take it,
12:02 you can give it a shot, Mr. Madhavi, whatever.
12:04 - Yeah, so see, there are two or three emerging areas
12:08 that we are looking at very, very seriously.
12:10 One is EV, we already have created Switch and Ohm.
12:13 So far, we haven't had any external investor.
12:17 And right now, like Gopal explained,
12:19 our balance sheet is very, very strong
12:21 to actually fund both these companies
12:22 for the foreseeable future.
12:25 Yeah, so that we will continue to do.
12:27 It's not that we have achieved everything
12:29 as far as Switch and Ohm is concerned.
12:31 We still have a lot of white spaces in the products
12:33 that Switch is doing right now.
12:36 We still have to address even higher tonnage vehicles
12:38 within Switch.
12:39 Right now, we have only started two to three and a half ton.
12:43 And then three and a half to seven and a half ton
12:46 is another white space, which is very attractive.
12:48 Right, so a lot of investments would be made there
12:51 as we develop new products.
12:52 Even on the buses, we are right now into 12 meter,
12:56 we are into double decker electric,
12:58 but we have white spaces available in nine meter,
13:01 seven meter, and even lower length vehicles, right?
13:05 Even within Ashok Leyland,
13:07 the whole alternative fuel technology,
13:11 we are putting a lot of focus
13:12 as far as medium and heavy duty trucks are concerned.
13:15 Although we have just launched a 14 ton Boss electric truck,
13:19 we just handed over the first key to the first ever customer,
13:22 but there is a lot of more work to be done.
13:25 It is tippers, it is tractor trailers, it is electric,
13:28 it is hydrogen eyes, it is fuel cell.
13:31 You know, I mean, all this would need
13:33 a huge amount of investment.
13:35 And actually that is the reason we are so much hell bent
13:39 on focusing on generating better cash flows, better profits,
13:43 because we know that all this, although it will take time,
13:47 this transition will take time,
13:48 but we will have to be ready ahead of time,
13:51 have to be the best products in the market.
13:54 So I think there are enough opportunities
13:57 even within the Ashok Leyland ecosystem,
14:00 you know, for Ashok Leyland to be future ready
14:03 in all aspects.
14:05 - Great, all the best for that.
14:06 Mr. Madhavan, you want to add something to that
14:07 or I have one last question,
14:08 but you want to add something to that?
14:10 - No, I don't think so.
14:11 I think Sridhar has mentioned it.
14:12 You know, I think we're looking at it
14:14 at one is generation of cash
14:16 and the other one is deployment of cash.
14:18 I think these are, while they are in a way connected,
14:21 but these are separate plans.
14:22 - Fair call.
14:23 Any, since, I mean, I'll just end this interview
14:25 at this point that Mr. Agarwal mentioned,
14:28 you still don't have an investor out there.
14:30 Do you, you may not need it,
14:32 but could it be prudent to get one valuation established,
14:35 something like that?
14:36 Are you thinking of getting somebody in calendar year 24?
14:39 - Yeah, we are certainly looking at that.
14:41 We are in discussions with investors.
14:43 What we want to do is to get the right-minded investor
14:45 because, you know, investing into EVs,
14:48 a business such as that, which is nascent today,
14:51 requires a very mature relationship.
14:53 You know, this is more medium-term and long-term.
14:56 So we want to ensure that we get the right investor
14:59 and we are not in a hurry.
15:01 At the same time, we are not slow
15:03 and a Shokleland balance sheet is there in the interim
15:05 to take care of whatever requirements that switch has.
15:08 - But you kind of do it in the current calendar?
15:10 I mean, is there a timeline that you set?
15:13 - We have set a timeline.
15:14 Let's hope that, you know, we are able to make an announcement
15:17 in the current calendar or somewhere during that time.
15:20 - Great.
15:21 Gentlemen, all the best.
15:21 Thank you so much for taking the time out
15:23 and speaking to us at NADV Profit.
15:24 We really appreciate your time.
15:26 - Thank you. - Thank you.
15:27 - And viewers, thanks for tuning in.
15:29 (upbeat music)
15:32 (dramatic music)
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