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Ashok Leyland Ltd
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Ladies and gentlemen, good day and welcome to the Ashok Leyland Q1 FY '21 Results Call, hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nishit Jalan from Axis Capital. Thank you, and over to you, sir.
Thank you, Zaid. Good morning, everyone. Welcome to Q1 FY '21 results conference call of Ashok Leyland. From the management, we have Mr. Gopal Mahadevan, whole-time Director and CFO; and Mr. K.M. Balaji, Vice President, Corporate Finance.I'll hand over the call to Mr. Gopal for his opening comments. Post that, we can get into Q&A. Over to you, Gopal.
Thank you very much. A very good morning to all of you. Thank you for your interest in Ashok Leyland. I hope each of you and your families are safe and sound, and I know there have also been challenges from the weather, especially in the western part of the country. And of course, in the northern part, there's a little bit of showers that are still going on. All the best to each of you. I'll very quickly get on to the quarterly performance.Hopefully, this is one quarter of its kind in the history of industry and commerce, not only in India, not only in commercial vehicle, not only the Ashok Leyland but for the entire world. And hopefully, this is the one and only quarter that we'll have like this and that from here, things are going to look up. That is the perception that we have and that some point in today's investor call, I'll possibly also share some perspectives of how we believe things can start looking better if the COVID situation improves.Otherwise, we did see April a complete lockdown. You see that the COVID has been very -- I would say, it's not been a uniform spread across the country. There have been red, orange and green zones. Chennai was particularly affected. So our plants were, especially Hosur, Ennore and Pantnagar were impacted by this. But I must complement our manufacturing teams, amazing work done by them. Because manufacturing takes in the impact of not only the supply chain from the inbound side, but also from the outbound. And you also need to ensure that our workers are safe and when the absolute manufacturing ramp-up happens. So ramp up is pretty complex, especially in a heavy manufacturing industry, factoring in social distancing, ensure safety workers, et cetera.Now the total industry volume itself was very insignificant, let me put it. I mean it is significantly lower than even Ashok Leyland's volumes in a normal month. So the total industry volume was hardly about 4,400, including buses. And we saw that the total volumes for the quarter had come down by nearly 94%. Ashok Leyland volumes were also at the same level. So I mean in terms of the reduction, so they were about 723 units. Truck was about 710, and bus was about 13. There's -- these are very insignificant volumes. So I'm going to not talk about some of the statistics that we usually share because statistics and ratios do not play a very major role in a quarter where a predominant part of it was absolutely shut.So our total revenues were at INR 651 crores. Our EBITDA was minus INR 333 crores. I think the Street was expecting a much larger loss, but we have been able to contain it. And our profit after tax was minus INR 389 crores.What I would possibly share with you is that -- the following. We have actually been able to see 2 things that have done well. I mean I would say, not 2 things, maybe 3 or 4 things. First one is I think the agility of the manufacturing team in terms of ensuring that we ramp up and ramp up as efficiently and as quickly and as safely as possible. I think that has been amazing work done.The second thing has been we used this quarter to launch India's first and only modular vehicle platform, AVTR, doing wonderfully well, excellent reviews by customers in terms of the overall build quality. The cabs have been changed. The driver comfort has been amazing. As we speak, on August 7, I think we have manufactured nearly 2,000 AVTRs. We have had more than 3,000 BS VI vehicles, and also totaling 10,000 BS VI vehicles, including LCV. 3,000 was MHCV.The numbers may seem small, but remember, we are still in COVID. And the interest that we have in AVTR is amazingly high. And this is coming from fleet owners as well as from the drivers themselves because they find that cab is absolutely fantastic. The fleet owners are very excited because the overall fluid efficiency is much superior than competition. When we say fluid efficiency, we're talking about diesel as well as the AdBlue additive that they need to add.So I mean we have been very happy, and we decided that we will not delay the launch, and we will pursue the launch. And of course, the BS VI solution that we have offered, again, which is a differentiator, the Mid-NOx strategy has also been very, very appreciated by the customers. Customers do buy 1 or 2 vehicles or 10 vehicles or 15 vehicles and then they test the vehicles, and that's a very important feedback that we get.So as we move forward, we will -- we have still some aces in our compacts. We will be launching Phoenix. Of course, the name of the vehicle will be different, of course, at the time of launch. It could be anywhere between the next 60 to 90 days that Phoenix will get launched, depending on the opening up. Again, the feedback that we've had of Phoenix, which is the LCV vehicle, is amazingly positive. Very differentiated vehicle. I cannot share the details with you, but we believe that this is again going to be a game changer.And then I would also want to add that as we are doing this, we are looking at every item of cost. We have saved about over INR 550 crores last year -- INR 500 crores to INR 550 crores last year in what we call is K54. Team had done a wonderful job. And as we've gone forward, we have launched a project called Reset. And there, we are looking at a much larger canvas, looking at how do we drive operational efficiency not just overheads. So we are looking at productivity. We are looking at digital. We are looking at how do we reach out to customers.And also, let me tell you, one of the points I missed out, the effect of AVTR being actually sold through a vehicle configurator, which means it's sold using a pad or a note and the customer can configure the vehicles, actually improves the supply chain significantly. Because when you have modularity as we move forward and the volumes start to gain over the next year, 1.5 years, you'll actually see that our complexity of manufacturing is reduced. The number of parts we carry is reduced. The inventory that we have is reduced. The number of vendor complexities are reduced. The dealership inventory comes down because you are able to transmit the requirement as efficiently as possible. And the number of SKUs that we have at the back end in the manufacturing side will be lower, but the number of offerings that we can give to customers will be significantly higher than what we have been doing in the past or what is offered in the market. So the flexibility that modularity brings in is part of the operational efficiency drive.As we move out of the current financial year, I would say that we would see Ashok Leyland to be a much stronger, resilient, efficient and financially performing company. The reason I'm stating this is because the investments that we are doing today is really exciting in terms of the efforts that the entire cross-functional teams are putting in. It is not just taking out some cost and doing some chip-chop, but it's much, much larger than that. While I can't share absolute numbers with you, you will see the benefit of all of this coming out in the forthcoming year and the year after that. We did the same thing in K54, if you remember, where we didn't put a number at the beginning of the year but as the year panned out, we gave visibility as to what the productivity norms are.Exports have been a challenge this quarter. Not too worried about it because the markets are here to open up. But here, again, as we have shared with you in November last when some of you -- we had the pleasure of having some of you over to our Vellivoyalchavadi tech center, we have a completely different suite and a more comprehensive range of products, both electric and [indiscernible], are ready to address the requirements of the markets that we currently are in, which is in Middle East and in SAARC, but we are going much beyond that. And we believe that as we move forward, we would also be making forays into Southeast Asia, which is going to be a very important market for us.LCV, like I mentioned to you earlier, the Phoenix launch is going to be an important one for us. And we ourselves are waiting to launch it as efficiently and as quickly as possible. But beyond that, we have seen that the LCV demands are picking up. And believe me, we are in -- the production in Hosur for LCV is actually ramping up very, very quickly. So that's an important devolatization strategy that we have embarked on.And side of that parts business, again, a very, very -- has been surprising us because the revenues and parts for the last 2, 3 months has been clocking over INR 100 crores, INR 110 crores a month, which has been very, very good, which actually kind of speaks of the network and the depth of the network that we have.So this is where we are. I think a lot of good things are happening amidst all this gloom that we see and we read about, but I think our team is doing an exceptional job. As I -- the final statement, all of you would be also wanting to know is what is the debt in the books. The net debt in the books as of the 30th of June is INR 4,247 crores.So now I'm going to leave the floor open for questions.
[Operator Instructions] The first question is from the line of Nitin Arora from Axis Mutual Fund.
My first question is, as you rightly said, the volumes were very minuscule in the last 2, 3 months, not to be looked over. I just want to understand what is our production plan now? How the ramp-up will happen, let's say, starting this month? What is our initially the first plan in terms of production for a month or, let's say, a quarter as well? Why I'm asking this because when we look at the 2 wheeler, the CVs, they're all ramping up or rather they're coming back and ramping up very fast. Is there something because I understand in the last call you talked about the industry we should look at from this quarter onwards. So just need your ramp-up comments on the production side first.
Okay. Let me put it this way. There is a ramp-up that we need to do, there is a ramp-up that our vendors also need to do. I think what's happening is there are dramatic changes that are happening over -- as we speak, week-on-week, day-on-day. So if you were to look at it, my answer would have different in April and May; possibly slightly different even in June, tentative; but July seems to have been not bad. August, as I was talking because we have our reviews quite frequently, what my manufacturing head was mentioning was that Hosur was actually running pretty full, especially the LCV side. As far as MHCV side is concerned, the demand uptick is definitely there. There's no doubt about it. But I would say that overall, if you look at it, we already are at about 30%, 35% capacity. All plants are functioning. No plant is shut down. But certain plants are running -- see, the other important thing is all to ensure that we're complying with the social distancing norms. So both at Hosur, Ennore, Pantnagar, Alwar, Bhandara, we are ensuring that we follow the safety and social distancing norms absolutely to the teeth.So that's happening. We are -- as we are speaking, we are ramping up month-on-month. And like I told you, so we have produced more than 2,000 AVTRs and 3,000 MHCVs and cumulatively, 10,000 BS VI vehicles. So I can only tell you that we are also seeing the same ramp-up happening in our suppliers. And we are seeing that some of the supply chain constraints, the uncertainty around China supplies, all of them are coming off. And hopefully, when the confidence comes in the -- when the -- when the governments also notify that they're going to offer flexibility in ramp up, then we will see the ramping up happening further. I think a lot of demand also depends on how much mobility people have because when there is a restriction in the end-user industries, be it steel, cement or chemicals or paper or e-commerce or anything, then what happens the demand from those segments also are in a tempered way. So they are not really full blown.So when those demand starts to pick up, that immediately translates into demand for freight and exchange of goods and materials. So when that happens, again, that translates into a demand for vehicles. So we are seeing that happen, especially in -- at the MHCV side, I'll say that the maximum traction is actually happening in ICV, where we have seen that while there has been degrowth of volumes, predominantly have been there. And the second largest piece has been in e-bus.So these 2 have been coming up faster than the rest of the segment. And if the government infrastructure demand were to roll out, then I believe that you will see cement demand going up because infrastructure would require cement transportation. And if that happens, we'll again see tractor demand coming up. So we are readying ourselves to ensure that we meet the demand as it goes up because you must remember that while all of this doom and gloom has been there and -- but that means there is a pent-up demand that will start to slowly come up.
Just to -- and this is very helpful, your comments on it. But just to put in a -- like you said in a number context the 10,000 production of BS VI vehicles. Just to put it -- I'm sorry, I'm asking a very short-term question, but you have been very helpful in terms of guiding it always on the demand side. On the production side, if you look at the quarter 2, and I'm trying to gauge more of the industry production. So I'm -- and that's why -- and you are the leader. If you look at from an August or a September going ahead in terms of production plan, do you think we can, at least for the quarter 2, we can go up to a production of at least a similar number of what the BS VI production you have done? I'm talking about around 8,000, 10,000 production units is something is possible you see in Q2, given the supply chain, given the demand you see on the ground level because that will place the industry to about 30,000, 32,000 units.
You are asking whether we will produce, say, about 10,000 units of BS VI in quarter 2, Ashok Leyland?
Yes. Yes.
I believe so, of course.
The next question is from the line of Satyam Thakur from Crédit Suisse.
Sir, the first question that I have is on the cycle itself. In terms of the truck fleet capacity utilization in the country, what -- where are we now? And where does that need to go before we start seeing meaningful new truck sales starting to happen...
Can you repeat your question? Can you repeat your question?
Sorry, Satyam, your voice is breaking.
I'm sorry. I hope it's better now. I'll try again. What I'm saying is that in terms of the truck fleet capacity utilization in the country, where -- what's your sense on where are we now? And where does this need to go to before we start seeing meaningful new truck sales starting to happen? Like based on history, at what levels do we see that happening?
Yes. At the moment, the fleet utilization levels are possibly slightly higher than 50%, 55%. I don't know the statistics fully because there's no data that is organized that we can see. It's a guess. We are going by the ground level thing. But I can see what happens in this business is -- this is based on sentiment, okay? So this is not like cars, where that is -- people buy cars if they want to buy a car, if they want to change the car. And there, it depends on disposable incomes and the sentiment on their earnings capability. Here, the sentiment is on the demand and the pattern that's happening on the industrial side, especially in the customer front.So I believe that if the economy were to open up and we'll see that there is more of the trade to be transported, more infrastructure projects coming in, demand coming in various industry -- end-user industry segments, right? Then you would actually see the demand for trucks going up because we must understand one thing. People have to ready themselves for growth. They are not going to just go and buy a truck at the last minute and try deploying it because there is a lead time for getting a truck on board. And sometimes, many of them like oil companies, for instance, would want their tenders to be participated in and sometimes they even ask for the safety numbers.So I think a lot has got to do with the sentiments. And if the economy were to open up, you will actually see the demand come. But am I saying that the demand is going to exceed last year? I don't think so because we started with virtually no volumes. But do you see that ratably, the fourth quarter could actually -- could be a good quarter? I believe so. At this moment, I believe -- strongly believe that. That is how my -- while I can't share information, let me tell you that we are looking at our fourth quarter performance, hopefully, that will happen, which is going to be good by all standards. So it's not comparing ourselves to first quarter. So we are really pushing ourselves that both Q3 and Q4 if the demand were to come in, how are we going to ensure that there is a good top line and bottom line performance.
Okay. And the second question that I had was on the Leyland Finance side. What is the trajectory on the moratoriums versus where it was in the June quarter and where it is now in July, August? And so the trend on moratoriums and on the collection efficiency, has that improved and where are we on that now?
I think the Leyland Finance management team has done an exceptional job. I must tell you that. While there are some restrictions in sharing some information, I'll tell you that in terms of interest income, they have been almost at the same level as last year. And on the profit level, also, I would say they are almost at -- it's almost about -- they are at about 85% to 90% of last year. So they have done a good job in terms of managing their profitability. And this is after -- they are at about 80%, 85%, let me put it that way, with inflation in that number. The other thing I would say is that this is after factoring a nearly INR 70 crore of exceptional charge, COVID-19 charge, that was taken in March, they have taken an additional INR 15 crore this quarter as well, not because of anything else because of conservatism. Their provisioning norms are as per -- see they have to follow Ind AS, so they have looked at expected credit loss models.As far as your moratorium is concerned, again, I would say that -- they started in April with 75%. Today, the net moratorium, which means net of repayments, the moratorium rate is about 40%. So they are seeing a lot of traction in terms of payments. It is reasonably conservatively managed. So we don't see any issues there. The management is pretty confident. The portfolio is also pretty tight. So you have a mix of -- you have a very good mix. You've got heavy commercial vehicles, then you've got small commercial vehicles, 3-wheelers, tractors, 2 wheelers, used vehicle, loan against property, portfolio buyouts. Portfolio buyouts have been very exciting in their thing with absolutely no NPAs at all.So I would say that the company is in a very sound position. They are absolutely liquid. They have adequate and more than adequate lines of funding available with banks, and they have not sought -- this company has not sought for any moratorium from banks, and they have been paying their dues on time. In fact, in certain cases where the debts are -- the rate of debt is higher, they have actually prepaid debts and gone in for a lower-costing debt. So I think they are very finely positioned.
The next question is from the line of Kapil Singh from Nomura.
Sir, can you talk about -- you were talking about AVTR. Can you talk about how we have done the pricing for the BS VI models in both LCVs and MHCVs? And does this protect your profitability on absolute basis or percentage basis? Any thoughts on that?
Well, let me give you a run. We are trying to protect our profits on absolute basis and move it to the percentage basis, and that is the plan. Your question gave out the answer, Kapil, because if you see, the numbers are very low at the moment, right? So we are not really -- there is no price discovery yet fully happening. The total industry volume itself was only 4,000 units. But what we are trying to do as we have done in BS III to BS IV and BS IV to BS VI is we are very clear about 2 things.We have to grow, and share of our business is very, very important. It's very important for us. But at the same time, we will also ensure that the pricing is managed in an efficient manner to deliver better and better gross margins as we go forward. And there are 2 trajectories to this. It is not just a pricing trajectory. The first one is a pricing trajectory. The second one is the cost trajectory. So we are also looking at taking out costs out of the product. And when we do that, we are going to see that the impact of both improvement in pricing as well as the production costs will start improving gross margins.
And I was just trying to understand the price increase, how much is it currently? And we are also hearing that loan -- loan to values have come down. So if you can comment on that as well, please?
Yes. I think LTV, that is a finance industry. So the LTVs have come down. They are a little more stringent now because of the COVID situation. I think there's a lot of things has to do with sentiment, right? So everybody is now a little careful in, I would say, disbursing money and investing money. So the banks are doing the same thing. This will, of course, have -- this, of course, have a certain amount of stretch on the customer side as far as LTVs are concerned.But I'm sure that things will start to ease out. See, ultimately, shall I tell you, if the demand were to come back and the fleet operator were to feel that there is -- what should we say, there is the demand for freight, they will find ways and means to get -- acquire commercial vehicles. They are not going to say, "Oh, I'm not going to acquire a commercial vehicle and lose business because the interest rate is high or because the loan-to-value is low or whatever like that." I think that all of this has going to be a lot to do with the sentiment.
And sir, can you repeat the pricing part? How much increase is there in percentage terms for MHCVs and LCVs?
See, that would depend on the model. For example, ICVs is different. LCVs would be different. But I would say that roughly, there would be a 15% to 20% price increase that is required, and depending on the model here.
Okay. And this is same for LCV version, 15%, 20% increase?
I would say more 15% -- 15%, 18%; 15%, 17%. Yes, it's almost the same, about 15% in LCVs.
The next question is from the line of Prateek Poddar from Nippon India.
Just 2 questions. One is, given the cost initiatives which you have taken in terms of K54 plus the new AVTR model -- the new platform launch of AVTR. Is it fair to say that even if you reach FY '20 revenues, whenever you reach them, your profitability versus FY '20 will be much better than what we have seen in FY '20 because of these costs?
Yes, yes, absolutely. We are looking at -- starting from now or starting from this year, we had been -- I would even correct myself, starting from last year when we actually started to thinking things through again, the clear focus is on, I would say, 5 things. One is to grow our share of business in India, very clearly. And that has to be done not through just in a one track way, continuously keep investing in the network and making the network also profitable. Second one is invest in products. And after that, ensure that we are collaborating the whole ecosystem together, including financials, dealers, customers, et cetera, and has key customer management. There's a lot of investment that's happening in how do I connect to the customer more innovatively. And then the same thing happens with the supply chain. We forget about the demand side and the manufacturing side and the vendor side, a lot of integration happening there. So this is one.The second one is to grow the LCV business and ensure that we start launching new products, which will help us to gain share, and that is what Phoenix's strategy. And after that Phoenix, we will have, just like [ Shark and Shark Flex ], we'll have Phoenix and possibly [ Phoenix Flex ] coming out as we move forward.The third one is we are at a low base in international. That is a challenge and an opportunity. We're looking at the opportunity front, and we would need to gain our overall share in the foreign market that we're aiming at.The fourth one is operational efficiency and cost, which means we would -- that we are determined to see operating new builds as we move forward between what every rupee of revenue added, we are going to measure how much is getting into the bottom line and not just keep burdening our costs.The fifth one is, of course, grow all the adjacent businesses, which is our parts, very important for us. Then we have the engine business, which is also setting itself some huge targets in terms of their growth over the next 3 years. I can't share it with you, but it is quite -- they have set themselves some good targets. I have already talked about LCV. I have talked about international. The other one is defense. I think the recent announcement by the government of India is very, very positive for different suppliers like us. Very clearly, the government is now focusing on not only make in India but made by India. So that's going to help because then we are going to see that a lot of orders they have referred to possibly going outside to come over here. We are not putting numbers yet because today, we only have a feed, we see a direction, right? So we will know the distance soon when the government starts to make those announcements. You've seen the recent orders that even [ HAL ] has got, right, nearly INR 8,000 crores of orders have been given to [ HAL ]. So I'm sure the government is focusing on how the private enterprise would also be roped into partnership in supporting India defense.And finally, I think the sixth one is, I think in all of this strategy is driving digital and analytics and improving productivity across the company. And then connecting to the company. So I think there's a lot of work that's going on, including the customer solution systems where we are finding ways and means to innovatively touch the company.To answer your question, Prateek, why I wanted to give a slightly longer answer is then you get the whole feel of what the company is doing. Some of it is from the past. I know it's a repeat of the past, but a lot of it has got to do with how we are looking at this whole theme of managing cost and driving revenue. Because we are very clear about one thing, all of this boils down finally to our mission statement. We are very clear. We are very determined. We are very focused on becoming the top 10 -- being part of the top 10 club in global cities. That really show.
Yes. So is it fair to say, right, that you would get -- I mean, even if we reach FY '20 -- I mean FY '20 revenues, whenever we do that, the margins will be much higher or because of these cost efficiencies which you are embarking on, margins will be much higher than what we have seen in the previous past, right?
Absolutely.
Okay. And sir, second question, very quickly on CapEx, if you could just talk about your plans for FY '21 and '22? That's it.
FY '22, I will not be able to tell you now. But FY '21, see, there is a certain amount of CapEx, which is already committed, right? So we possibly would see about INR 500 crores, INR 600 crores of CapEx that will come out. But as the year goes on, okay, if we see that the demand is coming back, we may decide to have some small injections in CapEx if required. But we will take it -- see, we are going to -- let me make this because I want all of you be very -- note this down because each of you kind of perceive in different ways.We will pay out the CapEx growth as the year goes on. And if we find that there is a necessity and strategically important for us to make some balancing -- and there are no major CapEx. Our basic CapEx is all over at this stage, which is our modularity, our BS VI and also the significant [ Shark ] or Phoenix. But there could be some investment in a paying shop or there could be investment in line balancing or we may want to have certain smaller variants of -- small investment for variants in Phoenix. All of that will start paying out as we move forward in the current year. But at the moment, I would say that if you are extremely tight about it, we will have about INR 500 crores to INR 600 crores of CapEx.
The next question is from the line of Pramod Amthe from CGS-CIMB.
Two questions. One, I think, recently, government was talking about some bus orders to be given out by the state governments. Any update on the same? When you expect that to flow through? Any talks with the NITI Aayog or -- on the same?
So we are continuously in talks with various government agencies. The orders have not really come in. But once they start coming in, we will participate and we are India's largest truck manufacturer and the world's #3. So in all humility, hopefully, we will also get a share of that.
But when would you...
I don't know because you see -- I'm optimistic. See I'll tell you one thing. But soon, we would see that transportation -- see why I'm telling is a lot of this is not to do with any [indiscernible]. It's about [indiscernible] you take some calculated guess. On one side -- let us be candid. The governments are challenged for funds. They are starved for funds because they've been fighting COVID. The revenues have come off very sharply. And tax revenues have come off. So they are grappling with how to keep people sit and how to put some money into the poor men's hands to keep the public at large safe and having some kind of livelihood.At the same time, they will have to take some steps in terms of ensuring safety in public. And that will happen only if you have more buses on the road because I'm sure that social distancing norms will actually pose transport undertakings to lessen the crowd in this entire piece. And if that happens, they will have to order more buses. Our expectation is that there will be some tenders in the later part of Q2 and early part of Q3 and we will participate in that. But while we -- I have a complete list of the various tenders, et cetera. The dates announcing and then getting deferred means that I don't want to state something which is not -- which may get deferred by a bit.
Because looking at the current situation, that looks to be the easier one to be addressed than the other things which are...
No, but the tenders have to be -- the tenders have to be put in. And -- see, there are also other positives. In terms of the government's view on China policy. And of course, that determination to first safety. If that happens, then we will see the tenders coming out. Maybe the governments will resort to borrowing from global agencies to fund this. And I'm sure global agencies also would want to quick start economies across the world because this is not a ripple effect, right? So we can't just quick start only 1 or 2 economies. So they would possibly also want to invest in that. There could be partnerships with governments of other countries, I don't know. So -- but we're looking at various options, but I believe that you will see these tenders coming up sometime in Q2 and Q3 as well.
And the second question is with regard to debt. I think compared to when we last discussed, there is a further 5% rise. Any major debt reduction plan in the short term and any year-end target you would be working with to reduce the net debt?
Okay. I will just only give again a direction number. That is right. I mean, in March, our debt was much lower because that was in March. We -- then after that, we have to feed April, May and June operations. So you have seen the net debt go up to INR 4,247 crores. Predominantly, these have been used for payment of vendors because we had sufficient supplies happening until March or first and second week of March. And so we have to pay off the vendors. And of course, a certain amount of expenditure funding for April, May and June. So we have done that.Now as I move forward, perception, we continuously look at borrowing plan. The idea has been -- the idea in the company, the strategy that we have adopted is very simple. We said we will take long-term loan, push all the repayments by a year or 2 so that we ready ourselves for fighting the short term if there are any challenges. This is exactly what has happened. And we keep our working capital limits as free as possible so that if there is a dip that is required in working capital, we can do that. And I must appreciate our bankers, have given excellent support. I think tremendous support has been given by the banking fraternity, highly engaged. They have personally risked their health, and we have had consorted documents being signed in the thick of COVID. Can't imagine. So I will never forget it in my life. People really reaching out and helping, and I think this in an amazing work that has been done.And as we move forward into the year, I am expecting the debt levels to come down. Now how much is it? Let us wait for Q2 to end, and then I'll tell you. The reason is that, let's see -- let the projections start rolling out. Today, I have only a kind of a feeling that things are going to improve. We have projections that show that. If I start sharing those numbers, they'll be looking pretty exciting, but I don't want to do anything of that sort. Rest assured on one thing, our projections internally tell us at the moment that if the COVID were not to get into another deep dive and then there is another massive lockout and all that, if all of that does not happen, our debt levels will come off quite sharply by the end of the year.
The next question is from the line of Sonal Gupta from UBS.
Sir, a couple of questions. One, just on the implications, I mean any thoughts on the new dimension norms for trucks that have been announced? So what is the implication for the industry from that?
Which were on dimensional cargo?
On the increase in the truck dimensions that the government has notified, right, that effectively the length of the truck and the width and then height can be higher.
Yes. See, not going -- no, no. That's what I said. That is for transport for -- earlier, there was this over-dimensional cargo. And it is for the supplies of -- you had it for scooters, carriers and all that stuff. See, what is happening is, we have studied it, at the moment, we don't see much of an impact, not because of anything else because the -- ultimately, the number of layers and the height is a very important thing. So -- and scooter, car carrier -- I mean scooter carriers, car carriers are not the major, I would say, needle mover in this segment. So at the moment, we are -- while we are looking at this and we are also discussing, possibly, we'll have a little more information to share as we moved into second quarter because those kind of vehicles are yet to be built in a full fledged way. Their demand has not yet come in. So let's look at that and I'll come back to you on that. But I don't see any major impact. We'll be able to share a lot more in Q2.
Sure, sir. And just 1 question on the HLF side, I mean, like -- Hinduja Leyland Finance. I mean how much capital have you invested? I mean any additional -- what sort of capital requirement do you see there for this year?
No, we have not infused any capital directly into HLFL this year at all. So we will wait and watch. Like I'd mentioned you, HLFL is looking at various other options. I had mentioned -- we had mentioned this in March, April as well that we are in discussions with other private equity players. So if we get a good deal, HLFL may lock in certain capital. If that does not happen, then we may have to infuse maybe, I don't know, INR 150 crores, INR 200 crores in Q3 and Q4, but we'll wait and watch. But believe me, if that capital is also infused, okay, by chance and let me tell you that, that capital will only multiply. So we're not too concerned about it because HLFL is also -- it's got a housing finance subsidiary I think whose book is now more than INR 1,100 crores, INR 1,200 crores. I don't remember the exact number. And then we have other initiatives that are being taken by the company today, and I believe that the company is on a reasonably good trajectory in terms of diversification, so -- but we have not invested any money directly into HLFL. At the beginning of the year, we had bought over the stake of Everstone for about INR 90 crores approximately. That's all. No further.
Right. And just lastly...
Thank you, Mr. Gupta, but may we please request you to return to the queue for your follow-up questions as we have several participants in the queue.The next question is from the line of Priya Ranjan from Antique Limited.
Just on the modularity part. So if -- on the modularity, do you see some kind of uptake in, say, fully built vehicle rather than, I can say, earlier, I mean still the prevalent practice [indiscernible]?
Yes, I believe so. And that's the strategy of the company. Thank you for asking that, Priya Ranjan. But before that, for the previous question, I had made a technical thing, so I just want to correct. The AUM of Hinduja Housing Finance as on June was about INR 1,700 crores -- INR 1,665 crores. But having said that, now let me come back to this. See, the basic idea, what we are trying to do is to see that we are also able to get a slice of the revenue of one fully built vehicle. That's why if we look at our modularity and our AVTR range of vehicles, as well as our ICV, we are focusing on fully built vehicles. In ICV, we have the ecomet and, of course, Boss, which is a superior vehicle, which has started to gain traction because it's a really premium vehicle that we have in the segment. Nobody in comparison to what is offered in the market.The second thing is, as far as the heavy commercial vehicle is concerned, the entire caps of all the vehicles have been completely changed, revamped. And because we're focusing on ensuring that we give a delivery of fully built vehicles and not just the -- what we call as the chassis or front-end structure [indiscernible] Similarly even in bus, what we're trying to do and not trying to do, we are doing now is coming with a completely standard but kind of modular structure and also, importantly, a common [indiscernible] among the various types of buses. A lot of focus on Alwar, which is a bus body building plant. We are trying to make it more competitive. We are trying to see that customers buy a fully built vehicle from us instead of just a chassis and going out to other body builders. We are also -- this is a mix of both cost and, I would say, quality.So we want to offer superior quality and also have it at a price rate which is attractive enough because then what happens is you are able to get more of the value addition happening inside the plant itself. And the advantage that customers will have when they bill a fully built vehicle from us is that the warranty is from front bumper to back bumper, no questions asked, which means if somebody were to put in an outside fully built structure, there are always issues because the people who are building the structure may not be actually sticking on the standards. So customers are realizing that there's a big advantage. So we are changing the proposition to customers as well, and they are seeing value in it. Your question is absolutely right. We are trying to move it as much as possible in the fully built structure and modularity-wise.
Yes. And my second one is on the retail versus fleet owners. So as we understand because of the -- I mean some issues initially in the driver side, driver availability, et cetera. So the retail guy has been performing a little better than the fleet owners. I mean so the -- financially, if you look at fleet owners, may take slightly longer to come back rather than the -- I mean the 1 or 2 or 3, 4 vehicle, the retail owners. So any thoughts on that?
Well, we'll have to see. Again, I'll tell you, it's very -- I'm not able to share any statistics because the sample size is very small. So with this number, I can't really say no, no, -- but fleet owners are waiting and watching, but fleet owners are also buying. It's not that they stopped buying. But what they are doing is they are buying vehicles. And they're testing them out, from our perspective, all I can share. At this moment, I'm sharing my perspective, right? I can't give forward-looking statements. But the feeling that the large fleet operators have given us, the feedback that they have given us has been extremely positive, both in terms of driver comfort and on efficiency. So we believe that the AVTR range is actually a big positive for us.
Okay. And lastly, on the quarterly...
Mr. Ranjan, sorry to interrupt, but may we please request you to return to the queue.The next question is from the line of Gaurav Khandelwal from Mirae Asset.
Sir, just 1 question from my side to begin with. How much was creditors unwinding in the quarter that has happened?
I would say nearly about INR 1,400 crores or so. Balaji, will that number be right?
Yes.
And ideally, this -- as the production ramps up, let's say, if you are expecting by Q4, if the production ramps up, this amount should reverse in the next 3 quarters. I mean, ideally, this is the right way to look at, right?
You're right.
So the debt to our -- to that extent will also reduce by INR 1,400 crores?
Beg your pardon, please?
So debt, to that extent, just because of creditor unwinding will also reduce by INR 1,400 crores, right?
In fact, I'll just tell you, between March and June, the number, and this is only about trade credit, it's not all the complex accounting that happens in terms of other [indiscernible] and all that. The absolute unwinding that has happened is something like about INR 1,700 crores.
Okay. That's...
No, see, what happens is, as the production ramps up and you start inverting materials, your raw material gets offset with creditors, right? And then you start converting -- the whole trick is in converting your raw material into finished goods and then into a cash before you pay off the creditors, if you are able to do that, right? Then you become working capital negative. If you're not able to do that, you are working capital positive and then you borrow from the bank to bridge the gap. That's about it.So over the past few years, we have been able to manage it well because -- why is it? It is not because we are super intelligent or anything of that sort. We have standard terms with creditors. But at the same time, when we were actually selling, we ensure that we were not offering too much credit to the dealerships. And we also ensure that the other thing is when credit is not being offered, we also were not pumping the dealerships with inventory. That is why when we moved from BS IV to BS VI, we didn't have a major impact because our dealerships were not stuck with BS IV inventory. That is very important. So the whole thing is a lot more, I would say, wholesome and complex when you look at it. How do you ensure that the dealer gets the right thing? It's because you don't push -- you -- he gets to buy the vehicle of stock. We do offer a little bit of creditors -- I mean credit off and on to dealers, but it's very small, hardly 7 days, 6 days sometimes on a one-off basis.
Okay. Okay. And sir, any movement in ICD account during the quarter?
Yes, it is actually a favorable movement. I told you this is more -- what we're doing is we market with group companies because there is a surplus. Like I told you, as on June, I have debt of additional INR 1,000 crores, which I keep parking in fixed deposits, et cetera. So the ICDs actually have come up. From INR 500 crores, they are now, as I speak to you, in fact yesterday, there was -- yesterday or day before, there was a repayment of INR 100 crores. So we are at INR 400 crores.
So the ICD on Q1 -- in the quarter has reduced by INR 600 crores. I mean from INR 1,000-odd crores to...
No, no, no, no, no. ICD -- let me repeat, ICD as in March was INR 500 crores. As I speak to you today, the ICD is INR 400 crores in August. So ICD has come down from INR 500 crores to INR 400 crores. What I mentioned about surplus was I, anyway, had surplus, that is when I borrow from that, I need to have some surplus in the company to manage liquidity, right? That number is approximately INR 1,000 crores. And I have deployed it in, say, bank deposits and overnight mutual funds. And I -- also now, this ICD is a strategy to reduce your overall negative carry and it will have a favorable impact on the company in terms of the cost. So our ICD has come down from INR 500 crores to INR 400 crores. In August, there has been a repayment of INR 100 crores, and now the ICD is down by INR 100 crores. Are we clear?
Okay. Yes, yes. That's helpful, sir. And sir, just last question...
And Gaurav -- one thing, Gaurav, you said on the creditors unwinding INR 1,400 crores, it is not INR 1,400 crores, it is INR 1,200 crores, okay? What Gopal said was INR 1,200 crores, which is correct.
Okay. Okay. And sir, just last question for my side...
Mr. Khandelwal, sorry to interrupt, but may we please request you to return to the queue for your follow-up, please, as we have several participants waiting in the queue for their turn.The next question is from the line of Gunjan Prithyani from JPMorgan.
I just had 2 follow-ups. Sir, if you can just clarify on the Leyland Finance that you mentioned that incrementally there has been no commitment, but this Everstone stake conclusion has happened in this quarter?
Yes, it was in April, no? We announced it.
Yes, sir. That's -- now that transaction is fully complete, right?
Yes. Yes.
Okay. Got it. Now secondly, on the -- for this quarter, I'm just trying to understand this gross margin change that has come full quarter-on-quarter. Is there you can share how much was the spares revenue? Or there is a mix change that we should be looking at in terms of modeling the rest of the year because it just seems a very steep move on the margins at the gross margin level?
Can you tell me what work you have got, then I'll be able to answer accordingly? Because when you say gross margin, what are you referring to? What is the question...
Sir, I'm just looking at the RM to sales ratio. Of course, this is a slightly ad hoc quarter to look at, but I'm just wondering if we project out RM to sales versus the Q4 exit of last year, how should we be thinking about it because there is BS VI, of course, which will not -- which may not be incrementally additive on the gross margin. You will see some impact of that in terms of gross margins coming down. So any insights you can give in understanding how should we project this gross margin...
I think what is happening is the percentage of revenue of spares and some of the other businesses, non-MHCV businesses, have been higher. Due to this, the RM to sales ratio has not been really significantly impacted. As we move forward, we would actually see a slight pressure on it maybe in Q2, Q3, but then we'll see the recovery also happening because, as I told you, there is a cadence of price recovery that we have built into our projections. And there is a cadence of cost reduction also having built into the projections. So the basic idea is that by end of the year, we should have certain amount of normalized improvement into the raw material sales as far as MHCV is concerned. LCV should also see the same traction because see, at the moment -- see, this is a quarter where there's a really small amount of vehicles sold. So it's -- you're getting, acquiring customers and asking, then after that, they are trying out the vehicle. So the price discovery has not happened for you. But I would still say that our price recovery has been much, much better than competition.
Okay. But it's not in entirety.
I beg your pardon, please?
There is still some cost absorption which has happened?
Yes, yes. There is an upside to the margins that will happen, but not -- see, don't look -- you are only looking at it as an average. That average contains truck, bus, LCV, exports, defense, aftermarket, right? Now -- and engines, power solutions. So the mix is -- because the mix of non-MHCV business is higher in the current quarter. Because like I mentioned to you, the aftermarket and price revenues have been much better.
Sir, can you share the mix or the revenues that gives us a better perspective? If you can share spares revenue and the non-CV business revenue?
Yes, I can. Balaji, can you just share the CV and the non-CV revenue?
Yes. Spares is roughly 25%. And defense and -- defense is roughly 10%.
Let me put it this way. The truck and bus revenues are about 20% and LCV is about another 21%, the rest is the other businesses.
Yes. 40-60.
Okay. Got it. And just last question on this...
Sorry to interrupt, Ms. Prithyani.
Just very quick, on the LCV expansion, is there a time line that you've shared, if I missed it? When do we see that portfolio being rolled out?
No, no. This was -- actually, we wanted to inaugurate it much, much earlier, but COVID came in and there was a complete lockdown. So the vehicle, everything is -- there is no delay in the real sense. It's not a project management issue. The project has been managed very, very efficiently. Actually, no other company would have actually been able to produce an entire vehicle in such a short while. It is, I think, in less than 2 years. But we are waiting for COVID to unwind a bit. And as I mentioned earlier in the call, we would want to launch this vehicle over the next possibly 60 days or a little more than that. That's all.
Ladies and gentlemen, we will take our last 2 questions for today now. The next question is from the line of Amyn Pirani from CLSA.
I think my first question was -- I think, I missed something. You said CapEx of around INR 500 crores to INR 600 crores possibly for this year. And any amount that you have [indiscernible], you have budgeted for investments like HLFL and otherwise -- other subsidiaries for this year?
See -- okay, HLFL at the moment, I'm not able to comment. We will have to wait and watch. We will pay out the rope as and when it's required. As far as investments in other subsidiaries are concerned, I would say that we may require another INR 150 crores to INR 170 crores, predominantly in Optare and [indiscernible].
Okay. Okay. Understood. Understood. And sir, my other question was slightly taking a step back, we had the actual load norm changes around 2 years ago. And FY '20 was a very volatile year because of BS VI expectation and everything. Now as we look forward, now that BS VI pricing has -- is known and there will be -- so do you expect any significant changes in the mix or buying behavior now that everything is settled down and we will have a new cycle? Or you feel it will be as it has been in the past?
No, I think there are 2, 3 things that's going to happen. I think that we would see, one is trajectory. On the trajectory front, if I were to look at it, I think things will start moving up because we are possibly at the bottom, right? Now the bottom has a revised new model, which is the bottom is significantly lower than any bottom that isn't felt, right? So I think this is one, purely from the industry perspective. TIV is very low. [indiscernible]The second thing that is going to improve the trajectory is the economy, and the world economy is also at the bottom, right? So we are going to see things moving upwards as they move forward. What is the slope? I don't know. Because is it going to be sharp? Is it going to be a gradient? We'll have to see. But definitely, I think things will start to improve, right? We can't continue like this forever.So we actually then will see a positive pressure on volumes in domestic. As far as Leyland is concerned, so if the domestic industry were to do well, it has to recover well. Feel very confident we're going to do better than the rest because we've got the right products, superior products and also we are getting larger range of products today with MVP and the modular vehicle program in MHCV. That means it gives me greater number of offerings to the customer. The second one is in LTV, I'm expanding the portfolio. And of course, in this business, also, they have some, I would say, targets. So you're going to see that we are going to be able to kind of exploit this growth, if I may use the term, in a better manner than we were able to do in the past.As far as growth of Leyland itself is concerned, I believe that when the international markets expand, we again will see a much larger trajectory happening there because of the fact that we are in the bottom. And secondly, we are also expanding that because we have better range of products available in the market and we have a completely different international strategy.The third one is in terms of cost management, which I did mention about, is that -- we are looking at cost completely differently, and we would, like Prateek mentioned, are we going to see benefits from operating leverage? I believe you're going to see the benefit from operating leverage as we move forward. And, of course, initiatives like digital and analytics plus new businesses which are happening now, like customer solutions, would actually improve the traction much better.
So that [indiscernible] -- what I want you to understand was that will the mix in terms of finance or medical change materially going forward compared to the last upcycle that we saw, which was driven by the 30, 35, 40 tonner vehicles where you are significantly strong? Or do you think it will be the same?
I believe it will be the same because see each one serves a purpose. The purpose is maybe heavy freight operators would still want to have a larger vehicle because it gives economy to scale, right? So a larger vehicle gives a much more economy to scale and faster turnaround time for the customer also. Instead of having 2 trucks for transporting 25 tons, it is better to have a 49-tonner, right?So I don't think that application will change. I don't think they are going to use a smaller truck for the same application, right? But I think the composition will start changing because what we will see is possibly ICV growing faster than MHCV, LCV growing much faster than ICV, and then we will see MHCV growing. And in MHCV, you will see tipper demand growing faster. And then you will -- and if suppose other infrastructure spends come in, then you would also see the tractors coming up and then the multi-axle vehicles.
Mr. Mahadevan, shall we take 1 more question?
Yes. I think -- thank you very much. I think we have been -- I know there are other questions, but I think it has been an exceptional quarter for not only the company but for the world at large. But I think the team in Ashok Leyland has done a wonderful job in terms of reigning in all the challenges, I would say, not just the cost but they have reigned in the challenges, they have been able to kind of systematically and methodically grow the operations, complying with the regulations, looking at health and safety of people, engaging the people more, keeping the morale of people higher, not doing any staccato communications, launching a product, state of the art, during the first quarter, readying itself for the launch of another state-of-the-art game-changing product in the next 50 days, reigning in the cash flows. And I think on every front, we have done better. And as we move forward, we hope to meet investors' expectations and deliver superior performance. So thank you very much for the interest in Ashok Leyland, and I look forward to meeting you and keeping in touch with each of you as well.Thank you.
Thank you very much, members of the management. Ladies and gentlemen, on behalf of Axis Capital, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.