Ashok Leyland Ltd

NSE:ASHOKLEY

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Ashok Leyland Q1 FY '22 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Jinesh Gandhi from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

[Jinesh K. Gandhi, Senior Vice President of Equity Research]

Thank you, Malika. Good morning, everyone. On behalf of Motilal Oswal Financial Services, I would like to welcome you all to 1Q FY '22 post results conference call of Ashok Leyland. Ashok Leyland is represented by Mr. Gopal Mahadevan, Executive Director and CFO; and Mr. K.M. Balaji, Vice President, Corporate Finance. I would like to thank the management for taking time out for the call. We'll start the session with opening comments from the management followed by Q&A. I will now move over the call to Mr. Mahadevan. Over to you, sir.

[Gopal Mahadevan, CFO & Whole Time Director]

Thank you, Jinesh, and a very warm good morning to all of you. Thank you very much for making it for this investor call and the continued [indiscernible] Ashok Leyland. I will just keep my comments very brief but try to be as pertinent as possible. I think most of you also attended the investor meet that we had just about 10 days ago on Switch, where we kind of discussed about the plans that we have for the electric vehicle strategy that we have. But coming to the quarterly results now. The industry certainly has grown, but I wouldn't want to quote statistics because if you compare it with the Q1 of last year, the numbers have been much better. But still, things have to kind of get to the, I would say, pre-COVID days. So the total industry volume for Q1 FY '22 was 29,158 units. I'm going to keep the numbers rounded, okay? It was just about 4,400 units last quarter in Q1, so Q1 of FY '21. But we must remember one thing. April seemed to be bouncing back pretty well. But then suddenly, we had the lockdown again in May and almost part of June, almost half the quarter, if not more, had, again, kind of -- was a result of shutdown, due to which volumes got affected in the total industry. And the second thing I would also say is that it's not -- while we can compute market share, market share is a confluence of one mix, both geographical and product. So the lockdown plays a very important -- is an important factor which influences the market share because if, for instance, the Southern markets are closed more than the Northern or Eastern markets or Western markets, what happens is, obviously, companies such as Leyland, which have a greater kind of weight on the Southern market, get impacted. This is one. The second one is, of course, what I wanted to say is that the bus industry is still very -- has still to grow. So out of total industry volume of 29,000 units, the bus volumes were only about 1,086 units in -- for the quarter, and this is TIV. And remember that this is almost a 40,000 per annum unit industry. So very, very small numbers at the moment. Ashok Leyland had 7,860 number as opposed to 6,689 only in first quarter. Last year first quarter was not a -- is not a comparison because it was completely shut down for all practical purposes, and our market share for Q1 was about 27%. Our export volumes were about 1,190 units for the quarter. Here, again, I would just want to mention that still, the export markets are -- addressable markets like Middle East, Bangladesh, Nepal, Sri Lanka are yet to kind of fully open. In fact, even in the rest of the world, we are seeing restrictions on COVID because of the second wave happening and then now the possible third wave. I'll just touch upon it briefly as well. So revenues for the month -- for the quarter was INR 2,951 crore. The EBITDA was a negative 4.7%, and our PAT was minus INR 282 crores. The net debt was INR 4,173 crores, and our ICDs for the quarter was 0, which means we had no ICDs outstanding. Now I'm just going to give a very quick update on what's happening. And as I've been doing with the investment community, I just give a perspective from the management side as to what we're seeing happening. We believe that if the COVID -- the third wave is not very severe, then we are going to see quite a bit of demand coming up. The reason why it's going to happen is 2 reasons -- twofold. One is that the economy is set to grow. We are seeing that there is quite a bit of infrastructure spend on the positive side. Again, we're seeing real estate demand going up. Interest rates continue to be low. On the flip side, of course, you see diesel prices at triple digits, and freight rates are yet to firm. But this could -- and the other -- on the -- again, on the positive side, we believe that the axle load norm, the additional capacity that was created possibly has come off now, and we could see fresh demand. That's how we are seeing this whole piece. The second bit is on the light commercial vehicle front. If you look at the LCV markets, they have been pretty stable. And our market share has actually grown about 20%. We were a 14% player, so this market is very promising. It's not as volatile as the MHCV market. But the other thing that I would also want to say is that pertinent to MHCV is that we have almost seen 8 quarters of degrowth. Let's leave out this quarter because that growth is on a very low base. But even before COVID, if you could look at it, the demand had actually come off quite sharply, and we've seen 8 quarters of degrowth. And at some point in time, we will see a pullback happening. And we are planning ourselves for that in terms of the demand growth happening. Of course, if COVID third wave [indiscernible] comes, then that's a completely different scenario. But we, at the moment, believe that with the vaccinations going on and the familiarity that we as a country have on the lockdown and the opening up, we believe that we should be able to [ course ] this much better. So this is where we are. And I think both last year and this year -- I would also want to add one more perspective. We have seen that the growth businesses have played a very important role in help bringing stability to the company. So LCV business has been doing well. It has been growing. It has contributed to the bottom line. Similarly, aftermarket and parts, defense as well as power solutions business have actually kind of helped to bring in revenues and also improve the margins because these are much higher margins than the traditional MHCV business. As the export markets start to grow or open up, we believe that we'll see a growth in exports as well. And we are much more ready today to kind of serve these markets with both LHD and RHD, variants of LCV, variants of MHCV. So I think we are quite positive that if the COVID scenario were to come off, we could see quite a bit of growth happening. Of course, 2 things that we'll have to watch out for, and I'm now going to hand it over. I know I promised I'll keep it short, but I have not. But 2 things that I would say is, one, steel prices seem to be very firm. And you've seen 2 quarters, 3 quarters of extreme steel price growth. We are expecting that in the second half, steel prices should soften. But then there are multiple reports, so I wouldn't want to get into that. The second one is, of course, we're keeping a very close watch on semiconductor availability. But I think our team has been managing pretty well. Overall, we have also been keeping our costs very tight, as has been the practice. There are special initiatives going in the company to neutralize some of the effects of inflationary pricing on commodities. We have a special value engineering project, which is -- which has been kicked off. Last year, we had project for taking out costs across the company. This year, there is another project to take out cost out of the material, which is alternative material, alternative design. We are looking at vital, essential parts in the vehicle but nothing that will impact the performance of the company. I think there are a whole bunch of people who are working on that. The second one is, of course, something that we have been doing consistently is middle line management. So every item of cost is being looked at. But at the same time, we also need to ensure that we don't do anything which is very short term and very myopic in nature. And we need to ensure that we are planning for the growth of the company itself. So with these words, I would only say that we are hopeful that the second half should be better, and things look to be easing out. And we are readying ourselves for some amount of growth in this industry. So over to you, Jinesh.

[Jinesh K. Gandhi, Senior Vice President of Equity Research]

I think we can start the Q&A, yes.

[Operator]

[Operator Instructions] The first question is from the line of Kapil Singh from Nomura.

[Kapil R. Singh]

Yes. So firstly, I wanted to check, we've seen a drop in raw material to sales ratio. Given your commentary on steel prices, if you could talk us through, how is the truck profitability looking like purely from a gross margin perspective? I understand there's the operating leverage effects there. And how much price increase you took in Q4? And in Q1, how is the discounting trend? Yes, firstly, on that.

[Gopal Mahadevan, CFO & Whole Time Director]

Okay. You've almost covered, on a lighter note, almost 80% to -- 80% of the P&L. Now basically, I'll tell you why. See, the demand has not yet come in full-fledged. But on the positive side, we've seen that in month of April, when things had opened up, we did see a sudden spurt in demand. Pricing continues to be a challenge because the industry, unfortunately, seems to be using pricing as a method of acquiring customers. We, Ashok Leyland, will continue to grow its share of business, and that's what is one of the most important, I would say, target that it has. But at the same time, we just need to ensure that we're doing it profitably. We have taken price increases both in the third quarter and in the first quarter. I think approximately, it was about 2% each. And the second one is -- that's not sufficient for the material cost increase that has happened. But at the same time, we must understand one thing. See, this is -- we need to wait for things to kind of pan out. All of this will dramatically change once that demand picks up. You can only do so much tweaking when the demand is low, and this is not like other businesses where it's -- there's a personal ownership. This is essentially commercial vehicles used for commercial purposes. So I think the underlying economic growth is what will spur the demand, and we are seeing that happening because people want to have the latest-generation trucks when they are bidding for tenders. As we move forward, if the steel prices were to soften and we see the demand going up, I believe that -- we believe that the MHCV profitability will kind of scale up. This is the second part of your question. The third part is with respect to material cost reduction. As I had mentioned earlier, we continue -- you see, we continue to look at providing -- increasingly improve the better-quality vehicles, not that our quality is bad, but we're continuously raising the bar on quality. Our warranty rates have come up quite sharply in the current year post BS VI. Even in the second half of the BS IV deployment, the vehicle performance was far, far superior than what was in the industry. So we are actually seeing warranty costs coming off sharply, which means that the quality of the vehicles have been further enhanced. While we are doing this, and whilst we will pursue this as a differentiator, we also are looking at opportunities to take out cost in the product, cost for which there are 2 ways to look at it. One is to look at cost for which the customer believes that it doesn't make sense to pay or cost at which a customer is willing to pay, which is -- can be an add-on to the vehicle. So we're looking at both of them. The second one is we are also looking at alternative materials. We have looked at -- we have our team -- we have a very large team that's working both on the manufacturing and product development to look at every aspect of the vehicle to see what more can be done to make the vehicle more efficient but also less cost. So we will see the benefits of all of this as we move forward. And finally, one more thing that I would say is we possibly are the only player in India to have launched a completely modular vehicle. We will get to see the benefits of modularity when the volumes start to chug in. I've been mentioning that over the last few quarters. Unfortunately, the volumes are very low. But once the throughput starts to kind of scale up, you will see the benefits of modularity because the actual number of parts are lower. It becomes easy to -- easy on the production line. It comes off easy on inventory management, on vendor management. It Improves The quality of the vehicle. At the same time, it gives a rich portfolio of products for the customer to choose from. So I think there's a lot of benefit that we'll see aggregating, but we'll have to also wait for the volumes to scale up.

[Kapil R. Singh]

Sure, sir. So sir, overall, how much is the commodity inflation we have seen in 1Q? And what are we expecting in 2Q? And also, on the other expenses side, it seems to be on the higher side. Is there anything to call out over there?

[Gopal Mahadevan, CFO & Whole Time Director]

No. I'll -- see, the other expenses, there have been some one-off expenditures that we have provided for. These are more kind of arrangement that we have with third parties. You're not going to see that happening in the second quarter. We would be buttoning down on other expenses. There's a team that's working on buttoning down the whole expenditure. And you know how decentralized Ashok Leyland is. And everybody -- every business head and some business head owns a P&L that he monitors it very rigorously. We also keep redrawing our plans that the volumes keep changing, and we see that we pay for our -- pay our way through overheads as the volumes are oscillating. This is the second thing that we're looking at. As far as...

[Kapil R. Singh]

How much is the amount, sir? What the other expenses that you think is one-off? And what is the nature?

[Gopal Mahadevan, CFO & Whole Time Director]

I would say that about -- maybe about INR 40 crores, INR 45 crores would be a one-off. But let's see -- let's wait for Q2 because you see, some of them are R&D-related. Some of them are CSR-related. Some is foreign currency fluctuation. Foreign currency fluctuation on loans is not very -- I mean, has no cash impact because once the loans -- these are MTMs, which actually get utilized when the loan gets repaid. So there's a timing difference that comes in. The second part of it is we have seen approximately about, I would say, about 13% to 15% increase in steel prices in the quarter. So we hopefully will see that things stabilize as we move forward, and let's hope that, that happens.

[Operator]

The next question is from the line of [ Gunjan Goswami ] from Bank of America.

[Unknown Analyst]

[indiscernible]

[Gopal Mahadevan, CFO & Whole Time Director]

I can't hear you, [ Gunjan ]. Sorry. Sorry, [ Gunjan ], I couldn't hear you.

[Unknown Analyst]

Can you hear me now?

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. I can, loud and clear.

[Unknown Analyst]

Yes. So see, I was just trying to get a little bit more color on the demand side. Is there something that you can share in terms of how are we seeing the trucker sentiment, fleet utilization post the reopening or inquiries that you're seeing at your dealerships? Just give us a perspective, how should we look at the recovery, if there were to be -- keeping the third wave risk aside?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, I think that's a very interesting question, [ Gunjan ]. You see, there are 2, 3 parts to this. One is on the end side, the truckers are facing 2 challenges, but they are also having a lot of opportunities. There's 2 challenges that all of us know. One is the fuel prices, and the second one is freight rates. They have not really gone up. [indiscernible] freight rates have not been proportional to the diesel prices. But this is also because there is no real demand that has really come out. Once the demand comes in and truck availability becomes an important criteria for supply chain management, you will see the freight rates coming back up. We have seen that happening. I mean, I'm not giving this as a forward-looking forecast. Over the last 7, 8 years, you've seen that whenever demand goes up, the freight rates also kind of naturally adjust. And that happens because the underlying industry has goods to be transported. So I think what the truckers are doing now is keeping themselves ready for an upside and keeping themselves ready for procuring trucks. There's a lot of inquiries on the ground today. There's a lot of inquiries in April. There's a lot of inquiries in July. So we're seeing a lot of traction on the ground. At the same time, what we have been doing is to ensure that we don't pump the dealerships with inventory. There was some amount of inventory that happened in the month of May because currently, things are closed down, right? So we've been consciously working with our dealers to ensure that they don't bear the burden of this. And I think by August, September, those things would be pretty much normal as far as the dealers are concerned. Finance companies have been a little wary earlier about financing this pickup. But there have been a lot of reports about potential challenges of financing trucks, et cetera. But I think, again, once the demand starts to pick up, all of these concerns will start to evaporate. You see, there is nothing as good as demand, and there is nothing good -- as good as growth. And I say this in almost each and every investor call, I keep things pretty simple. We look at MHCV as trucks [ and everything, but so is LCV ]. So if we believe that LCV is going to grow as we move forward, you are going to see a growth in trucks as well. Buses, again, while we don't talk much about it, they had an impact because of the [indiscernible] and also because of COVID. So practically, schools are -- if you look at it, schools are shut. Most of the offices are shut. So -- and then state transport undertakings are only predominantly operating in -- within the state. Intercity transportation is not huge today because of either from migration of labor [indiscernible] or white-collar [indiscernible]. People are working from home [indiscernible] occupancy. You're not seeing those demand which was earlier there. Once, again, the COVID kind of lifts off, people are kind of double vaccinated and then we are comfortable moving out, you're going to see the demand for buses actually coming up again. So this is, again, another opportunity. I mean, I personally don't expect that we are going to be staying in our homes for like at some point in time, whether it is 1 quarter or 2 quarter, I don't know. But I think we would actually see that the demand is also coming.A lot of truck demand would sit around infrastructure. This is another point. And the second one would be e-commerce and light loads. So the whole industry has been trifurcated after the launch of GST. We are seeing demand actually in tippers. We are seeing demand in multi-axle vehicles and also in ICV. ICV composition of the overall TIV is quite significant today. ICVs account for nearly 25% of the overall industry in trucks. Tippers accounts for nearly about 28%. So this is where we are. And I don't know whether that's helped to answer you but -- answer your question. But very clearly, let me share with you that the level of inquiries on the ground is significantly higher than what it was earlier. And if we see August month also growing, I think July has been good. August, if it starts to grow, and if we kind of skirt the third wave, now the discussion is that maybe the third wave is not as severe as we thought it will be. So once the month of August is over, we possibly will see demand coming back.

[Unknown Analyst]

This is certainly very helpful, sir. The second question I had, you kind of touched upon the financing bit in your remarks. If you can just give us the operating trends for Leyland Finance as to where the asset quality and what is the other -- in terms of profitability, what are you picking up from there? Just the financial and the operating trends on Leyland Finance will help.

[Gopal Mahadevan, CFO & Whole Time Director]

Sure. I think, see, Leyland Finance has been doing very well. I must complement the management team for -- to have kind of ridden through this whole COVID wave very, very astutely. So their results last year, which I shared, was pretty good. In the current quarter, their AUM is at about INR 25,850 crores. Their net NPA is at about 2.6%. Their provisioning coverage is at almost 48%, and the collection efficiency has been high month-on-month. For the month of June, it was almost at 85%, and I think July has even been better than that. So we don't see any concerns on the collection efficiency. There has been adequate provisioning that the company has also done in terms of COVID provisioning. That has happened in March '20 -- it happened for the March '20 results and then in June '20 and then in September. So it has been kind of adequately provided for. I think the team has also cleaned up a lot of kind of -- suppose there was any vehicles which had been reprocessed. A lot of reprocessed stock has also been sold in the previous year itself and when the pricing was good. And I think overall, the revenues were INR 671 crores and the PAT was INR 70 crores, so over 10% margin. So overall, the company has been doing exceptionally well. And one of the reasons for HLFL to be doing well is that it has got a very diversified portfolio. While it continues to support Ashok Leyland for its MHCV business, and it is a crucial partner, and I'm not really talking about MHCV but also for LCV, it's a crucial partner for us, it doesn't cross-subsidize. [indiscernible] HLFL are taken independently of Ashok Leyland. We are not passing on any of the burden to HLFL where the -- there are any exceptional or additional provisions that are taken even for the acquisition of Ashok Leyland market share. They run the business independently. The second one is the portfolio is pretty diversified. So you have a loan against property. You have 2-wheeler financing, 3-wheeler financing, off-road vehicle financing and also buy-out of portfolios. So when you look at the whole mix of portfolios, they've got a good mix of portfolios and a good mix of portfolios with different NIMs, which helps them to actually post the results they are doing.

[Unknown Analyst]

Okay. Sir, how much of AL's book is financed by Leyland Finance? And is there a need for capital infusion? If you can just answer that analysis joined by that question?

[Gopal Mahadevan, CFO & Whole Time Director]

See, the -- it is not -- there is nothing called as AL's book. Approximately, if my memory serves me right, and I think Balaji may provide the information separately to you, but I think their book is about 40% is commercial vehicle and the rest is diversified, 40% to 45%. The second one is what I would say is that as far as capital infusion is concerned, I'm not too concerned at all with respect to capital infusion in HLFL. I mean, in Ashok Leyland, we are not concerned about it because what happens is it's a multiplier. That business has been growing consistently. I know that in 2013, '14, the overall book size, if my memory serves me right, was something like about INR 1,200 crores to INR 13,000 crores. And today, we are at almost INR 26,000 crores. So the company has been posting excellent growth and profitability trends. And if there is a requirement for capital, we are happy to provide that. Last year was not very significant. This year, again, if we have to provide a capital infusion, that would be about maybe about INR 100 crores, INR 150 crores. But we'll keep you posted. It is to support growth. Please understand one thing: if we were to infuse capital into HLFL, it is for supporting growth.

[Operator]

The next question is from the line of Hitesh Goel from Kotak Securities.

[Hitesh Goel, Director of Research & Senior Analyst]

Sir, is there a case of production being significantly higher than sales in this quarter because of this fixed cost sitting in the closing inventory because your gross margin improved? Or is it mostly a mix issue?

[Gopal Mahadevan, CFO & Whole Time Director]

Can you repeat your question? Because half of it got lost. I couldn't hear the second half of your question at all.

[Hitesh Goel, Director of Research & Senior Analyst]

Can you hear me now properly?

[Vipin Sondhi, CEO, MD & Non Independent Executive Director]

I can hear you. My line is absolutely clear. Yes, please go ahead.

[Hitesh Goel, Director of Research & Senior Analyst]

Okay. So what I said is that, is there a case of production being significantly higher than sales in this quarter because the fixed costs are sitting in the ending inventory, and that is driving the gross margin improvement Q-on-Q?

[Gopal Mahadevan, CFO & Whole Time Director]

See, that is -- I would say that, that is not going to be significant in terms of the gross margin, maybe about 0.3%, 0.4%, 0.5%. Yes, the production was higher than sales because suddenly, when you have a COVID lockdown in May and June, what do you do? I mean, you will have a certain amount of inventory, right? But I think that's not just the reason. I think the reason has also been the mix. You see, what MHCV team has been doing has been to continuously work on the mix to see how do you improve the margins, right? This is one part. The second part is between -- if you look at MHCV and non-MHCV business, again, in the current quarter, we have approximately trucks and buses accounting for about 52%, and the rest of the business is accounting for 48%. So the rest of the businesses accounting for 48% has actually helped in the margins being better because light commercial vehicle spares, engines, exports, defense, are all higher-margin businesses. So that has also helped in the overall margins.

[Hitesh Goel, Director of Research & Senior Analyst]

And what was this number in fourth quarter, sir, non-truck revenues as a percent of revenues in fourth quarter?

[Gopal Mahadevan, CFO & Whole Time Director]

Fourth quarter, I will tell you, was about -- truck revenues, trucks and buses, Balaji, correct me if I'm wrong, was about 65%.

[K. M. Balaji, Vice President of Finance]

Correct. On trucks, roughly 30%, 35%, Hitesh.

[Hitesh Goel, Director of Research & Senior Analyst]

Okay. Okay. And my final question is, can you also give us some color on the financing situation? Because we have heard from banks that they are pretty careful on the commercial vehicle portfolio. What are you seeing right now on the ground?

[Gopal Mahadevan, CFO & Whole Time Director]

See, I think there are 2 things. They are a little careful, and I can't say they are not careful. So the lending is becoming a little cautionary, if I may say so, and especially so with the first-time buyers and first-time users. The large fleet operators are not -- let me tell you, the large fleet operators and some of the medium fleet operators, okay, they are getting rates which are unbelievable. It's unbelievable, right? So if you look at the larger lenders, they are very keen to chase on that, right? It's the first-time buyers and first-time users who need to be -- who people are watching out for are a person who has bought a 1 or 2 truck or 3 trucks and then is going [ full ]. And then they look at the moratorium record of the person. And see, moratorium, there's nothing wrong. I mean, the government has given the opportunity for a moratorium. So it's not about to -- when they were sitting through a situation where -- see, you must understand this in perspective. Imagine, put yourself in a trucker's position and put yourself in a first-time buyer or first-time user position. He's just come in. He's bought 2, 3 trucks. And suddenly, you have COVID and you're sitting on an asset, right? So there is nothing wrong if a moratorium comes in. And if there is an intention to pay and the ability to pay has been affected, I think that will come out when the moratorium gets lifted and when -- we have also seen, and we've seen that in almost all finance companies, save 1 or 2, that once the economy started to open up, especially in the second half of last year, some of the guys actually started to pay back very, very quickly. So the -- but the point that comes up is almost all the commercial vehicle lenders, including 2 or 3 banks who have large portfolios, they just want to be careful that they are not getting into a COVID 3. I am not too worried about the large delinquency situation at the moment, but I'm not an expert on -- I'm not an expert NBFC or a banker. But I think what they are looking for is what happens in the event there is a COVID wave 3. If that does not happen, nobody is going to turn in a truck after paying the installment. So we must also understand the other thing. See, at some point in time, it becomes extremely difficult for a trucker, having paid, say, a 48-month or a 60-month loan, to have paid about 12 or 24 months and then walk away from it. He will suffer a huge loss, right? So what is happening is guys who are possibly having small truck operators who are actually having the smaller contracts, who are now looking at saying, "Okay, let me -- if those contracts are not coming in, let me deploy in marketplace." So again, I would tell you that if the demand were to go up, a lot of these fears will come off. I've seen this -- we have seen this as an industry. We've seen this as a company in 2013, '14, right, where the same situation happened when in 2 sequential years, we saw the demand coming off by 25%, and the industry had come off by 50%. But that was more a cycle. And this is more -- where I'm a little more hopeful is because this is because of COVID, right? So once the COVID situation lifts out, there is going to be a bounce back. You and I are going -- starting point is you and I will start visiting restaurants, cinemas, go to shopping mall, buy products, right? And then you're going to see industries coming back up. Once industries start to come back up, they will have their own demand. And then you will again see transportation kind of going up. Then demand should come up. And then you will have the tenders from oil companies. There will be -- even now, there are tenders from oil companies. Even now, there are tenders from infrastructure companies. So there's a lot of -- and then real estate has started to revive back up. There'll be quite a bit of optimism that will happen, and then you will see the demand coming up. But I wouldn't find fault with NBFCs or banks to be kind of cautious when they are lending because they have a portfolio to manage. I'm sure HLFL does the same thing, but they are not going to let a good customer go. And in -- same with dealers. When they're doing dealer financing, there are dealers whom we are supporting, and there are dealers who don't require our support, where they have solid businesses. So -- but at the end of it, we are keeping a close watch to ensure that we are able to kind of sail through this whole challenging phase from the dealer side and from the vendor side as one large family. And I'm sure that we're going to do that.

[Operator]

The next question is from the line of Sachin Trivedi from UTI.

[Sachin Dinesh Trivedi, Senior VP & Co]

Sir, just 1 or 2 questions from my side. Just to understand some color on the market share side of it. So leave apart the current quarter. But when I see our market share, let's say, in 30- to 40-tonner or 40-tonner plus, it has been steadily coming down. So just trying to understand what's happening in the market, quarter aside, if you can explain a little bit?

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. I can explain that. You see, what is happening is, like I mentioned to you, the market share is a confluence of 2 things: one is product mix; and more important, the second one is geographical mix, okay? Now -- and I'm not going to -- this is not a defense, but this is more to give an understanding. Let's assume that the demand in South is low. My market share on a national basis will come up. If the demand in South is very robust, I will add percentage points to my market share, one part. So what is happening is, even in the last time when the COVID happened, actually South was slow to recover, we have seen that happening. And the same situation actually persisted even in the current year. This is one part. And the other part of it is in terms of the product mix itself. So there are certain times when certain -- maybe one large deal happens, and we are not able to serve that particular customer, let's assume for a minute. So I'm -- we are not -- while we are watching this, I could have actually kind of -- and I've shared it with you because I said last year, market share was this. This year, we have added nearly about 10 percentage points, not 10 basis points, I think 10 percentage points to the market share. But let me tell you one thing. We are extremely focused on growth. We are extremely focused on share of business. We are extremely focused on customer acquisition. There's no doubt about it because this is super crucial for us to be a global top 10 commercial vehicle manufacturer, period. And we're going to achieve that -- we plan to achieve that through growth of MHCV in domestic, through growth of LCV in domestic and through growth of both MHCV and LCV products in the international market. And that's why you've seen that we have been consistently coming out with product launches, which are making us more and more capable to address the goal that we set for ourselves. Yes, this quarter, maybe our market share was -- I know you're talking about the market share that we have posted for the current quarter. But I think as we move forward, and I would not see this on a quarter-on-quarter basis, I would see it on how are we doing this and how much are we doing it quarter-on-quarter, we would see that the situation will improve.

[Sachin Dinesh Trivedi, Senior VP & Co]

Sure, sir. My observation was more from an annual perspective. But anyways, you've given the answer to that. Sir, my next question is more about the CapEx part of it. So I know the EV side of the CapEx that you have been explaining in the previous analyst meet. But let's say, for this entity, the listed entity, how do you see the CapEx? And if you can -- and this is largely not for the next year per se, and I don't want a specific number also. But what's the area where this CapEx is going to be -- is the CapEx going to be higher than the last 3 years? Or if you can give us some color in terms of us trying to understand the CapEx intensity of the business, let's say, next 3 to 5 years? And which one area it's going to be?

[Gopal Mahadevan, CFO & Whole Time Director]

Okay. It's a good question, and I like it when you ask more for a trend than for specific numbers. The reason I'm mentioning this is, see, we are very -- I think look at it in a larger perspective, okay? First, let me start with the EV business, okay? The reason why we have set the EV business separately is because it should have its own -- and this is in the medium term, okay? Because every business may require some amount of support. But at the moment, we are looking at Switch and its entities to raise capital by themselves and raise them by themselves and manage their CapEx. So you heard our Chairman say we are not looking at infusing capital in the short term into the business, even in the long term. But if the situation demands it, there's an exception that we may, but it's not going to be a huge amount of money, that's for sure. There's a lot of investor interest in the company, and we are in -- the Switch management team is in discussions with investors, and we'll have more to discuss. But at the moment, I wouldn't want to give any forward-looking statement. We will announce them as the news gets ready to announce. So -- but I think there's a lot of good work that is happening. And the strategy for us to have moved into EV is the right one because that will future-proof Ashok Leyland. Even while the internal combustion engine will continue to serve the transportation requirements of various economies, electric vehicle is actually gaining momentum. And we, as an important commercial vehicle manufacturer not just in India but also as global -- the fourth or fifth largest global bus manufacturer, need to invest into it. And that's why we said, let's not do it in the main company. Let us do it separately so that there's a separate management team and a separate focus on this business, right? Ashok Leyland's EV has not been very significant. So that's why at the right appropriate moment, we will transfer the small investments that we have made into that entity. And -- because this requires -- this business of EV will require much larger capital investment, no doubt about it. But it is going to be self-served by the Switch entities. This is one. The second one is on the Ashok Leyland piece. Let us look at it this way. We have already -- we have Hosur. We have Ennore. We have Pantnagar, right? And then we have Alwar and Bhandara. All of these plants have been set up for almost all completeness. What we may have to do in these plants is for debottlenecking. So when will we do a debottlenecking? We will take up a debottlenecking only when we see demand coming up. Otherwise, we will not do a debottle, right? So we are not going to set up another greenfield or a brownfield venture somewhere and open up another edifice. That has stopped -- that -- I mean, that has been completed, let me put it that way, with the setup of Pantnagar facility. Today, what the management team is looking at is to see how do we consolidate this and have a much larger but -- I mean, I would say, a more efficient, not much larger, a more efficient manufacturing footprint? We are putting our heads together. We are looking at product portfolio reallocation, reducing supply chain costs. There is a lot of work that's going on saying that how do we reduce interplant transfers? How do we get plants to actually serve their local markets so that the outbound logistics cost is coming off? How do we have vendors to develop closer to our facilities so that inbound logistics is also coming up? So there's a huge amount of work that's going on, on this front. Now so where do we have CapEx coming in? Certainly, we will put in further CapEx in LCV. We are today -- our LCV is the -- by doing a 2, 2.5 kind of shift stretch, our manufacturing teams are really serving the demand. And we can go up to maybe about 6,000 units per month. But I think there's further demand with the launch of Bada Dost. The account will -- a completely new segment with Bada Dost. It's not just the Dost that is getting lenient. So as we have mentioned in the past, we will continuously keep slotting -- putting in slots in the product portfolio to address a large share of the addressable market. That's another way of growing the market share, right, because somebody asked me about the question about market share. How do you grow market share? The first one is build products which will convince customers to say that, "Hey, come and buy this product more than the other products because on quality, cost, delivery and total cost of ownership, this product is better." And that is why we have upped our range. That is why we have Bada Dost, right? That is why we have made our strategy. And we have proved that in BS IV as well when we had a completely different exhaust system than competition, which grew us -- which helped us to grow the share. So we will continue on that. The second way to grow market share is geographical expansion. We have been continuously kind of growing our network, continuously working on dealer profitability. Of course, now today, we are in a different challenging situation. But the next way to look at this is geographical expansion, right, so that you actually reach out to customers and not only sales point but also service points. So there's a whole bunch of digital that is getting driven today to service customers, to ensure that the uptime of vehicle happens. And the i-Alert system that we have is by far one of the best in the industry, which gives a whole amount of rich data to the customer. The third way, third way of doing this is actually filling the product portfolios. So I had Dost -- so we have Dost. Dost was addressing a set of customers. When we had Bada Dost, suddenly, we are addressing a different set of customer. So that's another way of growing portfolios, right? And when I say markets, I missed to mention, export markets are also equally important. So when we are doing market expansion, market share, while it's in India, volume expansion happens when you grow your market beyond your geographical territory. And that is why we have our export strategy. And our export strategy is quite different from what it was over the last 3, 4 years. We found that we needed to course correct there because our earlier strategy was not working. But the good side is we have a much richer product portfolio today, both in LHD, RHD, ICV, LCV, MHCV and even in spares. So for us, the international expansion is going to be crucial. Why I'm talking all of this is, so if you look at CapEx, yes, I would -- we would make investments in LCV because we see a growing demand there, right? In MHCV, if there is a debottlenecking required or some new product development or a new variant, certainly, we will invest there. But we are not seeing big bang investments of any facilities coming up. We wanted to kind of allay that fear with you. And would the CapEx be in the same range as the previous 3, 4 years? I think we believe so. We have not been very heavy on CapEx at all after 2012, '13. If you remember, every year, it has been less than 4 figures, and we will continue to be doing that. In fact, we are far more efficient today in terms of CapEx productivity than we were in the past. I hope this answers your question, but I...

[Sachin Dinesh Trivedi, Senior VP & Co]

Sure. Sure. I really appreciate this that you could answer.

[Vipin Sondhi, CEO, MD & Non Independent Executive Director]

I've got another 7 minutes because after that, I have another meeting. Sorry about this. I'm not able to give an extension, but I'll take another 2 or 3 questions.

[Operator]

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

[Shyam Sundar Sriram, Research Analyst]

Sir, my first question is it is very good to hear about our -- about the high levels of inquiries that we are seeing in August per se. Sir, just from an MHCV goods industry, given that now we are in mid-August and we are already seeing good levels of inquiry, can you share your expectation of any range of growth for the industry per se or absolute volumes at the -- from a CAB perspective for the MHCV goods that are in -- for this year, F '22? Just the range will help, sir, assuming there is no third wave, et cetera, I mean, that is the area there. If that were the case, what would be your expectation for the industry growth per se?

[Gopal Mahadevan, CFO & Whole Time Director]

Shyam, thank you for that question. I know you well, so I'm going to take the liberty of answering it a little bit in depth. I have just taken my second shot of COVID, so let it settle down. And then possibly once it settles down, we will give you a forecast. Let second quarter go through. We will understand how the industry demand patterns are going. At the moment, we -- it is going by logic. If the economy is going to revive, we are going to see demand in MHCV. We are seeing LCV not doing badly at all. In fact, it seems that in the second half also, LCV will be pretty firm. And that has happened also because of the growth in e-commerce. Today, all of us who are attending this call are ordering a lot of stuff through e-commerce websites than we were doing 2 years back. So I -- we believe that this trend will continue as a habit, and it will not fall off. And we possibly would see the last-mile delivery becoming very important. And even for physical -- when things become physical, last-mile delivery becomes super crucial. And that's where LCV demand will be seen, even when the economy grows and the physical economy, if I may say so, also starts to grow. MHCV, we believe, will kind of -- the demand will come on when we see the stability in the outcome or stability in the strategy to react to COVID. If people -- if you, I and the trucker are worried that suddenly, there could be a lockdown after 20 days or 1 month, nobody would want to invest capital into a truck. And that's why I'm saying that when we do our call for the September quarter, we would be in a much better position to say this is how we expect the year to finish up. And hopefully, we will be coming up with kind of decent numbers in that quarter in terms of a forecast I'm talking about, not about our Q2 results.

[Shyam Sundar Sriram, Research Analyst]

Sure, sir. That's helpful, sir. And the other question is on the market operating price for trucks per se. I mean, we did talk about a significant inflation that has happened. From an underrecovery of the steel prices from the customers per se, how are we placed at this point of time, sir, from a market operating price perspective?

[Gopal Mahadevan, CFO & Whole Time Director]

See, we have been -- see, it is -- we need to balance volume growth with pricing because this business still -- because of the low level of volumes. And I repeat it, things change dramatically when there is a demand. If I may joggle your memory a bit, when we went from BS III to BS IV, and Balaji, correct me if I'm wrong, this was in April '17, right, 2017?

[K. M. Balaji, Vice President of Finance]

Yes.

[Gopal Mahadevan, CFO & Whole Time Director]

Ashok Leyland raised its prices by 12% to 14%. And all of us, when we went into a call, were concerned, why is it that you folks are raising prices by 14%? And how sustainable is that for the growth? And '17/'18 and '18/'19 were 2 of our best years. Why was it so? It was because there was a demand. There was an inherent demand that was running this. Today, for us to take a 2% price increase, we need to be kind of gauging the market and taking the vision because this is not -- today, this is not a cost-plus industry. But when the demand comes back, believe me, it can become cost plus. So it's all -- it's -- again, I'm telling you this is -- all of this is a factor of the demand. What we have been doing, though, is we have not been just fighting the skirmishes on pricing because that's only -- that will take you with the customer only up to the signing of the invoice. After that, there is a commitment that Ashok Leyland brings in, which is possibly far superior in terms of service, in terms of product quality, in terms of AMCs, right? So -- and in terms of being there when -- if something is wrong in terms of digital support that we are giving with our sophisticated systems. So there's a lot more that we'll be possibly bringing to the table when we are serving a customer. Having said that, to answer your question, we took a price increase, and correct me if I'm wrong, Balaji, because I don't have that statistic with me readily, but I think we took a price increase in March, and then we took a price increase in the first quarter also of 2% each.

[K. M. Balaji, Vice President of Finance]

Correct. Correct. You're right. Second price increase [indiscernible] also, we have taken a price increase. And July also, we have taken a price increase.

[Gopal Mahadevan, CFO & Whole Time Director]

That's right. So we are doing all that we can to improve our penetration with the customer, grow our share of business and, at the same time, increase prices and improve the product mix and improve the geographical mix. This is what we're doing.

[Shyam Sundar Sriram, Research Analyst]

So is it then fair to assume that we have yet to recover the steel inflation seen so far, that, that is a fair assumption, sir?

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. Because at the level of volumes, it is becoming difficult. See, understand one thing, inflation recovery can happen through multiple ways. It can be done on product-to-product basis. It can be done through a mix. It can be done through a larger aggregation of absolute gross profit, which can give us operating leverage to the bottom line, right? So there are multiple ways to do this. And it is -- at the current levels of volume, absolute 100% recovery does not happen. But I would also want to complement our sourcing team and our supply chain team who had kind of had the push to bulk up a little bit on steel in the fourth quarter of the last year. I mean, it won't serve us through the whole year, but that has actually helped us. That's another reason why we have actually seen that our material cost percentages have been slightly better. Now I need to leave, gentlemen, because I've got the next call for the next meeting, so if I may take that as a last question. Again, thank you very much for the interest in Ashok Leyland. I think there's a lot of [ interest ] that we have on the investor call, and we sincerely appreciate it. And we would continue to encourage you to ask us your perspective questions. And all we can say at the moment from management side and from the whole team is that we are doing all that we can. We're doing all that we can and it takes -- to make ourselves more efficient even through these challenging times. And given where we are today, we possibly would see a recovery happening once the fear of the third wave goes away. And with those words, I'll now hand it over back to the moderator.

[Operator]

Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.