Ashok Leyland Ltd
NSE:ASHOKLEY
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
159.8
262.15
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Ashok Leyland Ltd
Earnings Call Analysis
Q1-2025 Analysis
Ashok Leyland Ltd
At the start of the fiscal year, there was significant concern about potential dips in the commercial vehicle (CV) industry due to the upcoming elections and other uncertainties. However, Ashok Leyland's results have defied these expectations. The medium and heavy commercial vehicle (MHCV) segment grew by 10% in Q1. This growth brought the total industry volume close to the peak seen in Q1 FY '19. Ashok Leyland matched this growth, maintaining a market share of about 31%. In contrast, the light commercial vehicle (LCV) market was flat, but Ashok Leyland managed to increase their domestic LCV volume by 4%, achieving a 15,345 unit sale【4:0†source】.
Q1 FY '25 was a milestone quarter for Ashok Leyland, with total commercial vehicle volumes reaching an all-time high of 42,892 units, up by 6% year-over-year. Export volumes also rose by 5%. The company's revenues hit a record level, growing by 5% compared to last year. This strong performance translated into an EBITDA growth of 11%, reaching INR 911 crores, and a 13% rise in PBT to INR 701 crores. EBITDA margins improved to 10.6% from 10% last year【4:1†source】【4:4†source】.
Ashok Leyland achieved better profitability through effective cost management and a focus on high-margin businesses such as defense and spare parts. Material costs as a percentage of revenue decreased to 72.2%, partly due to softer steel prices. However, power solution volumes were 20% lower than the previous year due to a pre-buy phase induced by new emission standards. Despite the drop in power solutions, the overall performance remained strong【4:4†source】.
The company ended Q1 with a net debt of INR 1,295 crores. Going forward, Ashok Leyland plans to increase its market share in both the truck and bus segments through a robust product pipeline that includes multiple new launches this year. Early signs of recovery in previously subdued export markets also provide a favorable outlook for increased international business. The company remains committed to maintaining profitability without discounting their products, focusing instead on product quality and superior after-sales service【4:1†source】【4:4†source】.
Ashok Leyland launched its first electric light commercial vehicle (eLCV), the IeV 4, receiving positive customer responses. This was followed by the launch of the IeV 3. These launches exemplify the company's push toward sustainable transportation solutions. Ashok Leyland's eMaaS subsidiary, OHM, is now operational, managing electric bus operations in various Indian cities. The company’s sustainability goals include achieving net-zero emissions by 2048 and carbon neutrality by 2030【4:4†source】.
The defense segment saw significant growth in Q1, with the sale of over 1,000 vehicles, compared to 250 vehicles in the same period last year. This resulted in revenue tripling year-over-year. The company aims to double its defense business again within the next 2 to 2.5 years, supported by a strong order pipeline and strategic product investments【4:2†source】【4:4†source】【4:8†source】.
Investment in centers of excellence for battery packs, electric drive units, and software-defined vehicles reflects Ashok Leyland's commitment to innovation. Although material costs have seen slight increases due to provisioning, the company expects to maintain or improve current margins, benefiting from stable commodity prices and operational leverage. No major CapEx investments are planned beyond the existing estimates of around INR 500-750 crores【4:8†source】【4:9†source】.
Despite initial industry forecasts suggesting a decline, the CV industry showed resilience with a 10% growth in MHCVs in Q1. Ashok Leyland anticipates continued momentum through the rest of the fiscal year. The company also indicated a high potential for growth in the LCV segment, with plans to launch additional products within this year【4:10†source】【4:16†source】.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Ashok Leyland Q1 FY '25 earnings conference call hosted by BNP Paribas Securities. [Operator Instructions] Please note that this conference is being recording. I now hand over to Mr. Kumar Rakesh from BNP Paribas.
Thank you, Dan. Good evening, everyone. On behalf of BNP Paribas Securities India, it is my pleasure to welcome all of you to the conference call to discuss the first quarter results of financial year 2025 of Ashok Leyland. To discuss the results, we are joined today by Mr. Dheeraj-ji Hinduja, Executive Chairman; Mr. Shenu Agarwal, MD and CEO; Mr. K. M. Balaji, CFO. I will now hand over the call to Mr. Hinduja for his opening remarks. Mr. Hinduja, over to you.
Thank you. Good afternoon, ladies and gentlemen. Welcome to Ashok Leyland's Q1 FY '25 Earnings Call. At the beginning of the year, there was widespread anxiety that the CV industry in Q1 and Q2 of the year might be low, owing to the impact of elections and other factors. On the contrary, the MHCV industry volumes have grown in the fourth quarter by 10%. The MHCV TIV in Q1 is now very close to the previous peak volume in Q1 FY '19. Ashok Leyland's MHCV volumes in Q1 also grew in line with the industry growth, resulting in retention of our market share at roughly 31%. While the LCV industry has remained flattish on a year-on-year basis, the Ashok Leyland volumes have grown more than the industry to register an increase in our LCV market share.
Our domestic LCV volumes in Q1 stood at 15,345 units, which is 4% higher than the same period last year. Q1 [Technical Difficulty] in fact has been a record quarter for Ashok Leyland. Our total commercial volumes in Q1 have hit an all-time high of 42,892 units and are up and are 6% up as compared to the same period last year. Our CV export volumes have also grown by 5% in this quarter. Our revenues in Q1 have also been ever highest, growing by 5% over last year. Our EBITDA has grown by 11% to reach these INR 911 crores. Our PBT at INR 701 crores is also at the highest so far in Q1 and has grown by 13% over the same period last year. Whether it's in CV volumes or revenues or EBITDA margins or PBT, we have achieved all-time high number in Q1.
You may like to note that during Q1 of last financial year, we had to restate the deferred tax liability after the new tax rate, leading to a onetime reversal of tax liability of INR 172 crores. But for this reversal, our PAT for Q1 FY '25 at INR 526 crores is also the ever highest. Our EBITDA margin is up 10.6% in Q1 FY '25, up from 10% in Q1 of the previous year. This reflects our continued focus on better price realization, efficiency and sourcing, and better revenue mix. Other expenses have gone up due to a onetime expense incurred towards development of centers of excellence for battery packs, electric drive units and software-defined vehicles.
Material cost, as a percentage of revenue, is now at 72.2%, which is 1.5% lower than Q1 of last fiscal. Steel prices remained softer and our efforts on cost savings continue with even more vigor. The growth in defense as well as in spare parts, both of which are higher-margin businesses, also contributed to better profitability. Power solution volumes were lower than last year by around 20%, owing to prebuy that happened in Q1 of last year due to emission change announcement. On a full year basis, we expect this business also to register healthy growth. Our net debt of -- as of 30th June, '24 was at INR 1,295 crores. Going forward, we are confident in increasing our market share in both the trucks and bus segment.
Our product pipeline is very strong. You would see a host of new product launches from Ashok Leyland this year, which shall help us beef up our market and price position. Some of the export markets, which have been subdued for the last 2 years have started showing early signs of growth. This should help us further in growing our international business volumes. Our focus on profitability remains. We are clear that we are not going to discount our products to win market share. Our market share wins will come on the back of our product superiority and our ability to deliver a delightful aftersales experience to our customers.
The record financial performance of Q1 FY '25, gives us even more strength to move towards our midterm objective of achieving mid-teen EBITDA margin. Switch and OHM are progressing well. We started delivering our first eLCV, the IeV 4 in the market and are receiving an excellent customer response. A few days ago, we launched our second offering in the eLCV space named IeV 3. Both these vehicles are segment-first and have the potential to transform the last mile mobility in the country. OHM, our eMaaS subsidiary is fully activated and is now managing electric bus operations in Bangalore, Ahmedabad, Bihar and Chandigarh.
Ashok Leyland's balance sheet is strong enough to support fund requirements of both Switch and OHM. Ashok Leyland strategy is fully aligned with its sustainability commitment, net zero by 2048 and carbon neutral by 2030 as well as touching 1 million lives through our road-to-school and road-to-livelihood programs. We have made good progress on the battery electric vehicles, alternate fuel vehicles, both in MHCV and LCV segments to push the overall decarbonization agenda and are running several customer pilots with leading industry participants.
In FY '25, Ashok Leyland is pushing ahead on its sustainability journey across operations, product development, dealer and supply chain partners. Our ESG initiatives have been recognized by international ESG rating agencies as best-in-class at 13.4, which is considered low risk. We continue to remain optimistic about the CV industry prospects. Most macroeconomic parameters are favorable. Monsoon is likely to be good. The recent budget has provided for a slurry of robust economic measures. All this augers well for the future of the CV industry.
I now hand it over to the moderator for your questions and answers.
[Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.
My first question is related to some of the product pipeline commentary that was given by Mr. Hinduja. Just trying to understand, I think, this year -- I mean, last year, this time, you mentioned that you're working on a 0 to 2 tonnes sort of LCV launch. And I think last quarter also, you had mentioned that back half of this year, the company expects to launch more LCV products. So just keeping those 2 comments in mind, just trying to understand how the LCV product launch pipeline looks and potentially when you think you can enter the 0 to 2 tonne category in LCVs?
Yes, we have been saying that on LCV business, we see a very high headroom for growth in the future because you all know that we are covering only 50% of the market right now. And our intention is to grow to 80% addressable market in the near future. So this year, we have lined up 6 launches in the LCV segment. A couple of those have already been launched in Q1, although the impact of those launches is yet to be seen because they have just recently been launched. We will be launching 4 more LCV products in the next few quarters within the year. As far as the sub 2-tonne segment is concerned, that is a bit more medium-term project, so it is not going to be launched this year, but we are finalizing our approach on the sub 2-tonne as to what kind of products we would like to launch.
So as and when that is clear, we will come back to you on that. But other than LCV also, there are a host of product launches that we will do, specifically, on the bus side, as we have been saying that while we are the leader in the overall bus market, but our bus market share on the ICV bus side is not as high as we would like it to be. So we are still kind of under 20% on the ICV buses. And therefore, in that segment, both covering school segment as well as the staff segment, we will be launching some new products this year. Of course, other than this also, there are some other products that would get launched. But yes, as Dheeraj said, we have a very strong pipeline of new products that market would see in the coming quarters.
Got it. That's helpful. My second question is just around the age of the fleet of series in the market. We've had a lot of news flow over the past 5 years around potential scrappage policy implementation. During COVID pace of replacement demand slowed a little bit. So just trying to understand roughly where you see the current age of the fleet versus long-term averages. And how you think about replacement demand in the CV industry going forward?
Yes. Chandramouli, as we have all seen, the aging of fleet is at its peak right now. We have never seen such a kind of aging happening in the CV industry. I think the number is close to 10 to 11 years. I think average aging in the industry has always been 7 to 8 years. Yes, so there is this huge replacement demand potential that is available. Now how that will unlock, of course, depends on a lot of factors. But yes, I would say that in the next 2 to 3 years, they should unlock and, therefore, we are very positive, not just for this year's industry growth, but also for FY '26 and FY '27.
Got it. And lastly, just a clarification on the HLFL potential reverse merger into NXTDIGITAL. Just trying to understand, you have spoken in the past about Hinduja Housing Finance and Hinduja Leyland Finance. Just trying to understand, in this reverse merger, do we expect the housing finance entity and the Hinduja Leyland Finance entity to be reverse merged? Or is it just Hinduja Leyland Finance that you're looking at sort of reverse merging into NXTDIGITAL?
The housing finance is a 100% subsidiary of Leyland Finance and Leyland Finance is the one that has been reverse merged into NXTDIGITAL. So from a holding perspective, the new entity will be holding housing finance as well.
The next question is from the line of Kapil Singh from Nomura.
I just wanted to ask your thoughts on growth rates that you expect -- or the outlook that you expect for both MHCVs and LCVs for this year. Now some of the headwinds, which were there, as you mentioned, are out of the way. So has the demand environment improved? And also, how is the pricing environment? So that was the first question.
Yes, Kapil, thank you for that question. Before the year started, as we all know, most of the research agencies forecasting a very grim scenario for the CV industry, especially H1. And I think it was more coming from this year of -- the impact elections would have. And also there was some unpredictability about the monsoon at that time. Some of the research agencies even said that the industry might degrow by 10% to 15%. But now I think quarter 1, where MHCV has grown by 10%, has negated that philosophy. I think there is a positive narrative that is building up.
I think some of our peers have also come out, who were earlier not -- who were earlier quite conservative about the industry, but now they have come out and they are also saying that there are good prospects of the CV industry for the year. So if Q1 is good, I think Q2 we are already seeing good momentum in the -- on the ground. In any case, I think the general consensus was that H2 would be a positive growth. So given all this, we are quite optimistic. We think, at worst, industry will be flattish, but we can also expect some kind of a growth in the overall CV industry as well for the whole year. As far as pricing is concerned, I think we have been very consistent in our approach on pricing.
We are very clear that we are not going to discount our products to win market share. Our market share will have to come on the back of the strength of our products and our ability to provide a good experience to our customers. So I think that kind of -- again, that kind of a narrative is building up in the whole industry. I think everyone is realizing that any gain in market share due to any short-term measure is only temporary. So I think it is helping the whole industry, and we would at least like to continue with the same approach even in the future.
Just adding on to what Shenu said on your first question. As you're all aware, Q1 generally is the slower quarter for the sector. And considering that showing growth and the on-ground demand still seems to show good signs of growth, it does seem the next 3 quarters should continue the momentum.
That's great to hear. Second, I just wanted to also check on electric vehicles. You mentioned there is a strong response to the new launch. So if you could elaborate a little bit like what is the viability of electric vehicles meaning LCVs that you're observing? What type of customers? What are the customers saying on adoption of electric vehicles in LCV? Also, if you can talk of some road map of approval under PLI and what is the profitability of electric vehicles at this point of time?
In terms of the LCV, look, we launched the IeV for -- it's been close to 3 months. As you're aware, throughout the country, there is no clear infrastructure that has been set up. At the moment, the sales are happening more on a B2B basis for e-commerce companies and logistics companies and many multinational, who have their own commitment to net zero, are insisting that even the last mile delivery should be on electric product. So numbers are very small. So far, only one of our peer groups has introduced 1 product. We've now introduced 2. And we do feel that the numbers will start picking up. Of course, what would help is, if in FAME-III, commercial vehicles are included as well that should add additional momentum to this. But irrespective of that, there is a slow transitioning -- transition happening towards the eLCV segment. As far as sorry, your second question was...
Adoption and PLI.
So adoption and PLI. Well, AL has been part of the PLI and we are working towards through the investments that we're making. It is a 5-year process that we will be going through. So as of this, there is not much further detail that I can provide to you, except that, yes, like some of the other OEMs as well, we're very much part of the PLI scheme.
My question was more on product approval under the PLI, the certification where are we in that process?
Yes, Kapil that is not a problem. So we are meeting all the requirements of the PLI as well as for the FAME-III whenever it is announced. So that approval process is already under control.
I think if you're asking whether in terms of the localization requirements, then yes, we are meeting those.
Yes. Okay. So we are hoping to get the certification and be eligible for PLI incentives sometime this year?
No. So see, FAME-III is something that we would be eligible for right away. As soon as the scheme is announced, we would be participating in the FAME-III scheme. PLI, as you know, is based on a 5-year horizon of investments, right? So that would take -- like that is more of a medium-term kind of program, right? But in the short run, definitely, we will be ready for FAME-III as and when it is announced.
Sure. Sir, just one last thing on EVs, while we are at it. On electric buses, if you could also share your outlook.
So we're definitely seeing more and more orders coming. And during this financial year, Switch has order book of 950 buses for Delhi and -- sorry, 560 for Delhi up to March 31st. 300-plus for Bangalore and another 100 for UP. And after April, we have an order for another 400 for Delhi as well, and we are participating as new product introductions are coming, a new 9 meters, et cetera. So we are participating in more tenders as well. So generally, we are seeing more and more states shifting towards electric buses. The speed seems to be much faster than we had originally planned for.
The next question is from the line of Binay Singh from Morgan Stanley.
Three questions. Firstly, in the opening remark, we talked about onetime expense and other expenditure relating battery pack software. Could you quantify that? And is that sitting under the stand-alone financials?
Yes. It is sitting in the stand-alone financials, Binay. Quantification will be a bit difficult because these are all one-off expense towards advanced engineering, towards building up of the center of excellence for the battery pack, electric trial unit, software-defined vehicles. And these are all of -- revenue nature.
So in a way, some of the EV investment is sitting under stand-alone also, right? So it's not entirely going into not around the expenses done by Switch?
No. No, no. see, you should understand, these are all related to the truck side. If it is for the bus and for the light commercial vehicles, then it will go to the respective company. If it is for the truck side, then it will be with the Ashok Leyland.
Yes. Let me just explain this a little bit more. So, so far, our journey on the electrification of vehicles, whether it is the medium and heavy-duty trucks in Ashok Leyland or it is buses or electric or light commercial vehicles on the Switch side, has been mainly focused on integration of the products and building a good product for the market. But you are all aware that Ashok Leyland or, for that matter, most of the other players are right now just focusing on integration of the product, which means that we are relying a lot on our supplier partners, on their designs, and buying subassemblies or components from them to build this product.
Now since we have a very good range of electric products both on Ashok Leyland and Switch side, now in the second stage what we want to do is, we want to go deeper into our technology capability. And that is why we are now setting up the 3 centers of excellence. Like Dheeraj said, one of these would be on battery pack and modules. The other would be on the electric drive unit and the third would be on software-defined vehicles. So software, EDU and battery pack, these are the 3 main ingredients of any electrical vehicle. And now we are setting up these centers of excellence, so we can get deeper capability into the technology behind the electric vehicles.
So that is basically the intent going forward. Like for internal combustion engines, one would kind of invest in the capability of designing engines in-house. So this is on a similar nature, what we want to start now for electric vehicles.
Right. And the reason we called it onetime is because it's only coming in this quarter and won't repeat, right? Because this sounds like an operational expense that's why you called it out?
Yes, this is kind of operational expense, we would be listing more on that would be in the nature of CapEx. So CapEx, of course, would be -- if it is for buses and electric light commercial vehicles, that would be this list. And if it is for trucks, that would be in ratio given.
Perfect. Then secondly, like last year, in fact, in your opening comment also, you added that defense and spares are high-margin businesses. We had a very good FY '24. Could you give a little bit some color on the number for first quarter and the outlook for FY '25, in particular for defense and spares?
Defense revenues have been quite good in the first quarter of the current financial year, especially the number of defense vehicles which we have sold in this quarter is quite high. It is a record high -- it has crossed 1,000 vehicles, I would put it that way in this quarter compared to 250 vehicles last year. And the revenue has also gone up accordingly. Revenue has gone up almost 3x compared to the same period of last financial year. And on the spare parts business, the revenue has gone up quite significantly. It has gone up by about 12%, 12.5% overall.
So for defense like -- in defense, last year, the numbers had almost doubled. So this year also, you are expecting in that sense, though looking at these numbers are 30%, 40% kind of a growth at least on an annual basis.
Yes. So on defense, as we have been saying in the past, not only that we could double or more than double our defense business last year in FY '24, but our order pipeline is also very, very strong. And this has been the result of a lot of effort on the product side that we had made over the last several years. So now our intention is to double the defense business again in the next 2 to 2.5 years.
Great. Great. And sir, lastly, any number on investments for the year. Like in the last call, we had given a number on CapEx for FY '25 in the range of INR 500 crores to INR 600 crores. But any view on investment number for FY '25? That's it from my side.
Investments. In the first quarter, we have not done any investments. On the CapEx side, I would say that we will retain our earlier estimate, as Shenu had indicated earlier. It could be around INR 750 crores on the investment side. On the CapEx side, we will let you know. In case if there is anything, we will let you know. As of now, there does not seem to be any major investment in the CapEx. Maybe for the full year, I mean it might happen, but we will not know the quantum now. It could be around another INR 500 crores to INR 750 crores of the investments in the associate companies primarily Switch and all, but we will let you know in case if that happens.
The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities.
Sir, in month of July, as per the Wuhan, we have seen a good growth in the MHCV segment. And I mean, the last quarter, we have seen our good demand from buses also. Just want to understand how do you see the recovery of the cargo segments? And also, if possible, can you provide some update on the -- how do you see the subsegments growth like the ILCV and heavy commercial vehicles?
Yes. So just on the medium and heavy commercial vehicle side, it is true that while the overall industry has grown by 10%. The buses -- the contribution of buses has been the maximum. I think buses have grown like 50% or so. The truck growth has been a little bit muted in quarter 1. I think we had negative 2% or 3% growth in the overall truck segment. But that was mainly because of downfall in the tipper segment. As you know, the tipper segment really got affected because of elections, because a lot of projects kind of got stalled and infrastructure products got stalled.
Even the new projects were not coming up because of the code of conduct and all that. Yes, but that was a very temporary phenomenon. So from July or August onwards, we think even the tipper segment would start flourishing. Actually, I was in the market and I met several customers of construction and mining segments, some of the larger [Technical Difficulty]. And I think there is a very positive pulse on the ground as far as tipper segment is concerned. So with the tipper segment coming up, the cargo segment also should start growing, we think, maybe August onwards.
And just on the subsegment, is there heavy commercial vehicle and how do you see the heavy commercial and the ILCV growth sir?
Listen, see tractor and ICV has been growing pretty well. Even in quarter 1, tractor has outgrown every other segment. We have seen this trend from multi-axal vehicles that market, the demand is shifting to tractors, and there are a lot of reasons that we all know behind this. And this has to continue. Even if you look at some of the markets outside India, whether it is Europe or any other market, in fact, tractor trailer demand is up to the level of 60% to 70%. In India only, it is still, I mean, at 20% after having grown so rapidly in the last couple of years.
So tractor trailer demand will definitely continue to make progress in the future. Construction and mining, as I said, would also increase and ICV should also increase. I think the only segment that could show some kind of a degrowth will be multi-axle haulage because that demand is continuing to shift to tractor trailer as I just explained.
Got it, sir. So on the margin side, is there any impact on the commodity prices during this quarter? And in this quarter, slightly the gross margin has come down. Is it mainly due to the adverse mix?
See, actually margins, we -- normally, what we do is that we make necessary provisions on the commodity cost based on the trends. And the trends are -- I mean, basically, the ones, which are known from the market and our sourcing head, he recommends. And what happens is that we settled this after a lag of a quarter. And once -- we cannot book this amount in the accounts at the time of settlement.
So we take a provision in the books of accounts at certain quantum as recommended by our sourcing head. So we go in that, and that will also be offset by the savings, which will get by way of a lot of internal cross-functional initiatives, covering value engineering, resourcing, turnover discounts, commercial negotiations and share of businesses. So all of this put together, it is in a regular ongoing process, which will continuously occur every quarter. And we do provide. Depending on the situation, we do provide and it goes commodity-wise also. Covering steel, frame steel, aluminum, then castings, forgings as well as rubber. So all these are factored.
Okay. Lastly, sir, on the other expenses. As per the annual report, this category line for service and product warranties have seen a notable increase in FY '24. Can you explain the reason for the increase sir?
Yes. Okay. Warranty expense, you mean?
Yes. Service and product warranty line items there, sir, in the part of other expenses?
Yes. So we had -- last couple of years, I don't remember the exact date, but we had extended our warranty period itself. So I think earlier we were 3 years or 2 -- 1 plus 2 maybe. 2 plus 2 and then we extend it to 3 plus 3. So some of the retails are now getting into that third year category, which earlier we did not have. So warranty expense has kind of increased a little bit because of the warranty policy. But yes, I mean, as -- I mean, the extra cost of warranty is being kind of nullified through various price increases, et cetera.
The next question is from the line of Pramod Kumar from UBS.
I think, for Balaji, you talked about the center for excellence and the EV-related investments. I just want to clarify, would you call it as a material expense this quarter? Because your other expenditure shot up like 17%, 18%, which is typically very high given that volumes have not been much of a change. So would you call the expenses, provisioned -- or expense spend, sorry, as a material number?
No. No, no. Pramod, these are all the expenses relating to R&D. R&D materials are also booked under R&D expenditure only, which will form part of other expenditure.
Yes, that's what I'm asking. Is it -- no, no. When I say -- sorry, Balaji, just to clarify. I'm saying is this a meaningful expense? I used the word material in that context, is it immaterial small expense or is it a meaningful expense what you have accounted for this quarter?
No, it is a meaningful expense. It is a meaningful expense. That's why it has also been stated by our Chairman in his opening remarks.
Okay. And following up on the expense line items, given that the mix has generally been good, your non-vehicle revenues have also done well, defense is high margin. The sequential movement in commodity prices is -- or RM to sales is slightly, it's kind of adverse. So is it fair to assume that you kind of are being conservative here as a management on the provisioning for raw materials, which you were talking about in the -- answering the previous question. Because steel prices are generally started to see some cool off, even other commodity prices are not hardening. In fact, there is some correction only. So I'm just trying to understand by when do you take a call on the actuals and when -- if any excess provision done, when does it reverse out?
See, we -- if you look at it sequentially, you get a lot of -- as I indicated, we use a lot of levers in bringing down the cost by way of value engineering and resourcing. In Q4, we got a lot of turnover discounts. And then we got a lot of savings by the commercial negotiations, which will not be available in this quarter. So consequently, just adding to the provision as I had answered in one of -- for the earlier quarries, all this will make appear as if the material cost is slightly higher compared to the last quarter. Of course, mix also plays a very important role.
And we're still kind of optimistic on having a full year margin, which is a reasonably higher than the previous year, towards our journey towards the mid-teen margin?
Yes, yes. Definitely, I think we should expect that because we think the industry is going to actually do better than even our expectations. So if that momentum continues in Q2 and then H2, in any case, has always been optimistic. So we will have that operating leverage. Even on the cost side, we still think we have a lot of headroom. So there is a quite a rigor that is inside Ashok Leyland to attack cost in several different ways. And on the commodity side also, we are not expecting any hardening really, at least in the next 2 quarters, yes. So we think we should be able to do better on the margin front. And lastly, I would also say that our intention is to kind of get better realization on our products. So some of these new products, which will get launched will also help in our pricing equation in the market.
Great, Shenu. And Shenu, just on the industry side, you talked about the average life already stretching so much. I just want to understand, when you talk to fleet owners and people in the industry, what is kind of holding them back? Because a big part of this fleet is really aged, has lower tonnage, low fuel economy. Even it's kind of difficult in terms of tracking and monitoring movement and fuel usage, everything. So what is holding them back from replacing at least towards seventh and eighth year trucks. I can understand the BS VI truck not getting replaced in a hurry because you are extending AMCs, which are like 5, 6 years.
So until that , I don't think they should kick in. But what about the earlier trucks, especially the used trucks, which kind of came into the industry post-COVID, which were bought by last fleet owners. So what's the feedback would you get? Or what is holding them back from purchase? Is it like interest rate cycle, where we are or utilization rates are not that great? And also if you can talk about industry wise utilization, where do you see them?
Yes, Pramod. Very good question. So see, we are in touch with, of course, most of the fleet operators in the country. And I think there is nothing really holding back other than the fact that the prices of commercial vehicles have really jumped in the last 3 to 4 years. Yes, so that mental shock that happened in like when we transitioned from BS IV to BS VI is kind of taking time for people to kind of take a decision on the placement of their fleet. So the way it happens is, although the resale value you know is also quite upbeat. The resale demand is also very, very positive for commercial vehicles. But then still, if somebody has a fleet of BS III or BS IV and at the price, which they bought versus the price they are getting now in the secondary market, and when we compare it to the price of BS VI, so that is -- that difference is just needs to be absorbed over a period of time.
I think there is nothing else. If you look at the freight movement, we look at 1 billion tonne-kilometers. We look at the freight demand in absolute sense or we also -- when we look at the freight rates, I think, all those parameters are good. I think as the country progresses, as the economy grows, all this replacement demand will have to happen. They'll have to convert into new sales because, I mean, these -- some of these products are already into like 12, 13, 14, 15 years, right? I mean they can't hold up forever. So that decision will have to be taken by most of the fleets.
So just to give you a perspective on the volumes, roughly on the MSC truck side, there are about 37 lakh vehicles which are there on the road. This is from BS VI, BS IV and below. And in this, if you look at the vehicles, which have been sold in the last 4 years predominantly BS VI, that constitutes 10 lakh vehicles and that roughly constitutes 27% of the total fleet size. And the vehicles which were sold between 2017 and 2020, roughly that constitutes 8.5 lakh vehicles. That is around 23%.
So which means that BS III and below constitute 50% of the total vehicle population of 37 lakh. And the average age of that between 8 and 15 years, that roughly constitutes 11.2 years. And as Shenu explained, all these vehicles will have to gradually come for replacement in the time to come.
The next question is from the line of Gunjan Prithyani from Bank of America.
Most of my questions have been answered. Just a quick follow-up. On the Hinduja Leyland Finance, can you sort of give us an update on the time line, when do we expect the restructuring to conclude? And what are the pending processes? And also if you can sort of give an update on where things stand from an operational perspective? How should we think about the value of that business?
From the operational side, I will tell you, Gunjan. The asset under management for HLF is INR 40,000 crores and for the HHF, the Housing Finance division, it is about INR 11,500 crores. So both this put together, it is around INR 5,600 crores. That's the side. And if we look at -- INR 50,000, sorry -- INR 51,500 crores. And if I look at the profits -- being revenue and profit, it is at INR 1,377 crores of revenue with a 10% of -- INR 130 crores of profit.
Okay. And net worth, if I recall, is close to about INR 7,000 crores in the business, right?
Yes. This is for first quarter.
Yes, these numbers of revenue and profit are for the first quarter, to clarify.
Okay. And time lines for the restructuring? Where are we there on that?
They've been going through all the necessary approvals. And at the moment, it is indicated that it should happen before the end of March. So before the end of this financial year is what is the indication given.
And just from a business concentration perspective, now Leyland vehicles would account for how much percentage of AUM? Or any color you can say give on the business diversification on the NBFC?
Yes. I mean, the business has now become fairly diversified. It's operating across all vehicle categories, including used vehicles as well. The Ashok Leyland business today would cater to less than 25%.
Okay. Got it. This is useful. The other 2 things, which I just wanted to get your thoughts on was the DFC. I think you do call out that this is now close to commissioning in fiscal '25 in the annual report. So just trying to get your thoughts, how should we think about the impact of that in the next 2 or 3 years? That's one. And secondly, sorry, go ahead.
Sorry, go ahead. Go ahead with your question.
No, no, it's okay. That's another topic. So maybe we'll get this fast.
Okay, Gunjan, yes. So DFC, I mean, so far, it has not really impacted a lot, although we are hearing about it in the news very often. We have ourselves done quite a deep study as to how it will operate and it will impact. I think it is a more medium-term phenomenon because I think -- I mean DFC is a good concept, but a lot needs to be done around it. In terms of looking at the whole logistics ecosystem that needs to be developed around DFC. Yes, so to that extent, I think it will take more time. Although it might -- in the long term, it might impact the medium heavy-duty or largely heavy-duty trucks, but it will also give a -- through the medium-duty and light commercial vehicles. A lot remains to be seen, but we don't think there will be a major significant impact in the next couple of years.
Okay. Got it. And last question was on defense. I know Binay asked earlier, but if you can spell out what's the order book in terms of value, if at all you can share that? And also the revenue for last year in terms of what I see is the vehicles, but if you can share the value of defense contribution for fiscal '24?
Gunjan, I'm sorry, but we don't -- we have never revealed that number of defense, but we can assure you again that like I said earlier that we could double our top line on defense last year in FY '24, actually more than double. And now going forward, based on a very strong pipeline of orders and visibility of orders that can come in. We hope to double that number again in the next 2 years or so.
The next question is from the line of Mukesh Saraf from Avendus Spark.
My question is, on your engines, what I noticed is that most of the vehicles come with the 250-horsepower engine. And obviously, we're seeing a clear shift towards higher-tonnage vehicles. And also your commentary suggested that we will see more and more shift towards tractor trailers and larger vehicles. So how do we place say in the future, say, we require 350 or 400 horsepower engines, how are we placed there? Have we started doing some work towards developing those products? Because we do have one 300 engine if I'm not wrong? So do we -- are we looking at some tie-ups in the future or we kind of can develop this on our own?
Yes. Mukesh, the capability of Ashok Leyland on the engine side is really very, very strong. We have more than 3 or 4 different families of engines. So it is not that we do not have technology to go beyond 250-horsepower where we are today. Definitely, we have the technology and the capability to produce those engines. So there are programs running to extend the higher horsepower range in our products through our own engines. So there is no need of any tie-up as such right now. We can easily go up through -- I mean we can go easily up to 350, but we can go even beyond that whenever the market requires.
But your observation is right that I think the [ belly ] of the market in some of the segments, which is at 200 or 250 right now should continue to move upwards. And I think the next belly, especially in the tractor trailer segment should be around 280 or 300 horsepower. But we would be ready with it. We have programs going on. Even within our current engine families, we have the capability to go much beyond where we are today right now.
Right, right. Would this require large investments from our side or this is like an ongoing thing that we have anyway...
No, there would be some investments required, but nothing of a large nature. Because as I said, we already have a platform -- engine platform. We call it internally A6 platform, which is a 6-cylinder very modern engine. So that platform already has capability to go up -- to go much over 300. 350 also, we can go easily. So we are running those programs depending on the need of the market. But no large -- very large investments. Of course, some investment will be there, but nothing of a significant nature.
Got that. Got that. And second one is, on your employee cost this quarter, kind of it's been flattish now. The average number has been maintained at around this INR 550 crores that we were even last year. So any settlements or anything coming up, which could kind of lead to this going up significantly? Or should we kind of assume it will remain at this ballpark?
Actually, it is -- the manpower cost contains both the wages for the associates as well as the salaries for the executives. Between Q4 and Q1, that's not much of movement. See our increments and our promotions are effective 1st July. You will see an increase happening in the coming quarters. And this will be there for the next 1 year until the first quarter of the next financial year.
Okay. Got that. So we haven't assumed any of those increases in this first quarter and provisioned accordingly?
Yes, right.
The next question is from the line of Jinesh Gandhi from AMBIT Capital.
My question pertains to, one is the commodity side. So you alluded to the fact that you're not expecting material increase in commodity prices, but we have provided for some increases in 1Q. So from the provisional in 1Q we should not see material increase going forward. Is that the correct understanding?
Jinesh, again, this depends on case to case basis that is for each commodity, the stand would vary and it will also depend on the outlook for the commodity as well as [ tables ] of the discussion with the vendors. So there's a lot of combination of factors involved in it. But as of now, it appears -- as Shenu indicated, it appears that we may not go for any provision in the next quarter.
Got it. And secondly, what kind of price increase we took in 1Q and in July so far?
We have not taken any price increase in the first quarter. But in July also, we have not taken any so far. So far, that's the status.
Okay. Because your peers have taken price increases in the July and then April as well. So how do we think about the price increases in the current environment?
Jinesh, we can only talk about ourselves and I clarified that we have not taken any price increase. See sometimes what happens is we might take a price increase and to that extent that could also be an increase in the discount, resulting in the net sales revenue being same at the same level. So we will never know that. But I can only clarify from our side that we have not taken any price increases, neither in Q1 or in Q2 until now.
Hello, I think Mr. Jinesh has lost his connection. We will move on to the next question. The next question is from the line of Joseph George from IIFL.
I have a couple of follow-up questions. One is, on the industry, you mentioned that you saw about 10% kind of a growth at a TIV level, that obviously was on a low base because last year, we had negative impact of the pre-buy. So I wanted to just get a clarification. I thought you also mentioned that you expect the MHCV industry to be flat, also we have small growth this year. Is that right?
No, on the MHCV industry, what we said is that at -- in the worst case, we might see a flattish year, but going by the Q1 and considering Q1 is normally the slowest of the quarter, we do feel that the growth momentum should continue this year.
Understood. And the second follow-up that I had was in response to the question on pricing discipline, you mentioned that you are not looking to gain market share with pricing, but could you also talk about the behavior of your peers because I understand that last quarter, there was some disruption by one of the players by cutting list prices, et cetera. So if you can just give some color on the pricing discipline by peers?
Yes, Joseph we don't want to comment on the peers, but we are very clear, as Dheeraj also said in his opening statement. We are clear that we are not going to cut prices to win market share. We know very well by now that these short-term measures don't last much and don't give a permanent impact. So we are very, very focused on building strength in our product portfolio and expanding our reach. I mean, there are normally various kinds of announcements in the market. I think, some of those are also of tactical nature. So I would suggest you take a deeper look into those announcements.
The next question is from the line of Aditya from [ Sowilo ] Investments.
So my question was, I mean, on part of the DFC that was answered. But what about this mandatory AC, which is going to kick in the future? How would you see that impacting? Like would people preempt the purchases before the norms kick in? Or what kind of effect that is going to have? And the second question is on -- I mean, there are -- there have been reports of increasing profitability in the fleet operators and that has helped pricing discipline in the industry. But any like adverse effects over there? How do you see that affecting volumes as well?
So on the mandatory air conditioning for commercial vehicles, I think that is not going to impact much in terms of prebuy because the cost increase would not be very high. In any case, our guess is like about 20% of the trucks getting sold have already ACs in them, right? So the balance 70% to 80%, there would be some cost impact, but it would not be of significant nature. And I think there is a clearly good understanding in customers' mind also about that. Now profitability of fleet operators, yes, it is on a rise. I mean, we have all seen the data coming out on that front. It is helping pricing discipline. And the way the country is going, the way economy is going, the way budget has been with higher allocations on roads, highways, infrastructure, et cetera. I think -- I mean, we don't think that it should, in any way, affect the profitability of the fleets even going forward.
Ladies and gentlemen, that was the last question for today. We have reached the end of the question-and-answer session. I would now like to hand the conference over to the Chairman, Mr. Dheeraj Hinduja for closing comments.
Thank you so much for your question, and I hope we've been able to provide better clarity. I would just like to sum up on the basis that there were, I think, quite a lot of questions with regard to how we're seeing the market. And I'd just emphasize once again, Q1 has been a good surprise for all of us. We, on the ground, do see the demand to continue to be quite positive. And barring any exceptional things that might happen. I think this year will continue to show us to be a good growth year. And even on the product, we're seeing very good growth in the passenger side, ICV, on tractors. And we are going to be introducing many products across the range and I think a lot of questions were asked with regard to the market share as well.
So just to clarify that during the course of the last 18 months, we've been expanding our network and especially in our weaker areas in the North and the East. And so the foundation -- and our network is now coming very close to about 1,000 outlets. And with this foundation that has been set, this in itself should allow us to penetrate into areas of the country that we've not been present and increasing our market share and our service, along with the product. So discounting is not an area that we're going to be focusing upon. We do believe that we can gain market share through the areas I've just mentioned. On the cost side, we continue to remain continuously going after wherever cost reductions are possible, value engineering possibilities.
And the one area that we did not speak much about is on international markets. We are seeing revival of some of our traditional markets. Middle East continues to be strong. African markets, we are gaining greater traction and we are looking at new markets where more products are also going to be entering into many of our existing markets as well. We have delivered on margins over the last few quarters. Aspiration is to continue the growth, both in our sales, margins and our bottom line as well. So that's how we would like to conclude. Thank you very much for your interest.
Thank you. On behalf of Ashok Leyland, that concludes this conference. Thank you for joining us. You may now disconnect your lines.