Ashok Leyland Ltd

NSE:ASHOKLEY

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Ashok Leyland Q2 FY '21 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. Thank you, and over to you, sir.

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

Thank you, Stephen. Good morning, everyone. On behalf of Motilal Oswal Financial Services, I would like to welcome you all to 2Q FY '21 Post Results Conference Call of Ashok Leyland. Ashok Leyland is represented by Mr. Vipin Sondhi, MD and CEO; Mr. Gopal Mahadevan, Whole-time Director and Chief Financial Officer; Mr. K.M. Balaji, Vice President, Corporate Finance. I would like to thank the management for taking time out for the call. I would now hand over the call to Mr. Sondhi for his opening remarks. Over to you, sir.

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

Thank you, Jinesh. Namaskar, ladies and gentlemen, on behalf of Ashok Leyland and my 2 colleagues and myself. This is Diwali Week, so wish you, your families a very happy Diwali. I'll start from where we left off the last time that it gives me immense pleasure to meet you all once again for this post result conference call of Ashok Leyland. We had interacted during mid-September for the launch of our next-gen LCV platform, the BADA DOST, and before that, at the launch of our AVTR range of medium and heavy trucks powered by the innovative iGen6 Mid-NOx engines. That was sometime in June. We've also launched the Boss LE, LX versions, as you might have gathered, to address the needs of the growing ICV market segment. And all these products are doing very well in the market, receiving positive feedback from the customers, and we are very happy and proud of them.Let me take you through the highlights of quarter 2 performance. One is we all know that the first quarter volume was a virtual wash out due to the lockdown, the pandemic. The MHCV industry recorded a very low, abysmal, actually, volume of 4,403 vehicles in Q1, which was 94% lower than the corresponding quarter of last year. The second quarter has been much better, and the MHCV TIV has jumped 4.5x to 24,552 vehicles sequentially. This is about 50%. Even now, it's about 50% of last year's volumes in the same quarter. That's Q2 FY '20, which [Technical Difficulty] Hello, can you hear me?

[Operator]

Yes, you may go on.

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

Sorry. So I'll just repeat the sentence. This is about 50% of last year volumes in the same quarter, Q2 FY '20, 48,018 vehicles. Now it's nice to see and heartening to see a gradual-but-steady recovery in demand towards pre-COVID levels. During Q2, AL MHCV volumes have jumped 8.5x to 6,994 vehicles sequentially. Our market share has improved from 16.5% in Q1 to 28.5% in Q2. The volumes at 6,994 numbers are about 50% lower than last year Q2 numbers, which is 14,637 numbers. We're also seeing recovery in the export markets. You're aware that many of the markets were closed. Now these markets are gradually coming out of their own lockdowns. And our MHCV exports in Q2 are at 935 vehicles as against 298 vehicles in Q1. Last year, Q2 export volumes were at 2,117 numbers. LCV volumes have touched near pre-COVID levels at 11,508 vehicles, which is about 95% of last year's volumes of 12,123 vehicles. Q1 LCV volumes were at 2,793 numbers. The revenue for the second quarter has jumped 3.5x sequentially to INR 2,837 crores. Q1 revenue was at INR 651 crores. EBITDA has also improved to a positive INR 80 crores, 2.8% in Q2 from a negative INR 333 crores, which was minus 51% in Q1. Ashok Leyland has reported a PAT loss of INR 147 crores for Q2 against a PAT loss of INR 389 in Q1. During Q2 last year, AL had reported a revenue of INR 3,939 crores; EBITDA of INR 229 crores, which is about 5.8%; and a PAT of INR 39 crores. We, Ashok Leyland, have manufactured 8,431 MHCVs during Q2, which is 1,133 vehicles in Q1, and have ended the quarter with an MHCV inventory of 1,853 numbers. Production numbers for the corresponding quarter last year was 14,238 numbers and 10,103 vehicles in inventory. The June 20 MHCV inventory was 1,354 vehicles. Our Q2 closing operating working capital was negative at approximately INR 500 crores vis-à-vis INR 860 crores positive in Q1. Last year, Q1 working capital was at INR 1,200 crores positive. The CapEx till September '20 was at INR 290 crores versus INR 532 crores in the same period last year. CapEx has been incurred mainly towards the modular business program, the BADA DOST program; and EVs, electric vehicles. Investments were at INR 108 crores, INR 90 crores in HLFL in April '20 as against INR 58 crores during the same period last year. During the quarter, INR 1,200 crores cash has been generated from operations, predominantly through the reduction in working capital, and this has been used to repay debt. Our debt as on 30 September '20 stood at 3,076 -- INR 3,076 crores that is a gearing of 0.45x versus INR 4,284 crores, which is a gearing of 0.62x in June '20. The debt as on 30 September '19, that was last year, was INR 2,736 crores with a gearing of 0.37x. We see every quarter getting better than the previous quarter. We've launched new products, and we're looking forward to the future. And with this brief introduction on quarterly performance, may I hand over to Gopal to add and then move it forward. Thank you.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. Thank you, Vipin. I think you have encapsulated the performance well. The idea was to look at comparison of Q1 versus Q2 because this is an exceptional year where everything had shut down in the first quarter. So what is important to see is how is the industry ramping up and how is the company doing in terms of the industry performance. And as MD had rightly said, we continued with our plans unabated in terms of launching the new products, both the AVTR range of products as well as BADA DOST, which have been done -- which have been received very well in the market, very encouraging responses. The second part of it is that we continued our journey of operational cost and efficiency driving from last year itself. We had K54 II last year. This year, we have the Project Reset, which is driven all across the company with -- on a pan-company initiative of not just cost reduction but profit improvement plans, bottom line improvement plans, which includes revenue enhancement, volume enhancement, VA/VE, manufacturing cost reduction, looking at how to tackle material cost reduction and all overheads. So we -- that's one of the reasons why we have possibly been better than Street estimates in terms of EBITDA margins that we will continue on that journey as Q3 and Q4 roll on. And more importantly, I think what I would also want to share with all of you is that if the industry -- the Street estimates for industries and the overall estimate that we read through various reports, we could be wrong. It all depends on the report, but it's around 25% to 30% de-growth for the full year. If that estimate is right, then at the current level of de-growth, which is significantly higher, which is at about 70% or so, 70% or 75%, Balaji can give that number, it means logically that Q3 and Q4 should be good growth quarters, and that's exactly what the company is also readying itself for. We would need to ensure that we keep our production facilities intact to meet the demand as it rises. And we believe that once COVID situation goes away, and I think all of this is going to depend on when the vaccine is invented, we would actually see a robust demand coming in. That is what logic tells us. I think MD has already said that this quarter, the cash management has resulted in the debt reduction of nearly INR 1,200 crores, so which has brought our debt back into a comfortable position. And I would also want to add here, I'm sure that this will be one of the questions, is that our ICDs have come down further as I speak to you because, very recently, we had another INR 100 crore repayment, which is very much on track of what we had shared with you at the beginning of the year. So the total ICDs as we speak to you today is only INR 300 crores. With that comments, I will now hand it over to Jinesh so that you -- all of you can have the opportunity to ask questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Ronak Sarda from Systematix.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Sir, first question is on the demand and inquiry trend. Are we seeing inquiries coming back from, let's say, large fleet operators now? And because we have almost seen more than 12 months with the replacement cycle has been -- being lacking there. And are we seeing any different trends now given the post-COVID experience? And also, how much demand is depending on financing availability? That would be the first question.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. I'll just briefly answer it, and I would request our MD to answer this. We're certainly seeing the demand coming back. I think what's happening is that the financing -- as the finance companies are also gaining confidence in the sector because the entire sector, both the MHCV and the finance NBFC sector, have gone through quite challenging times over the at least especially in Q1 and then Q2 with the moratorium. I think we're seeing the lending coming back to people who are paying back after moratorium or who have not availed moratorium. And the sector is also opening up because you can see that slowly the sectors -- various sectors are also opening up. So I think we would see the demand coming back in Q3 and Q4, but now I'll hand it to MD to expand on that.

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

Thank you, Gopal, and I think you've given it all. But every part of the CV space will have a different trajectory, and that will happen at all points in time. So we definitely see infrastructure moving. So tippers are moving. We see LCVs, as I had mentioned earlier. So segment-by-segment, they're coming -- your question on large fleet operators, it's only a matter of time before they come in. We -- have inquiries started? The answer is yes. Have some of them started buying? The answer is yes. And as economic activity picks up, we feel that they will come back as well. But the trajectories are different for different subsegments.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Sure. Sure. And the second question is for Gopal. I mean assuming production volumes ramp up, like you highlighted, second half should see a growth. Can you help us understand how the costs move up? So especially raw materials, commodities are inching up. And also, on the other expenses, so how would be the operating leverage play out? Which costs are we able to control much better? Some guidance on that, please.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. You see, and I'll also request MD to add in case I miss something because, basically, we are going by what is prediction. So the predictions are that the industry is going to be low for the full year by about 35% to 30%, which looks like a bad headline. But then the silver lining in the cloud is that, that means Q3 and Q4 have to be growth quarters. And going by the trend, we believe that it should be -- because at least here in India, the impact of COVID is slowly waning down. While the number of cases are going up, the number of cures are also going up significantly. And it looks like the virulency of that virus is also abating a bit. And let's hope that we are different as far as the second wave of COVID is concerned. If this happens, we're going to see a lot of sectors opening up. We're even seeing some parts of the entertainment sector getting opened up, which means it's a good sign. The second thing is, yes, we will see operating leverage peaking in because we are managing costs. The whole team is managing costs very, very efficiently, astutely. And material prices, yes, there is a pressure, you're right. On -- steel prices are going up. So we have actually taken price increases even in October across MHCV as well as in LCV. And we have been able to fetch better realization than expected even in Q2, because BS VI had actually had a transition cost from BS IV to BS VI, obviously, because of the better technologies and the requirements of having exhaust -- additional exhaust system added cost to the vehicle. But we have been able to see one of the most important things that we're doing in Leyland is we are selling the vehicle on the basis of fluid efficiency and total cost of ownership. So what happens is, ultimately, when the fleet operators see that the AVTR range of products or even the LCV of the BADA DOST are actually more efficient vehicles, then what happens is there is a tendency to look at the vehicle as a whole in terms of the life cycle. And that actually, we're finding that, that's selling very, very well. Having said that, I would also like to specifically clarify that we are extremely competitive on pricing, and more than pricing, I would say, on cost. And we are -- we believe that as we move forward into Q3 and Q4, we should do much better in terms of margins, provided the volume growth happens, which we are reasonably confident of. So both cash management, cost management, productivity, I would say, improved penetration seeing that dealers are more liquid than they were in the past. And there's a huge amount of effort that's being taken to ensure the liquidity of dealers and ensuring that our vendors' payments are also on time and they're also liquid, I think there's a confluence of effort that's actually gone into this performance in Q2, which will get better and better with the coming quarters. MD, would you want to add anything?

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

The only thing I'll add is all of what Gopal has said is encapsulated, as we mentioned, under Reset. So it's not about cost. It's about profitability, cash and CapEx management, and it's led by Gopal himself. So you can see that he's very eloquent about it, and we are highly focused and review this on a continual basis so that we ensure that operating leverage kick in, in due course.

[Operator]

The next question is from Gunjan Prithyani from JPMorgan.

[Gunjan Prithyani, Analyst]

Yes. I have 2 questions. Firstly, if you can share a bit about Leyland Finance in terms of what are the collection efficiencies you're seeing in that business. And also, if there is any thought process around the kind of capital requirement that can come from this subsidiary. I mean just general, asset quality and also what you're reading from the customers at Leyland Finance, which can give us some sense on the market conditions.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. Thanks, Gunjan. Actually, Leyland Finance is performing very well under the circumstances. Just to give a very broad headline number, both in H1 and Q2, their revenues as well as -- they have been better than last year. H1 revenues were at INR 1,469 crores, and their PAT was INR 145 crores. And last year was at INR 1,466 crores, I think, and about INR 141 crores. So really, Q2 performance was also much better. And this is after taking into account COVID provisions that has been taken. So there has been quite a bit of, I would say, conservatism in that. So as on date, this is all after factoring in additional provisioning of nearly -- in March, we had taken -- in March, if you remember, I had shared that we had taken the provision of INR 70 crores. For the first half, additional INR 55 crores had been taken, which makes it nearly about INR 125 crores of provision being taken, after which you have the performance coming in. So asset quality has been good. I would say that the borrowing costs have also been ratably better. The liquidity position in all buckets, be it 7 days, 15 days, 1 month, 3 months or 5 years, the liquidity position is extremely safe. And they have adequate lines of credit with banks. And the -- I would say that as a percentage of AUM, the NPA stands at about -- at around 2.3%.So the collections have been getting better and better. And we have actually -- we are actually seeing that the strategy of HLFL to be diversified is also helping. So they are not only MHCV lender. The book of MHCV should be around 40%, 45%. But then you have 2-wheelers, 3-wheelers, off-road vehicles, loan against property and special-purpose papers, which have brought in, all of which actually add to 2 things: one, a very efficient liquidity management so that there is no single sector exposure that will take a huge hit; and the second one is that the returns are also well planned because, obviously, the NIM, the net interest margins, on sectors like 2-wheelers and 3-wheelers is significantly better, even after factoring in the NPAs. So this has kind of helped the company in current times.

[Gunjan Prithyani, Analyst]

Anything you can share on collection efficiencies where we are versus pre-COVID level?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, I think we are -- see, I think the morat is -- it's at about 30%, 35% [indiscernible] share that number somehow, I'm not able to trace that paper. But otherwise, the collection efficiencies are improving much. And I don't see any major reasons like -- major concerns on the collection efficiency.

[Gunjan Prithyani, Analyst]

Okay. And the second question is you kind of touched upon certain segments where you're already seeing inquiries inching of tippers and ICVs. If you can give us a broad sense of how much of these categories account for in the overall pie, where you're decisively seeing improvement in demand, I mean, specifically tipper trailers, ICVs proportion of the overall industry.

[Gopal Mahadevan, CFO & Whole Time Director]

See, I'll just quickly give a headline, and then I'll hand it over to our MD also. But for us, tipper, tractor trailer and multi-axle vehicles form a very significant portion of the demand. You see, I also wanted to share one thing with you in perspective. We are India's largest bus manufacturer. And in 2019, we were top 3 in as -- within the top 3 global bus manufacturer. One of the reasons you will actually see the market share getting a little skewed of 2 reasons. One is the south and non-south, we expect the south demand to pick up as we move forward. So there's a lot of numerator/denominator effect as well on this. The second one is buses have yet to pick up because of social distancing. So some of the largest consumers of buses are for the state transport undertaking only now transportation is getting back. Public transportation is not fully fledged running, but we have started to push, and the buses have started to ply with a great effort done by all governments. The second one is schools are yet to reopen, right? So then that is another sector where we have seen that the demand is virtually 0. The third sector is, of course, corporate transportation. Again, so we have seen that since a lot of people, including the ones on the call, are all working from home, you don't see corporate transportation taking. So the bus segment, which is actually a very important segment for us, and we can very hopeful will start coming -- will start increasing as we move forward, that also kind of skews the percentage. As far as your specific point is concerned, all I can tell you at this moment is that multi-axle vehicles, tippers, tractor trailers form a very significant portion of the demand. And so our ICVs, we have become a -- our market share in ICVs about 5 years ago was hardly about 10%, 12%. And today, we are at supra 20%. We are at about 22%, 23%, if my memory serves me right. And for us, ICV is becoming an important segment, and you will hear a little bit about the ICV products in the future, but I'm going to hand it over to MD.

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

So just to add to what Gopal has said very well, it's really that the Boss LE, LX is something we launched. So you will see that our market shares have grown significantly in ICV, so we will be playing there. The AVTR -- to take it back, the AVTR is really giving us fluid efficiency and we think fluid efficiency because it's both diesel as well as the AdBlue, which is required for BS VI, is giving us significantly better results and therefore greater savings for our customer. We will be value selling our products to ensure that the total cost of ownership, as Gopal had mentioned earlier, will be the prime driving point from a point of view of our consumer over the life cycle of our product. Specifically, how much is each segment going, it's difficult to say simply because the market is volatile. And over a period of time is when we will see stability in the market. We will play to our strengths while ensuring more and more products are coming across all segments.

[Gunjan Prithyani, Analyst]

Got it. Gopal, sir, did you share anything on the capital commitment, sorry -- for the Leyland Finance if I missed it? I mean any assessment that's been done?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, we look at what is the capital commitment required for Leyland Finance, maybe about another INR 100 crores, INR 120 crores may be required. We don't know at the moment. We're not putting any capital. We don't plan any capital infusion in Q3. But having said that, I'm not so concerned about it because this is actually growth capital. Very clearly, the company is doing very well. And if the company requires capital, it is not for any net worth reduction. It's required for the growth of the company to grow the book. And that's exactly -- so I'm -- if you ask me, I'm not too concerned about the capital that is being infused into HLFL because HLFL has always been, even through tough times such as this, has been a very big, positive accretive -- accretor to the Ashok Leyland balance sheet. And the number is not very significant, by the way. So -- and we are not really -- we are in a very comfortable debt equity position. And we wouldn't want to also not invest in initiatives which are growing well. This is one part. The second part is just to kind of add to your -- to kind of give a number to this ICV versus the rest. ICV today really accounts for approximately about 27%, and the rest of the trucks will account for the balance. So -- and last quarter, like our MD said, the ICV segment was at about 38%. So we've seen some wild swings that happened quarter-on-quarter. But all I can tell you is that this segment of haulage, tipper tractor and multi-axle vehicle is very, very significant, as I mentioned earlier.

[Operator]

The next question is from the line of Binay Singh from Morgan Stanley.

[Binay Singh, Executive Director]

My first question is on the discounting environment. Doing some channel checks, in October, we noted that the discounts have risen quite sharply, mainly by your peers, as inventory levels have normalized. Do you see that as a sort of a trend pan-India that the discount levels are high? And secondly, could you also comment a little bit about your inventory and where you see industry inventory levels?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, very quickly, like we have been mentioning this for the past so many years, frankly, that what matters is the net realization more than the discounting because -- what matters is the net realization more than the discounting. So what we are trying to do is to improve our net realization across each of the categories, and we have been able to do that. At the beginning of the year, we had prepared a kind of a business plan factoring in COVID and downsides, but we've been -- fortunately been able to improve our realizations against those plans. I would request MD to add on the discounting and the pricing. But on the inventory levels, all I can tell you, the number is very significant because as Vipin had mentioned, our operating working capital is negative, which means that our receivables plus inventory is lower than our payables. Now we would certainly want it to improve the -- we don't want to have too much of negative working capital as well. But all we can tell you is that we're not pushing inventory to the system. That never happened. That's why when we had BS III to BS IV transition, there was no significant hit to the company. Similarly, when we went from BS IV to BS VI transition in March, if you noticed, there was not any significant impact, simply reason because we produce only what we plan to sell and not what we want to push. I would now request MD to add, please.

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

Thank you, Gopal. So on inventory, just to carry it, we focus a lot on what is being retailed so that we ensure that what is required is what is available at the dealerships and not what is just kind of pushed. It's extremely significant. It's a significant management policy that we have. On discounting, it is at best on a tactical basis. As I mentioned, we are working to value sell the products. And AVTR is the first of its kind as a modular business platform. It will -- it gives the benefit to the customer right through then back into the value chain to our supplier base. It's something that is catching on with fluid efficiency being the main reason, what the customers see straightaway in the first month, 3 months of operation. As the vehicles ply more and more on the road, this will become extremely apparent. So we will value sell. Will we have to take some tactical calls? Perhaps. But the focus is on deriving value.

[Binay Singh, Executive Director]

That's very helpful. Could you just give us numbers on engine spares and defense for the quarter?

[Gopal Mahadevan, CFO & Whole Time Director]

Balaji, can you just give a rough percentage of the -- these businesses? One thing that I would, though, add, the -- these businesses have played out very, very well. So for example, even in Q1, while the revenues were very small, almost all of these revenues came from LCV, defense, engine, power solutions and aftermarket. And similarly, in the second quarter as well, I think aftermarkets are at almost -- aftermarket revenues are at pre-COVID levels as well as power solutions business. LCV, as MD had mentioned, are almost at pre-COVID levels again. And the introduction of BADA DOST, we believe that -- that is adding fillip to us, and that is helping us getting where we are. And as far as the international market is concerned, we are waiting for things to open up when we actually would see a volume increase when the relevant markets open up. But having said that, Balaji, you can just share the broad percentage.

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

Yes. For spares, it is roughly 14%, Binay. And for engines, it is 5%.

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

So Binay, if I might add to what Gopal -- sorry, Balaji, I'll just come in, and then you can come back again. I just want to add to what Gopal and Balaji was saying is that very early in late April, actually, we started ensuring then that was for the reasons that we wanted trucks to ply to ensure that public goods at that time, which were food and medical supplies, so we were opening up very quickly as far as our service points were concerned to be able to supply spares.Now that has stood us in good stead as we've gone into May, June, July, et cetera. And therefore, you'll see very heartening performance on spare parts. Defense, of course, the order book is good. And engines as much as we can supply the power solutions businesses, they're all doing well. But back to you, Balaji.

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

Yes. For LCV, it is 20%.

[Operator]

The next question is from the line of Jay Kale from Elara Capital.

[Jay Kale, VP & Auto Sector Equity Analyst]

Yes. Sir, my first question is regarding the kind of vehicles sold. I mean, last 2 years, we've seen that the tonnage growth has been lower than the volume growth. We've seen post the axle load norms increase, some bit of down-trading happening. Going forward, you mentioned that ICVs are outperforming [ so as tippers ]. How do you see the mix going forward in the next 1 or 2 years? Are we to assume that the down-trading to a certain extent has been done with? Or do you still believe that because ICVs will outperform the other segments, you could still see overall tonnage growth being lower than volume growth for the industry?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, I would say that this is a -- it's like really peering into the future and taking a guess. But I would see that the tonnage growth will be better than the volume growth is what I see. The mix in the past has been different. But we must also remember one thing, this is not just about the axle load norm. It's all about the transportation of the overall transportation industry because of the GST. So you're seeing -- see, for the first time, you're also seeing that LCV has not -- industry has not de-grown as it has in the MHCV segment. We are all waiting for the -- once the MHCV kind of came up quite sharply over the last 2 years, all of us, we are expecting that LCV would also come up, but it does not happen despite the COVID. That's because the intra-city transportation continues to be pretty robust, and the requirements for that have changed. Similarly, ICV is a different segment, completely different from the MHCV segment. And that's why you're seeing that the whole transportation requirement is becoming very specific, and I think that's good for the industry. What's happening is the fleet operators are also doing a lot of sharp shooting. So they're going to invest in vehicles, which are tailored for their requirements. And I know this may sound a little -- very pro Ashok Leyland, but that's exactly what modularity is all about. We are actually ensuring that Ashok Leyland brings in that capability which the fleet operator requires. His requirement is that I would want to buy vehicles, which are tailored for my requirement, and modularity is going to give fleet operators exactly that. So from a company perspective, we are pretty confident that we have kind of readied ourselves for any kind of change that the industry may want, but I think better heard from Vipin.

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

Gopal, you've explained it all and well at that. The important thing is, of course, that some amount of what happened in the axle load norms has been absorbed by the industry, there's no doubt, and fleet buying will come. But I think we want to change fleet buying to what Gopal said, is based on application should be the purchase, and we're the only ones who can do that with modularity. So if -- why have a large fuel tank and carry a lot of fuel when it's going to be short city runs or short intra-city runs and have a large fuel tank when you have a larger cross-country run, et cetera? That will save a lot on the efficiency of the trucking system and the service as well. And as we mentioned, tippers, we're very strong, great results on total cost of ownership; ICV, more products, market share gains; and LCV, again with the BADA DOST, we have a portfolio to ensure that we play with the vagaries of the market.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. And just to add to what our MD said, one of the things that we possibly are missing is the kind of elaborate systems we're building to ensure that truckers are able to look at their efficiency. So there's a lot of telematics today in the vehicles. We have got a huge uptime research center, which -- Uptime Solution Centre, which has now got the capability of monitoring how the vehicles are performing. We are able to interact with the fleet operators more efficiently now, giving them tips on what's happening with the vehicles. There's a lot of data that's coming in which we're sharing with fleet operators. They're essentially appreciating this. So similarly, the entire warranty management system has changed. Our quality processes have changed. So when we look at it both from within the company and outside the company, we are actually trying to drive efficiencies within the company and also ensure that these initiatives, especially on digital side, is reaching the fleet operators. So over the next few quarters, you will actually see the differentiation that these kind of initiatives can make. Because we're trying to see -- kind of looking at this whole thing in a more wholesome manner than just selling trucks and kind of trucks or buses and then just walking away. I think that is where the differentiation comes in aside of what Vipin had touched upon about the modularity, et cetera.

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

So if there is a question on digital, I'll wait because this is -- it's a great initiative of our company. So we can take it up if somebody has a question. It's a very positive initiative that we are undertaking.

[Jay Kale, VP & Auto Sector Equity Analyst]

Sure, sir. That would be great. If you can just highlight a little bit on the digital initiatives as well. And also, just to add to that, on -- you mentioned that there have been increased inquiries in the month of October as well. If you could just give some flavor of what are these kind of inquiries in terms of first-time buyers versus the large fleet operators coming back for replacement. How has that changed versus the COVID levels? And how do you see it going forward?

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

Okay. Gopal, should I go first?

[Gopal Mahadevan, CFO & Whole Time Director]

Please go ahead. Please go ahead. In fact, my -- sorry, my mic was on mute. Please go ahead.

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

So let's come to digital, and it's really picking up from where Gopal left. The whole focus is how do we drive digital as with the customer at the heart of the decision-making process for digital. So we actually start with what the customer may need. Maybe the customer has not asked for it. The customer, especially the fleet customer, and increasingly, the individual will want to know what is the health, productivity. And if it's a fleet operator, at what stage of operating efficiency, preventive maintenance, et cetera, downtime, all of that information should be available. We have the Uptime Centre, as Gopal said, centrally. But we also have quick response teams in the field, which are cross-functional teams, that are fed this information almost proactively so that they can attend to customer requirements almost before the event happens from a pre service or if there's a breakdown, which there will be, to attend to it because data is all available and then fed back to the fleet. This is going to be a continuous process, and you know that. I mean, if digital was enhancing at 3x pre-COVID, it has just gone up to 7x, 8x, and we've reinforced the digital team. But at the end of the day, the customer is the heart of the decision-making process, and then we work back with all the apps. For example, we have an app called LeyKart and you would know that. And during COVID, LeyKart, actually -- it's a platform on which spares can be bought. LeyKart actually showed a massive enhancement in the way spares were being purchased. Now that's kicked off and is going to keep going forward. There are many, many such examples that the digital team has undertaken. So you'll hear a lot of us -- a lot from us on the digital initiatives. On the other question of whether fleet operators, individual buyers. Individual buyers, a lot is related to the smaller trucks, which is the light commercial vehicles, some to ICVs. And more and more would be fleet operators as the truck ticket size keeps going up. Now we took a massive opportunity, all of us, to interact with our customers virtually during this entire period of lockdown through to this day. So we are talking to them, interacting with them, explaining our products. And this starts from the Managing Director, including Gopal and, of course, the sales --the CEOs and the sales teams, et cetera, to be engaged with customers, both fleet as well as with the dealers for their retail initiatives. So there's a huge communication training program at all levels of the organization that is going on, almost taking advantage of a virtual way of working. Gopal, if you want to add to that.

[Gopal Mahadevan, CFO & Whole Time Director]

No, I think you have said it, Vipin. So I think there's a lot of initiatives that we're taking to reach the customer in different ways. And these are going to be important as we move because this is not the commercial vehicle industry 5 years ago. So things have completely changed. And I think what -- and the ownership patterns are changing, financing models are changing. So we are -- there's a lot of work that's going on in the back end. All we can share with you at this moment is there's a lot of work going on in the back end of transforming some of the ways we have performed. We are kind of reaching out to customers. And also, the vehicles have also become more robust as we move forward. Significant drop in failure rates. And the -- and we -- as we move forward, we are also seeing that the demand for fully built vehicles could go up. So we're kind of readying ourselves for that. And for us, again, AVTR, if you notice, is a complete, new range of fully built trucks. And our strategy for buses is also the same. You will hear about it as we move forward in the next 2 quarters about what we are planning. But there's a much larger, I would say, a cohesive plan that's coming in to ensure that we are better positioned to reach out to customer, Indian customers as well as global customer needs. As Vipin had mentioned earlier, and we have shared with you, our ability to reach the global markets is also significantly better with a wide range of both LHD and RHD vehicles that we have today. So for us, I think we are ensuring that we are at a strategic advantage in comparison to the players that we have to face in the market. And hopefully, this strategy is going to play out well.

[Operator]

[Operator Instructions] The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.

[Prateek Poddar, Research Analyst]

Sir, you indicated that quarter 3, quarter 4, the growth could be fairly substantial. Is the supply chain ready for that ramp-up? That was question number one. Second is in terms of Project Reset, I mean, this is the first quarter that we would have seen some impact. Could you just highlight as to how should we see this in the next coming quarters flowing through? That is question #2. And lastly, sir, if volume growth will be fairly substantial in the next few quarters and assuming there's a lot of working capital-related debt held off, which had held in quarter 1, will now start getting released. And maybe by the year-end, debt would substantially reduce. These are the 3 questions.

[Gopal Mahadevan, CFO & Whole Time Director]

Okay. Now the only think before I hand it over to Vipin is that we didn't use the word substantial. What we said is if the pundits forecast that the de-growth for the full year for the industry is going to be 25%, 30%, then, logically, Q3 and Q4 should be very good growth quarters. So we'll wait and watch, but math -- simple math tells us that Q3 and Q4 should be growth quarters over last year. This is one. As far as the working capital and funding is concerned, we would want to ensure that we have a -- we have an optimal working capital play here. The idea is going to be to ensure the following as far as the, I would say, the inventory and the finished goods part of it is concerned. We would want to ensure that we have sufficient inventory not to miss a sale. At the same time, we aren't going to pile up inventory when it is not required because as we move forward -- I'm not saying that this is going to happen in the immediate quarter, but as we move forward, modularity is also going to help us optimize our inventory. So as far as receivables is concerned, while we expect that with a few businesses coming in, there could be a little bit of addition to receivables. And that's not a pressure. Receivables -- STU business or bus business has a certain amount of credit in it. But as far as our basic MHCV business is concerned or international or LCV is concerned or aftermarket or any of other businesses are concerned, that is virtually negligible credit in the business. So that model is not going to change. We will -- we are well poised on the treasury fund to meet the working capital requirements, so we don't see working capital as a big challenge.Now over to you, Vipin.

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

So on supply chain, your specific question was, is the supply chain ready for the ramp-up? So the answer is broadly yes. Our communication with the supply chain is intense so that we are giving them the projections as well as understanding what their challenges are as necessary, helping them as well to mitigate those challenges. So even 10 days -- within 10 days from now, we'll have our strategic suppliers meet where all of us -- both of us certainly and the supply chain team will be present to individually and collectively speak with suppliers on the plan going forward. So the important thing is, are we communicating and are we ensuring that we are making payments on time, so the supplier base is helped to ramp up. We don't see any significant issues as of this time, unless there are some specific issues that come up.

[Prateek Poddar, Research Analyst]

And on the question of Project Reset, sir, and how should I think about costs in the coming quarters.

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

Gopal, do you want to take that?

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. See, I think Project Reset is we -- on an overall year basis, we do believe that the cost will be lower than -- at least on the administrative and selling overhead, they should be lower than last year. As far as -- that is our expectation at the moment, unless the ramp-up is so high. I mean we just have to play it out, right?We -- other thing is we are trying to optimize our manufacturing overhead as well. But as Vipin had mentioned, Project Reset is not about just taking cost out. Project Reset is about improving the bottom line through various means, which means we are also -- see we had an initial plan, like you said. What did we do into April was when this COVID came and hit us, all of us, what we did, as we said, the first focus is on safety, and we needed to ensure employee safety. And that was done very, very passionate at all levels, not only employees, but also stakeholders, drivers on the road, et cetera. And then the second one was liquidity, and we mopped up liquidity from the banks who supported us unflinchingly so that we had sufficient cash balance. And even as I'm talking to you now, we do have liquid funds available in various liquid forms for nearly about INR 800 crores to INR 900 crores or even above. Now the third thing was on cost. And looking at, okay, let's look at what do we expect COVID effect? If COVID were to be extend until June, July, where do we see revenues? What happens if the industry were to take a slightly lower curve upwards? As said, we said we should ready our organization to have a bottom line, which is most optimal. Now I can't give a number of what it is, but we said we should strive to achieve the best bottom line given the circumstance. And that's exactly what you're seeing happening in Q2 as well is that 2.8% EBITDA has come in -- has come in because of you can see the effort that has gone into building that EBITDA. So we would want to pursue that, and that would come through not just cost efficiencies. It will be through value engineering, it will be through mix, it will be through special initiatives, it will be through revenue enhancement. So we're looking at a whole bunch of initiatives, and these initiatives are not short term. We are not taking out costs, which are essential -- even as we talk today, while we do kind of share with you that we are going tight on CapEx, we would want to ensure that we are also ready for the growth when it comes in. Otherwise, we would shortchange the future for the present, and that may not be good. So we want to see the overall structure of our balance sheet and our P&L. How are we positioned? As we see it, we are in a very comfortable position today. And I think the whole team has managed the overall challenges very efficiently from each of these functions. And so we would want to ensure that as we move into 2021, '22, we truly get the benefit of operating leverage, which means we would actually see that when the revenue starts to go up, we're expecting that the initiatives that we have taken in the current year would start to pay off as we see an operating leverage kicking in. This may happen even in Q3 and Q4, but we'll wait and watch.

[Prateek Poddar, Research Analyst]

So sir, just finally, connecting dots. You're saying, I mean, whatever the pundits are saying that volume growth can be good in the coming quarters, plus the impact of Project Reset plus balance sheet deleveraging, that is the way to think about it, right, as we go towards FY '21, from here on?

[Gopal Mahadevan, CFO & Whole Time Director]

As we look at '21, '22, I would certainly say that. As far as 2021 is concerned, I think I would again say that, that is the trajectory. That is what the team is aspiring for. Balance sheet, de-leveraging, I think, will be a factor of how much of working capital is required. And I'm not too concerned because if a business requires working capital, and that working capital is for good purposes, if I'm building inventory which is required because my demand is going up, that's not a bad idea. If I'm having receivables because I'm getting into sectors where credit is offered, but it saves credit, again, it's not a bad idea. But if I'm using a working capital, which is actually going to fund my aging inventory or my aging receivables, that would be a cause of concern, which we don't have at the moment. And we don't believe this will be a situation at all in Q3 or Q4 also.

[Prateek Poddar, Research Analyst]

Got it. And last question...

[Operator]

Mr. Poddar, sorry to interrupt, but for any follow-ups -- the next question is from the line of Raghunandhan from Emkay Global.

[Raghunandhan N. L., Senior Research Analyst]

Congratulations on the recent product launches and improvement in balance sheet. Sir, my first question was on replacement demand. What is your current sense in terms of utilization of transporters, their profitability? And what would be the factors that would catalyze replacement demand ahead? Secondly, recently, exports have turned positive. And considering your initiatives on the new LHD, RHD products, how do you see the outlook?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, I'll answer this briefly. And -- but I would request Vipin to answer this. But first, the export front, like I had mentioned, and like we have shared with you in November last year and even during some of the product launches that we've done, what we're doing is building capabilities as we move forward. So one of the most important things is product capabilities. So our current suite of our products in terms of both LHD, RHD in -- both in MHCV and in LCV is going to stand us in good state because that's what the market requires. The second one is in terms of both projects and for retail, we are building capabilities in -- our current mainstays are in Middle East and in SAARC countries, especially Sri Lanka and Bangladesh. We believe that Bangladesh will also start revising because Bangladesh had been slow in the first 6 months of the year, but we believe that the buildup will start happening. Sri Lanka, we'll have to wait and watch because the demand will -- because they have also been impacted by COVID, but it looks like the market will improve there as well. But having said that, we -- for us, the next big market will be Africa as a continent. And we are not going to spray and pray there, but we're going to actually have select countries in which we would want to kind of deepen our presence. We are in talks with various business houses there as well as for potential distributorships, et cetera, which will help us to make a slightly deeper inroad into those markets. And then as we move forward, we would have Southeast Asia as well coming in. So we have our strategy overall carved out. We have made some changes in the organization as well. And we have also made some changes in the physical organization about where they should be located. And our focus is going to be much sharper on that. As far as your first question was concerned, which was -- I'm sorry, I missed that one. Second one was export. The first one was on what, I'm sorry?

[Raghunandhan N. L., Senior Research Analyst]

Replacement demand. I wanted to understand...

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. See, I would say that -- here, I would request Vipin also to add, but I think the replacement demand will start kicking in as the sector starts to open up. So people have a reason to kind of replace these vehicles because as sectors open up, they would also want to have the latest vehicles coming in surely because of logistics uptime. So I believe that replacement demand would also start kicking, and we haven't yet discussed about the scrappage policy, which I'm sure Vipin will share with you.

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

Yes. Okay. Now to start from exports, and Gopal, very eloquent. So product, LHD, RHD and state-of-the-art products, BS VI, and then, of course, we have the capability for non-emissionized markets to supply to non-emissionized markets as well. As far as exports is concerned, it's a major trust area for us. The second is, and Gopal alluded to it, distribution capability, especially in Africa and the Middle East. As we speak, and by end of March, this will be significantly enhanced with distributors who are capable of assembly, who already have a finance arm, who already have the capability to have -- to attract people for sales and service, and discussions are on with major people who are embedded in those respective countries in Africa and then who can look after the neighboring countries and who are well acquainted with the way business is done in Africa and the Middle East as well. The structure, again, in terms of people is being enhanced, and we bring both bringing in and utilizing our existing people to make sure that exports and international operations becomes the mainstay for future growth. So those building blocks are being put into position. I just wanted to say one thing as we are running out of time is that whatever decisions we are taking in Project Reset or anywhere in the company, they are not for the short term. These decisions will stick and will be of great advantage to the organization in subsequent quarters as well. It's not that if we remove a cost, that cost will come back, and it's a short-term decision. They will stick and be there for the long term to give the company a major operating leverage as well as growth opportunities. On replacement demand, I don't think I have numbers, but we can see that utilization is going up, for sure. Through the Uptime Centre, we get utilization data. That's going up, and that's fed back to fleet operators and to -- and even to finance companies in some form so that they know exactly where the asset is and how the asset is being utilized. Every quarter will be better than the previous quarter. I'm convinced of that. But we're going to open up international operations like never before. So that we then work with geographies, which are wider and which will obviously go through their own business cycles.

[Raghunandhan N. L., Senior Research Analyst]

Just a question to Balaji, sir. Yes, I'll come back in the queue.

[Operator]

The next question is from the line of Amyn Pirani from CLSA.

[Amyn Pirani, Research Analyst]

Most of my questions have been answered. But just wanted to clarify, have you put out any guidance for CapEx and investments for the year?

[Gopal Mahadevan, CFO & Whole Time Director]

I would say that we, at the moment, are looking for a possible cash-out -- cash outflow for CapEx for about 200 -- I mean, for INR 750 crores. I don't think we've changed that number. But as we had mentioned, we'll come back if we need to in the fourth quarter. But I think we should stay in that number. That's our current estimate. As Vipin had mentioned, as on September, our overall cash outflow on CapEx was something like about INR 270 crores. So we still have about INR 400 crores, INR 500 crores of headroom available for us to do that. And believe me, these are all just expenditures, which are for expanding our range or improving certain capabilities, and that's what we are looking at. And investments are concerned, like I had mentioned, we would invest a bit into Optare. We would invest into HLFL if that's required. And very small investment happening in some of the other things like Alteams or anything like that or some smaller investments that are happening. But we will again have a little more to share as we move forward because whatever the investments, rest assured on something, whether it is on companies which are not performing well also or companies which are performing well or companies which are performing neutral like for some of our subsidiaries are -- they're not really asking for a big amount of cash unable to manage. I think all of the existing -- we have actually kind of restructured the whole thing over the last 5, 6 years, if you notice. So we have Hinduja Tech. We have got Alteams, which is supplier of high-pressure aluminum die casting. Then we have Albonair, which is, again, a very important subsidiary in terms of supplying BS VI emission nozzle system. And then we have got Optare, which is another important subsidiary for us because it's in Europe, and it is -- it makes state-of-the-art buses, and it has got its plans of its own, which we'll share in due course. And then we have Hinduja Leyland Finance, which is an immense strategic asset for us because it's a strategic asset for Ashok Leyland vehicles and also for -- as an investment arm, which has got its overall portfolios in other businesses also. So it's a good de-risking strategy as well. When we are speaking -- when we're putting in capital into most of these companies, it's being done in a very acute and measured manner. And I think that in the medium term, all of this will be accretive to the ROCE on a consolidated basis of Ashok Leyland. That's the larger plan.

[Amyn Pirani, Research Analyst]

And sir, just one thing...

[Gopal Mahadevan, CFO & Whole Time Director]

Vipin, would you want to add anything? Sorry, I again put myself on mute.

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

No.

[Amyn Pirani, Research Analyst]

Just one follow-up on that. If you can share, would it be fair to say that starting next year, at least the CapEx number could start to taper down? Or do you think that this would be the budgeted levels broadly for next year as well?

[Gopal Mahadevan, CFO & Whole Time Director]

I know that you are looking at it, Amyn, for modeling purposes. But we will take a call on CapEx at the end of the current year, to be honest. We don't share next year CapEx because the strategic planning process has just started. So we will look at what are our aspirations in terms of growth, and then we will decide on it. But you see this is -- this won't be another huge CapEx initiative. But we must also understand that just 2 years back, Ashok Leyland was a INR 30,000 crores company, right? So we have to look at it in perspective, and I'm sure that those revenues will come back. So we have to ensure that we are doing all the things that are necessary but only absolutely necessary to put us back into that credit because we will be conservative on CapEx, rest assured.

[Operator]

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for closing comments.

[Gopal Mahadevan, CFO & Whole Time Director]

I would request Vipin to do the...

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

Gopal, go ahead.

[Gopal Mahadevan, CFO & Whole Time Director]

No, I would request Vipin to give the closing comments. Thank you.

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

So first, ladies and gentlemen, thank you very much for your questions, for the time you've spent -- obviously, also to Motilal Oswal for setting this up. Three comments, really. One is quarter-on-quarter growth will return. The second is, product-wise, we have launched virtually, and these products are getting a good response and these products are for the future, and as is Ashok Leyland, always technologically ahead than most competition. And the third is that international operations building blocks being put into position. And finally, if I might add the fourth, which is whatever decisions we take on Project Reset will be for profitability, which is bottom line enhancement and which will cover all aspects of the P&L but will benefit the company for the long term. Immediate, for sure, but for the long term as well.

[Gopal Mahadevan, CFO & Whole Time Director]

So Jinesh, back to you. Thank you. Jinesh, back to you.

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

Thanks. Thanks, Mr. Sondhi, Gopal and Balaji. We'll close the call over here. Thank you.

[Gopal Mahadevan, CFO & Whole Time Director]

Thank you all. Thank you.

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

Thank you. Bye-bye.

[Operator]

Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.