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
You don't have any saved screeners yet
Good morning, ladies and gentlemen. Welcome to the Ashok Leyland Q2 FY '22 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Raghunandhan N. L. from Emkay Global Financial Services. Thank you, and over to you, sir.
Good morning, everyone. On behalf of Emkay Global Financial Services, we are pleased to invite you for the conference call of Ashok Leyland. We thank the management for providing us this opportunity.From the management team, we have with us Mr. Vipin Sondhi, MD and CEO; Mr. Gopal Mahadevan, Director and CFO; Mr. K.M. Balaji, Senior Vice President, Finance. We request Mr. Vipin Sondhi for opening comments, post which we can open the session for Q&A. Over to you, Vipin, sir.
Good morning, namaste, ladies and gentlemen. Thank you, Raghu. It gives me great pleasure to be in touch with you once again through this post-result conference call, and I thank you very much for the interest shown in Ashok Leyland. And I hope all of you and your family members are safe, healthy. And it's important that we continue to focus on the vaccination process as well as social distancing.I'll quickly run you through the Q2 and half year performance. Recovery in the MHCV domestic truck industry volumes, which has started in the second half of FY '21, continued into Q2 of FY '22 after a setback during the second wave of COVID, as you would all recall, in the Q1 of FY '22. However, despite this setback, a significant growth in volumes was registered in Q1 in percentage terms but due to the low base of last year.The MHCV domestic truck industry volumes in Q2 were higher than the corresponding quarter of last year by 116%. Historically, AL's market share in higher tonnage vehicles has always been higher than ICVs, and AL has a dominant presence in the south, as you know. Q2 FY '22 witnessed a 15% shift in volumes from higher tonnage vehicles, vehicles like tippers, tractors and MVs, to ICVs, fueled by the increasing adoption of CNG.Volume contribution on the south to the total TIV in Q2 is lower vis-a-vis the same period last year. Both have impacted AL's truck market share in Q2. But I'm happy to share with you that we will be introducing products in the CNG segment in Q4 this year, and this should help grow our share of business.Increase in fuel prices added to the challenges, squeezing operators' profitability. However, volumes are returning to last year's H2 levels post the opening up of the country, and we are seeing demand increasing. With the economy set to grow to over 9% in FY '22, we are quite positive about demand picking up.Our products, as you would remember, we launched the AVTR range of trucks and the Bada Dost in the LCV segment. These were launched last year and are delivering excellent performance and have been very well received by our customers, and we will continue to launch new variants from these platforms. We are very, very happy and take great pride in the feedback that our customers are giving to us.The passenger segment owing to COVID-19 continues to post lower volumes. As schools, colleges, offices open up and intercity travel increases, we should see better volumes. We are a large bus manufacturer, and therefore, this improvement in the situation will positively impact AL.LCV volumes for Q2 FY '22 was at 13,328 numbers while -- which was higher than last year, 10,952, by 22%. Our market share in LCV continues to steadily increase, and in Q2 reached an all-time high of 23.3%. We will continue to grow this business as we have repeatedly proved our ability to introduce winner and industry-leading products. Our MHCV and LCV exports at 2,227 number is 49% higher than Q2 of last year, which was 1,491 numbers. Revenue for Q2 is at INR 4,458 crores, which is 57% higher than Q2 last year at INR 2,837 crores. EBITDA has improved to INR 135 crores, I repeat, INR 135 crores, 3%, in Q2, up from minus INR 140 crores, minus 4.7% in Q1. Q2 EBITDA is also higher than Q2 of last year at INR 80 crores, 2.8%.PAT for the quarter was at minus INR 83 crores in Q2 vis-a-vis a loss of INR 282 crores in Q1 FY '22 and a loss of INR 147 crores in Q2 FY '21. The company has manufactured 12,048 MHCVs in Q2, 10,028 MHCVs during Q1 and has ended the quarter with an MHCV inventory of 2,958 numbers, 4,424 numbers in Q1. So inventories are down.Operating working capital for Q2 has significantly improved to approximately INR 32 crores from INR 1,130 crores in Q1, resulting in a generation of cash of over INR 1,000 crores in Q2. This resulted in paring down of debt.Capital expenditure for first half was contained at just INR 175 crores as compared to INR 290 crores during the same period last year. Investments in the first half of the current year was just INR 4 crores vis-a-vis INR 109 crores invested in the same period last year.Net debt as on 30th September '21 at INR 3,112 crores, a gearing of 0.49x, was lower by INR 1,063 crores when compared with 30th June '21, a level of INR 4,175 crores, a gearing of 0.62x then. Net debt as on 31st March '21 was at INR 2,607 crores, a gearing of 0.37x.The outlook. Moving to the outlook. The truck segment is expected to lead the recovery in the coming months. MHCV truck volumes are likely to draw support from core activities, covering construction, mining, not to forget the likely deferred replacement demand supporting the volume growth. Increased infrastructure outlay, a conducive financing environment, a scrappage policy in the offing and rebound in economic growth are expected to support growth in industry volumes in the near term.The tipper segment is likely to benefit on the healthy traction in construction activity and mining. The tractor trailer segment has been the worst impacted over the last couple of years. Demand from increased production in core sectors covering cement, steel and auto are expected to support the growth in this very, very important segment. We expect LCV truck segment volumes to grow further, owing to the increasing demand for last mile transportation, especially from the e-commerce segment as well as expectations of stable demand from agri and allied sectors.We've introduced new products in the MHCV segment, spanning tippers to cement mixers, and also in the ecomet range. We continue to watch the global and Indian semiconductor situation, which has impacted many industries worldwide, from mobile phones, to PCs, to cars, to commercial vehicles. With COVID vaccinations gaining pace and the government's focus now on the second vaccine shot, we believe the COVID-19 impact should soon win gradually and people's confidence to restore normalcy in their lives will swiftly increase.Going forward, we foresee tremendous opportunities. We will continue to grow exports, defense, PSB, LCV and parts even as we expand the reach and products of our core MHCV business. Our focus on digital will help leverage the benefits of efficiency and cost. Customer requirements will be at the core of all our digital initiatives. Our electric vehicle business through Switch Mobility is doing well and gaining orders in India and overseas. It has made an impact in COP26 held recently in Glasgow, and we are providing a sharp focus to this business, which is the reason we've high [indiscernible] the EV assets to Switch and Ohm.We at Ashok Leyland are rock solid and resilient and are confident and extremely well positioned as a pure-play CV player with new gen products and talented people to deliver profitable growth as the market revised. And I thank you very much for the interest shown on Ashok Leyland. And with this brief, I open the floor to questions. My colleague, Director and CFO, Gopal Mahadevan, is with me. And Senior Vice President, Balaji, is also present.Over to you, back to you, Raghu.
[Operator Instructions] The first question is from the line of Hitesh Goel from CLSA.
My question is basically on the replacement demand, which actually was highlighted in the summary which was given by MD. I just wanted to understand what kind of -- what would be the proportion of replacement demand in the next few years? Because if replacement demand comes back in full in next few years, you could see a very significant growth in next 2 years in CV. So how do you track that? And what are the indications from the government?
See, this is a very good question, Hitesh, and we are also kind of expecting that the replacement demand will also start kicking in for the following reasons. One, as we had mentioned previously in the calls, we've seen a huge change in the technology issue. So we have moved very quickly over the last -- if you look at it from 2017, we moved to BS III, to BS VI.So as things go forward and with the focus on environment and ESG and that polluting and pollution, a lot of corporations are focusing on their supply chain and the attendant pollution reduction possibilities that are there. So we would -- we expect that people will start moving to BS VI much faster than what was happening in the BS II, BS III and possibility, BS IV either. This is point number one.The second point is the replacement demand would also start kicking in because all said and done, vehicles age whether they have run or not. And over the last 2 to 3 years, there have not been much vehicle movement because of the [ Kodas ] 2 years. There has not been much movement owing to COVID.But as the economy opens up and people see the risk of COVID coming off, that's the most important thing. I think if you look at it, all of us are just waiting for COVID to become a normal kind of a disease that can be cured with a pill or something like that, and we are seeing that happening, getting better and better. Once that happens, we would actually see primary and replacement demand going in.We are keeping in touch with key vendors -- customers. We are looking at their fleet age. We are suggesting to them various options that could be available for them to replace it. And they are also saying they'll let the demand pick up fully and then we would want to replace vehicles.Vipin, would you want to add?
No, I think...[ Technical Difficulty ]
Ladies and gentlemen, the line for the speakers have got disconnected. Please stay connected while we reconnect the speakers. Ladies and gentlemen, thank you for patiently holding. We now have the lines of the speakers reconnected. Over to you, sir.
I apologize [indiscernible]. I apologize, [indiscernible] here, we had a small glitch in technology.Just going back to summarize, Hitesh, what Gopal said in actually under 3 points is, number one, economy gaining traction, which is positive. Number two, the consciousness and the need to go green, which will drive towards BS VI vehicles from BS III and BS IV. And as the scrappage policy comes into work, then again, fleet -- aged fleets will start moving towards better technology and better fuel. So these would be the 3 points for replacement demand in the next few years as articulated by Gopal.
Yes. And the average age -- I just wanted to add, Vipin, to that. As per, I think, on ICRA report, if I'm not wrong, the average age of the vehicle is currently at about 9.5 years in FY '21, which is almost like the highest that the average age has been over the past few years. FY '19, for example, was 8.7, the report says. But of course, these are statistics.But directionally, what will happen is at some point in time, there will be a pressure for us, for the industry, the transportation sector, to switch over to later generation vehicles, especially also because most of them are packed with a lot of technology today for track and trace, for vehicle performance, driver safety. So there's a huge shift that's happening on transportation side.
And can I ask one more question? Just wanted to understand how is the financing situation because under COVID, actually, banks were very reluctant to finance this truck segment because of obvious reasons. But have you seen the animal spirits coming back and people willing to fund this segment now?
Yes, I think so. You see after the morat has come off, the moratorium, and then they are seeing that the larger fleet operators and even the smaller fleet operators are actually paying back loans. And the collections -- collection efficiencies in this sector has -- in the finance companies have stepped up quite significantly.So the larger players in the financing side have started to open up financing here because you see, you must understand, when you look at sector financing, especially even in banks, other than normal corporate lending, where would they go to? They have to go to a real estate, they will have to go to commercial vehicle financing. They will have to go to part financing, motorcycle financing, agri financing. So when you do that, this actually is a very preferred segment of financing because of the ticket size and security that is available under retail value.
Just to add, Hitesh, we meet heads of banks. They are more and more coming forward to financing, looking at alternatives. And you can remember now, as Gopal mentioned, the technology which is available for track and trace can actually monitor and secure truck performance at real-time basis. So financial knows exactly where and how the truck that is being financed is doing and where it is physically. So there's a lot of security involved in the new gen trucks. So we see that as a huge positive in the financing situation.
The next question is from the line of Pramod Kumar from UBS.
Sir, I had one question on the business side. Before that, I just wanted more clarity on this transaction with Ohm Global Mobility. So can you please throw some light on this? And just clarify whether this is a sale to a promoter entity? Or is it still going to be under the Ashok Leyland? If you can just clarify and throw some light on this transaction.
Yes. You see, essentially, what we're doing, Pramod, that -- we had mentioned that we would want to focus the EV initiatives outside of Ashok Leyland, especially on the LCV and the bus side. So that's how we had formed Switch. And if -- I don't know whether you attended the meeting that we had specifically on Switch and the EV initiatives earlier this year. So there, what we had mentioned was we would -- Ashok Leyland had started the EV initiative in a very small way, about 2, 3 years ago. We launched [ circuit ], and then we got a couple of orders as well, and then we were kind of tying up relationships. But we didn't go the whole hog because this business requires a lot of capital investment.So then what was decided was that before this business starts to acquire a significant amount of size and shape and which required a lot of investment, let us transfer it into Switch. And Switch is housed in U.K., which is held by Optare plc. And Optare plc holds -- approximately about 91% to 92% is held by Ashok Leyland. Another 7.5% is held by Hinduja Automotive Limited, and then the balance, 0.5%, is a very small -- it's a very small percentage held by various third-party investors, and it's an unlisted entity today. It's been -- Optare Switch has been delisted, not Optare plc. Optare plc was always unlisted.Now what we did after that, if we were to remember, was that we said that Switch U.K. -- and if I may use the term in very simple terms, these are not the exact names of the company, but for the purposes of saving time, so Switch U.K. will have a subsidiary in India called as Switch India. And that would be the -- I would say, the manufacturer for Switch business. It would be the primary manufacturer, there will be other manufacturing locations. And this company would also cater to the Indian and [ sharp ] market, which means sales would happen from Switch India to -- the direct sales will happen from Switch India to the Indian market, stock and then markets. And Switch India will also supply to the rest of the world under the Switch umbrella.Now fairly, what we did was we wanted to reach the end customer fully, right? So it was not just only for supply. And what we decided to do was that we realized that we need to get into the e-mobility as a service space. And that would mean that the ownership of assets would be with one of the Switch entities, but this would be a pay-for-use kind of an arrangement with customers where they pay as they use. And the market is actually moving towards that. So if you look at some of the STU bids, some of the larger e-commerce companies, all of them would actually want to have a pay-for-use. And these are -- this can become win-win arrangements for the OE as well as for the customer, which is why Ohm is being formed. Ohm is now held under Hinduja Automotive Limited, but it is going to be transferred. The plan is to transfer it to Switch U.K. with possibly the HAL holding about 20%, but the balance to be held -- majority to be operated by Switch. But we -- this has to be done only after the regulatory approvals are done. So until such time, we will have to wait for it, but the larger plan is that. So subject to regulatory approvals, these are our plans.
I'm sorry, Gopal, sorry to interrupt. But ultimately, this won't come back to Switch, but 20% ownership will still depend on the promoters. So why go through this route? Switch Mobility is Ashok Leyland's subsidiary, the [ directors ] could have happened to them. So I'm just trying to understand, Gopal, is there a regulatory requirement you need to route it like this? Or...
Yes, there is a -- we would need to -- we'll come back with that much later to you. But believe me that this is the most appropriate way of doing it.
No, no, no. I'm not doubting that, but I'm just trying to understand the logic here. Nothing -- but anyway, I think you're going to share more details on this at a later stage, right?
Absolutely. So all I can share with you at the moment is that we are looking at -- let me add a couple of more things. I mean, one is we are looking at raising capital, both at Switch U.K. level as well as in Ohm Mobility. There are discussions that the management of Switch is having with -- Switch and Ohm are having with various investors, and we will keep you posted on that as well. But you can be rest assured, one thing that you've raised, and this is what I think is the most important part of your question, is it going to be majority owned by Ashok Leyland? The answer is yes.
Okay. So wait for more details on that, Gopal. And going back to the question on the demand side because the CV cycle was expected to be much more stronger. And I think some of your peers have made statements to the fact that the industry is going to be marginally positive on second half of this year versus last year. So I'm just trying to understand, while the economic actually is looking up -- all of that is great, but it's not exactly translating into great demand for CV volume.So even in that context, is there something which you are missing out in terms of impact of the GST plus the tonnage increase and the consequent drop in utilization rates? And if you can help us understand, where is utilization rates right now as a fleet? And where do you think is -- what is the threshold which it needs to be before replacement market? And also some comments on [ B2C ] as to how we are tracking it. And related to CNG, if you can talk about how much is CNG as a percentage of industry volumes and what are Ashok Leyland's plans in more detail.
What was the last bit of your question? I didn't understand.
Gopal, steel.
Okay, yes. Yes. So essentially, let me attempt to kind of give a broad answer to it, and then I'll hand it over to our MD. See, as far as fleet utilization rates are concerned, the reports of -- various research reports state that the fleet utilization rates are somewhere around anywhere between 70% to 85%. Some reports say 85%, some say 70%. But I think there is a much larger demand to come in because what we're seeing happening is most of the industries have started to grow and post very good results, and they are actually posting growth. So that would -- if they are posting growth, that would require transportation, right? So that's why you're seeing this.The second thing is earlier, I think, Hitesh had asked about the replacement demand, which is also a very important part. That has not yet fully kicked in, but at some point in time it will because, as I've shared with you, the age of the fleet is one of the highest in recent history at nearly over 9.5 years. So we are going to see that figure also happening.The reason why the TIV has still not picked up fully is because -- please understand, between last year and this year, okay, we have had COVID, which started suddenly in April, and then we had a complete shutdown until maybe July. And then things started to thaw a bit and then things started to look like improving. Fourth quarter of FY '21 was actually kind of a good quarter in related terms.But then again, what happened is in April of this year, April -- mid-April, again, till June end, there was a complete shutdown. And then there is a talk about a third wave. And then you're seeing that in Europe, we are talking about a fifth wave, right? China is going through again certain impacts of COVID again.Now -- so when all of this is happening, India is getting better, thankfully. So I think the vaccinations are getting better. They're now -- they are talking about the second vaccination to be completed. There are mobile vaccination centers, vaccination centers to be done -- vaccination to be done house to house, which are all very innovative in a country of this size.Now having said all that, while all these cinemas are open, restaurants are open, so people are going out, right? So a lot of -- even the work-from-home situation is getting reversed, people need to come to office. Last quarter, I took the call from home. This quarter, I'm actually taking it from office.So what happens is there's a lot of reversal of things that are happening, right? So all of this would need to be converted to demand when confidence build up. So once this third wave, people see that it's not really something that is going to impact and then the COVID situation eases out, we believe that there will be a huge demand that will come up, especially on the commercial vehicle side.The second thing that we are not talking about, which is equally important and important for us also from a company perspective, is the bus demand. Today, only now the primary consumers of this bus are STUs in the city, then you have office and then you have schools. Now most of them are shut other than the STUs, which are also operating now, which are operating with very limited passengers. Now the passengers are getting more and more into the buses. So you are seeing STU orders also starting to come.So I think we are at the cusp where if the COVID third wave does not happen, we are going to see an increase in demand, right? I hope -- I'll now hand it over to MD.
No, I would second that. Two things, we move goods and we move people. People movement will begin. Schools, colleges will ensure people movement continues. And goods, as we -- it's a core industry as the economy opens and we know that the economy is opening. We see that happening. Definitely, goods will move, services will move and trucks will be bought and trucks will move as well. So we are looking at it quite positively. It's just that a little bit of more confidence needs to come back into the market. But the ingredients are all in position now.
Gopal, on the CNG side.
Yes. On the CNG side, again, very quickly, and I'll hand it to MD, is that our -- last year, we have -- our focus was on launching, I think, absolutely, the state-of-the-art AVTR range of products, which are monitored. And we will see medium-term benefits on this because of the -- not only the robustness of the product but the flexibility that it offers customers, the flexibility it offers in manufacturing and also the reduction -- the steep reduction and complexity for us. All of this will obviously result in productivity improvements.The other focus that we had, which has also paid off very well, is the launch of Bada Dost, which has actually kind of ramped up our market share to about 21%, 22%. So now we are looking at launching CNG, which is important, and we should be launching these products in the fourth quarter. And that could enhance our presence in the intermediate commercial vehicle space where today, I believe that CNG demand out of the total ICV demand business is somewhere around anywhere between 40% to 45%. So MD, over to you.
Yes, we've got to go right across. So quarter-by-quarter, we'll be launching new CNG products, with the first set coming out in quarter 4 of this year. That's in a few months from now. And then it will just carry on after that. So we are all set for that after having ensured that the AVTR and the Bada Dost stabilize and settle down.
The next question is from the line of Gunjan Prithyani from Bank of America.
I have 2 questions. Firstly, does the extension of this CNG which you mentioned -- now if I look at market share, there's clearly been slippage for the last few quarters. Can you give us some sense, is it only CNG? What is it -- the reasons for this market share slippage and how are we trying to fix this? Also in the same context, is it the rising competitive intensity or discounting that's keeping you away from trying to chase or get the market share back?
Well, I think you have given half the answer in your question itself. So there are a confidence of factor. The first one is CNG. And sometimes in a couple of quarters or 2, 3 quarters, you will see slip-ups happening in market share, not reductions in market share. The slip-up means there is no controlled reduction, means there is a controlled reason for it, right? So we would become competent and competitive on the CNG front as soon as we launch the vehicles, right?So where we have actually grown in market share, of course, has been LTV, which has been an excellent growth posted because of the products that we've launched. And we are still to -- in the LCV side, while I'm digressing, we are still to look at the rest of the country, right? We are not fully pan-India. And once we launch the network on a pan-India basis, then we would actually enhance our LCV presence even further.Coming back to your question, yes. So CNG and ICV presence, the shift of 3. We didn't expect the market to shift so much into ICV. Now this has happened possibly because of the COVID as well, right? So the demand pattern has changed also because of what is happening today. And there has been a lot of focus on e-commerce. Now when you have that, ICV caters to e-commerce segment quite significantly. So one of the gainers in all of this COVID has been the e-commerce and the, I would say, e-transaction companies.Now the second reason is also that the demand in the south has not been as heavy as -- there are 2, 3 reasons for it. The demand in the south has not been as significant as in the rest of the country. And we are weighted to the south. This is the second reason.The third reason on overall MHCV market share, we were and hopefully will be India stock bus manufacturer. And when the bus demand comes out so sharply, a 40,000 unit per annum demand is today hardly about 10,000. So that, again, what happens is you need to wait for the market to revive.Having said that, we are very clear about 2 things, and you're going to hear it from our MD also. We are very clear that we will -- we would want to grow the share of business with the customer, and we would want to add customers. So that is the primary purpose for which we exist. But at the same time, we have to ensure that we're doing it profitably.So discounting levels had become quite high. There were a few transactions which we deliberately avoided but not all. We have been very competitive in the market with a superior product whose total cost of ownership is much, much better than competition.Now finally, the other thing you must remember, and I'm going to leave it at that for our Managing Director to talk about, this market share number is based on what we kind of sell to the dealers. And we would want to ensure that we support the dealers by not pushing significant stock into the pipe.MD, would you want to add something, please?
Yes. So just to summarize that in 5 points. Number one, bus. Buses will come back, our share goes straight away. Number two, the south, as Gopal mentioned. And we are now expanding our dealership network in areas of the north, the east and the northeast as well. Number three, the higher tonnage vehicles as the core economy picks up, tippers, tractors, MAVs where we are extremely strong, will come back as well.Number four, the AVTR. The AVTR is giving us better fluid economics, which means greater savings, and therefore, the ability for us to price it better and value sell it. You will find that the total cost of ownership of the AVTR is perhaps the lowest. But the trucks need to run for some time and that the customer is already feeling it. And as more and more feel it, we'll be value selling the AVTR. And finally, CNG, there's leaner shift. We recognize that shift, and we are taking action to get that shift and filling up that shift from quarter 4 onwards.
Okay. This is helpful. The second question I have is on the margins. Now clearly, there still seems pretty high pressure on the gross margin level. Could you just give us some sense on what is the undercovered commodity in terms of pricing action not taken? Or maybe you can just split it. What has been the commodity hit? What is the magnitude of price hikes taken? And is there an adverse impact of discounting on a Q-on-Q basis? Some sense on how we should be thinking about the margin segment.
We have been possibly one of the few players who have been raising prices quarter-on-quarter. And we have done that in all the 3 quarters, including the current quarter where we have raised prices both in trucks and buses and in LCVs as well. You folks do track the steel prices and some of the other commodity, but predominantly steel. And you would have seen the run-up of steel prices that has happened over the last possibly 6 to 7 quarters.We must also remember that all of this is happening in the backdrop of a switchover from BS IV to BS VI, where the cost of the vehicles themselves has gone up for all of us, not just for Ashok Leyland but all the players in the commercial vehicle industry, by at least 20%.And then on the backdrop of it is COVID situation where demand virtually evaporated. So you are seeing -- we are not -- the players are not obviously able to recover the full cost increase of the BS IV to BS VI and also the steel price increase combined together. So we'll have -- as the demand pulls up, I mean -- and it starts to go up, I'm sure that the pricing adjustment will happen and we would see the prices going up. This happened -- I mean this is what we see from our side. This can't be guaranteed, but this is a logical outcome of higher demand that we foresee as we go forward.
Sir, can you quantify what is the under recovery, if you can give us some sense around that?
It's very difficult for me to actually put a number to it because different models have got different weights of steel and the components. So I would see if I -- while we have some internal numbers, it would be very difficult for us to quantify, believe me.
Just to add to that, the pricing adjustment as the demand picks up and then a whole host of cost-related activities that the company is undertaking, both in terms of value engineering as well as moving any wastages and improving productivity and quality. So the whole focus is both internal and external to mitigate any of the commodity [indiscernible].
The next question is from the line of Kapil Singh from Nomura.
Firstly, I wanted to take on demand side. Two segments, one is exports. We used to sell about 15,000 a year. We are currently running much below that run rate. So some color as to how do you expect outlook for that.Second is on electric products. How many products are we targeting? And how much CapEx is required for us to achieve our ambitions on -- through Switch Mobility? And what is the overall CapEx target?Thirdly, Gopal, to you, on the operating leverage side, currently, volumes are nearly half of where they used to be. And you've been talking about a lot of cost reduction that the company has achieved. So if volumes were to double from here, what is the kind of operating leverage, broad range that one could expect from current levels?
Okay. Now as far as -- I'll take it from the last one. See, obviously, we have -- if you look at our expenditures and there are -- we have been taking action on almost all key buckets of expenditure, including on material where there are special teams setup for taking out costs through alternative design or alternative materials, which will not have an impact on the vehicle performance or efficiency or steadiness. But there are ways to take costs out of vehicles continuously. That's what all automotive companies do.The second one is on all the other costs, we have been running programs continuously, and there is always opportunity for us to take costs out. Now when the volumes double, obviously, you will see a much better operating leverage coming in. I wouldn't -- again, you will see it's very difficult to kind of give a number in an open call like this because one needs to be very, very careful and measured when setting expectations. But all you can tell is that a lot -- let me put it this way. Once a company starts to keep focusing on costs and working capital and cash flow continuously and assiduously, when the revenues start to go up and the realizations start to improve, a predominant part of that realization would fall straight to the bottom, and you can do your calculations yourself.As far as Switch and the Ohm is concerned, I think the investments that will be required for this will be -- we will share more details about Switch and Ohm separately. But all we can tell you is that at the moment, the plan is to look at raising capital and debt independently on these companies by the management of these companies and to manage it. So this would not be something that -- at the moment, at least, we are not foreseeing any major equity investments from Ashok Leyland into these companies.The first question was on exports. I think I'm going to let Vipin talk about it as well and the initiatives that we've taken. Over to you.
So exports pick up as these markets pick up. So if you look at market share, which is important during the COVID period or during a low period, we've gained everywhere. But what I wanted to just mention to you, the initiatives we are taking, especially in Africa. Of course, Bangladesh, we have a huge presence as well as in Sri Lanka and Nepal. But in Africa, we are appointing and continue to appoint distributors who are sons of the soil, who are large businesses, who know their businesses, who have done automobiles, done -- not competitive, but done 2-wheelers and passenger vehicles with Indian companies. We've appointed about 8 or 10, as far as I remember, in clusters in Africa.At the moment, we've already started taking orders from some of these. But otherwise, testing of vehicles is on. And these will be very predominant in the retail market. We were very strong in the project market, those will continue. But the retail segment is going to pick up. You mentioned a figure of 15,000 at some point in time, yes, those were heavy days for -- especially for Bangladesh. But we are back to over 1,000 vehicles a month now from October, and we will be taking it forward from there to 1,250 and then on. What is important is that the base has been laid in Africa and in the Middle East while strengthening our position in the South countries.And final point, we have a much larger bouquet of products now with the AVTR and the Dost family that is both packaged for left and right and right and right as well as the buses, the Gazl especially, which was launched in the Middle East, very well received. So today, we have a much larger presence in terms of the bouquet of products, and we see this as a huge positive in the next 6 months. You'll see a substantial difference in the numbers.
The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Most of my questions have been answered. Just 2 remaining questions. One is on the Switch Mobility side, we have talked about orders in India. So can you talk about which products are we referring to? I believe we also have electric LCVs as well in India. So can you throw more light on that? And secondly, if you can talk about HLFL's second quarter performance or first half performance, what about?
Sure. As far as Switch Mobility is concerned, I think we will be -- you will hear about the order that has been received shortly. So I don't want to steal the thunder from the Switch management on that. So they have been doing a good job in kind of getting orders from various STUs. And the buildup has been built steadily and methodically, let me put it that way, right?Now the second part of it is on your HLFL -- on HLFL -- sorry, on HLFL and your question on HLFL. The revenues for the half year, the company has been doing exceedingly well, and the ratios are improving significantly. And there's -- the overall revenue was INR 1,320 crores. The PAT was 10% at INR 135 crores. There is sufficient provisioning at the moment in the balance sheet. It's an [indiscernible], it's an independently managed company. We have provisions of nearly INR 323 crores. And the key ratios, the yield on advances are at about 13.2%. And the NNPA is at about 2.7%. So I would say that the company is doing very well. And it's got a pretty diversified portfolio. Maybe about 35% to 40% of its portfolio is trucks of Ashok Leyland trucks and buses. But the rest of it is quite well spread with 3-wheelers, 2-wheelers, off-road application and then loan against property and also buying off various asset classes.
Okay. And can you talk about electric entities of Switch Mobility? Are we also getting orders on that front?
Well, we have got a lot of expression of interest, and we are -- the products are on the verge of, I would say, final releases. We will share more with you. But very clearly, I can share with -- one thing I can share with you is that we would hear a lot more from Switch on both e-buses and ELVs.
The next question is from the line of Binay Singh from Morgan Stanley.
I'll just go back to mobility as a service business for you. So we talked about it as one of the pillars for Switch Mobility. So after all the transaction is over, what will be Ashok Leyland's stake in Ohm?
See, we will share all the details with you. All I can tell you at the moment, okay, don't -- more -- we are focused more on the building of the business and the capability you've seen that we've made some recent hires. There's a lot of business development activities that are going on. There are a lot of synergies also which Ashok Leyland will bring to the table in terms of the network and market relationships that we have.All I can tell you at the moment, instead of getting into specific stake holding, shareholding in fact, I attempted to possibly put it this way, very clearly, the idea is to ensure that Ashok Leyland is the majority owner in that company, okay? And I would actually leave it at that at this stage. But let's see. The reason why we don't want to share all of this at the moment is because we have to get regulatory approvals. So until we get it, I wouldn't want to share any statistics here because it will be inappropriate on our part to do that.
And just to add, [ Dinesh ], we are very optimistic about this business and what we do for the electrification of the country. The second is the eMaas as a business, which is Ohm, is a unique business model developed, which is very, very unique and which is going to be a business model that we can take outside the country as well. Increasingly, as you yourself mentioned, we are moving into service, say, drive all as you use. So it's a payment as you use. So I think Ohm is very well positioned with that. So it's quite a unique business model.
No, that I agree. In fact, even when we look at financial year '21 revenues of Ohm versus the EV business, they are significantly higher. That's why actually the question was that as we as shareholders of Leyland, who are owning 100% in Ohm today, what will be the stake after the entire transaction is done. But anyway, we'll wait for more details on this side.
Yes. Okay.
The next question is from the line of Amyn Pirani from JPMorgan.
Just some clarifications on the EV business transfer to Switch. So you have transferred this business to Switch India or Switch U.K.?
We have transferred the assets at a slump sale to Switch India, and we are also looking at transferring it to Ohm. Can you get me the exact name because we are on a conference call? Pradeep will tell you the name because it's the longest name. So Switch India is not the right name. So since we are on a call, possibly...
I know, I know, I just -- people say a lot of acronyms there, so I just...
So we will -- we are transferring the eMaas. See, there are a couple of contracts which we are transferring to Ohm. All the other EV assets are being transferred to Switch because Switch is the manufacturer and the OE which will manufacture and sell, all right? And Ohm will be actually the eMaas company. And all I can tell you at this moment is that we will share the details of the structure, the holding and all that once we receive the regulatory approvals from the authorities as far as Ohm is concerned. So you would -- I would request you to bear with us on that. All I can tell the investors is that Ashok Leyland through Switch U.K. will actually be a majority owner in Ohm.
No, I appreciate that. And I don't want to ask about Ohm right now. But you also mentioned in the press release that the EV business of Ashok Leyland which has been transferred to Switch has been done for a consideration of INR 240 crores. Is this cash? And if that is the case, I mean, how is your step-down subsidiary paying you cash? Just want to understand that.
No. So that is why we have also -- as a term, there are some terms of the business transfer agreement which I possibly will not be able to share. It will be in cash, but there is a period that has been given for -- which is, again, done on arm's length basis. So -- which will give the flexibility for Switch to kind of repay the amount. So it's being done in a very, I would say, clear manner with arm's length being captured, but it will be done in cash. We are not taking any stake into Switch for the asset transfer.
Understood. And just for lastly, so you -- Optare plc is a subsidiary of Ashok Leyland. Switch U.K., I mean, not the legal name, but Switch U.K. is a subsidiary of Optare plc. And Switch India is a subsidiary of Switch U.K. Is that understanding broadly correct?
Swtich India is 100% subsidiary of Switch U.K. And Switch U.K. is a 100% subsidiary of Optare plc. And in Optare plc, we have about 91.8%, 92%.
The next question is from the line of Pramod Amthe from InCred Wealth.
Gopal, this is with regard to the Switch India transaction, which you discussed. Considering the value creation which is happening in the EV space, wouldn't it have been right to swap this amount for a stake instead of getting a cash in hand?
No. See, that, again, we will come back to you once we are kind of -- you'll understand the structuring because you see the point is like this. We need to ensure that the right value creation happens through the right structure, right? So if you have a simpler, cleaner structure, which I just shared with you earlier, then what happens is when you're inviting investments into the company, investors also have a much clearer picture instead of having a lot of cross-wordings.
And second one is on core business of CVs. Considering the amount of headwinds on product mix and the cost structure, how do you see the margin recovery profile in this up cycle? Will it lag substantially as compared to historical cycles? If that is the case, how you plan to address it better so that you remain ahead of the EPS in terms of margin management?
See, I would only leave it with a very simple statement, you see. Coming -- where we are at the moment or where we were even a couple of months ago, I think our aspiration is to very clearly grow market share month-on-month, right? And so this is one part. The second part is to build an operational efficiency, digital, cost reductions, et cetera, to make the company as efficient as possible.Now when the markets come back, and which we are expecting the markets to come back, no reason they should not, if kind of COVID 3 goes behind us and the transportation sector, both trucks and buses, get fully kind of revived and the replacement demand kicks in, I believe that Ashok Leyland would actually be very well poised to capture the upside because it's got the right range of products, both in LCV and in MHCV. And the second one is it would have had a much leaner and efficient cost structure due to which you would see operating leverages kind of kicking in.Pricing, logically, the old school of economics teaches us that as demand goes up, prices also kind of move northwards. Hopefully, that is also expected to happen. We are at our -- at the company level, of course, are continuously trying to raise prices. And we do it in a way where it could be for a certain set of products, it could be in a certain geography. So this is done very, very astutely. But at the end of it, we must also ensure, and this is very important, that we continuously gain the customer share.MD, would you want to add something here?
No, just promote the focus and the obsession with the customer. And to ensure that the value that the AVTR, the Bada Dost and the Dost are giving are properly priced in. And this is a process that will happen.We need to also remember that some of our adjacent businesses, and we haven't spoken about that, aftermarket is doing extremely exceedingly well, which means our service and parts is reaching the customer at the time that it needs to, and if we continue to do that and we continue to focus on that so that we service the customer during the entire life cycle of the customer, not of the product but of the customer.So there is a whole set of activities which will ensure that we get value for our products than just the impact of the commodity cycle. But what Gopal said is that we are making ourselves lean. We may continually making ourselves fit, and that will add to the operating leverage as demand comes back increasingly. So we are very, very positive about our structure, our profitability structure as we move forward.
The next question is from the line of Prateek Poddar from Nippon India.
Sir, I just wanted to check the agreement with Ohm has had blessings of the Board, right? So all the questions which we are asking should have been deliberated in the Board meeting itself. So any specific reason why you want to take some time and get back to us as to why this transaction is done or what is the thought process? That's question number one. And second, just want to check if this will come for shareholder approval, too.
No. First of all, let me take the last one. It's not a material transaction, so it does not require shareholder approval. The reason why we would want to share all the specifics of the transaction is because we are waiting for statutory approvals. The Board has certainly approved it and we are -- that is why we are even making the announcement.Actually, technically, it's large trucks. Whether we need to make the announcement, I don't know. But we thought we should make the announcement once the Board has approved the transaction and the business transfer agreements are being entered into. But it is not appropriate for us to keep sharing too much of information on the Ohm side till such time we get the statutory approval for which applications are being made. That's all I think. There is nothing more to it.See, it is like when you talk to -- I'm not telling this an ideal example. But we have to comply with a lot of stuff before we kind of share the details. That's why I stopped myself at some point in time because it's appropriate for me to then give the exact details of it once the approval comes in.
Sir, it was just that the value creation of this entity is quite substantial, maybe not today. Today, I think, as you said, it's a material transaction. But maybe, I don't know, it could be a big material either for Ashok Leyland in the future. And the word majority means anything above 51%, right? So just trying to think about what does majority mean and some clarity over there will help us. That's the only limited point.
Yes. Don't worry about it. We will share it once the approval goes through because we are at the cusp where we have to receive the approvals. And it is -- we are also -- we also believe -- see, more than just value in terms of valuation. For Ashok Leyland, its aspiration is to be a global top 10 in commercial vehicles. And it's doing everything that is necessary today to -- and it's making all those necessary investments to do that.The first step was LCV where we are expanding the LCV portfolio because, globally, the LCV to MHCV ratio is anywhere between 4 to 4.5x. So we need to have a larger presence not only in India but also in the globe.The second one is international, where you heard our MD say that we will continue to grow and pursue new avenues for international operations. And with a much larger suite of products, both in LFT and RHT, we believe we are well poised to address -- to make further penetration in the addressable markets that we're looking at.The third one is the business of the future, which is EV. And we consciously decided that it is better it's housed in a separate entity than in Ashok Leyland because Ashok Leyland is today currently an IC player. And of course, there are other initiatives happening in Ashok Leyland also, which we will share at a pertinent moment in time, but there is some bit of work that is getting done even on fuel cell and on other forms of energy.Because I think the whole thing about green energy and net zero carbon ESG is all now kind of converging today. And organizations are realizing that they also need to invest into the energy forms of the future, including in water power. So which is why we said have this entity as separate with a separate management, separate capabilities, separate teams and have even a separate set of investors into it.So regarding your question, as I had mentioned, we are looking at having strategic and financial partners in these companies. And we would want to see -- there is a lot of things happening currently on this way. We wouldn't want to share details more than what we can at the moment, even though we would love to. So kindly request you to be just patient with us, and you would see that the value accretion is very clearly coming into Ashok Leyland.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Well, first, thank you very much for being with us. Ashok Leyland is proceeding on multifarious franchise, so a lot of interest that were shown in Switch and Ohm, and you will hear a lot from us about it as soon as we have regulatory approval. We are getting orders, and this is a big play, not for us for India alone but for global as well. Ohm is a very, very unique business model, and it's going to play well in the future. I think we will be the first, so that's very good.Now on the Ashok Leyland side, we are coming now into an up cycle. We've got the products. As I mentioned, CNG, yes, we need to move fast forward, which we are doing, launching from quarter 4 onwards. But interestingly, as Gopal mentioned, there are going to be several fuels that Ashok Leyland is working on simultaneously. So we have diesel, CNG, we're building on LNG, and we are working also on fuel cells.So all in all, I think a good position to be in to take advantage of the fact that the AVTR and the Bada Dost have been very well received by the customer. And I'm sure this will play out very favorably for us to give us a premium position as we move forward.Operating leverage, that's a huge focus on value engineering, value analysis as well as productivity improvement. And there are hundreds of our colleagues working on that as well as on service aspects and aftermarket aspects. We mentioned about international operations. We've created a footprint now, and that footprint is ready to fire in Africa and GCC apart from our traditional markets in the south region.And we didn't talk about defense. We have interesting orders to the Indian Air Force, and we will continue to play in the defense space with great pride.So back to you, and that's it for me.
Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.