Ashok Leyland Ltd

NSE:ASHOKLEY

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Ashok Leyland Q3 FY '22 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Jalan from Axis Capital. Thank you, and over to you, sir.

[Nishit Jalan]

Thank you so much. Good afternoon, everyone. Welcome to 3Q FY '22 Results Conference Call of Ashok Leyland. From the management team, we have with us Mr. Dheeraj Hinduja, Executive Chairman; Mr. Andrew Charles Palmer, Vice Chairman and CEO, Switch Mobility U.K.; Mr. Gopal Mahadevan, whole-time Director and Chief Financial Officer; and Mr. K.M. Balaji, Deputy CFO. I'll now hand over the call to Mr. Dheeraj Hinduja for his opening remarks. Post which, we can have our Q&A. Over to you, Mr. Dheeraj.

[Dheeraj Gopichand Hinduja, Executive Chairman]

Thank you, Nitin. Good afternoon, ladies and gentlemen. It gives me immense pleasure to be in touch with you, and I thank you very much for the interest shown in Ashok Leyland. I hope all of you and your families are well and safe. I will quickly run through our Q3 and 9-month performance, as well as some latest developments. I'm happy to share that in Q3, we have been able to show a smart recovery on multiple fronts. This is a defining quarter, if I may call it that. In Q3, our MHCV volumes have grown at almost twice the rate of the industry, resulting in our market share growing sequentially from 22.5% in Q2 to 26.1% in Q3. In fact, in January, we have grown market share further to 28.8%. The company posted a positive PAT after exceptional of INR 6 crores, despite challenging circumstances. EBITDA for the quarter has grown sequentially to 4% from 3% in Q2, despite taking the full impact of raw material price increases. We continue to generate cash and further reduce our net debt by INR 415 crores this quarter. Debt equity is comfortable at 0.42x. LCV, which was on a growth phase, has been impacted by semiconductor shortages. But on a year-to-date basis, we are still higher in volumes than the previous year and have grown sequentially as well. Aftermarket and exports continue to grow. Finally, we have launched our much-awaited CNG vehicles recently. Customer feedback has been extremely positive. We will be launching more vehicles from the CNG stable in the coming months, which should help in further growing our market share. During the quarter, we had some exciting launches, which expanded our NAV and tipper ranges further. I'm extremely confident that with these launches and the continued expansion of network, we will continue to gain market share. It is indeed a big relief that the spread of Omicron is dissipating and things are returning to normalcy. We hope this trend continues as commercial vehicles are the wheels on which the economy runs. MHCV TIV has been growing since Q4 of last year, and this augurs well for the industry. There is still a lot of headroom for growth given that the fleets are aging and the average age being 9.5 years, and the announcement of the scrappage policy is a step in the right direction. Macroeconomic indicators put India as a high-growth economy and an attractive market. Indirect tax collections, direct tax collections, improved corporate results, and the e-way bill numbers suggest that the economy is on a growth mode. India will, of course, need to watch out for hardening of interest rates and the impact of U.S. interest rate change. With further demand growth, we are expecting pricing should become more rational. Increase in steel prices, which have resulted in significant cost push in the industry, seem to be abating and as this trend continues, we should see margins increasing. Hopefully, the situation on semiconductor should ease as well. Ashok Leyland, even while growing market share sequentially, has been raising prices owing to higher material input costs. What is good to see is that the tension of such increases is getting better. I must compliment our MHCV teams, who have taken up complete rationalization of our network, appointing new distributors where there are gaps to be filled, and are also working to improve dealer profitability, which is crucial. Our AVTR modular vehicles are doing very well and have raised the bar on industry performance. As volumes grow, I'm confident that we will see the benefits of modularity. On our LTVs, both DOST and BADA DOST are exceptional vehicles and have been growing stronger by the day, and volumes are limited by the availability of semiconductors. Both these products hold immense potential for exports and are in perfect shape for the addressable market. The bus TIV continues to be impacted owing to the lockdown and work from home. But as normalcy gets restored and we see offices, schools and colleges reopening, I'm confident that volumes will start to pick up sharply. This will add to our volumes and market share as well as Ashok Leyland is a leader in buses historically. Aftermarket and international businesses continue to perform exceptionally well. And Power Solutions business, which again had grown significantly last year, is constrained by availability of ECUs. We are also putting effort in reducing costs, both product costs as well as overhead. You can see the effects of this in the improved margin. Q4, if the trend continues, should see much improved revenues and margins. I'm happy to state that Switch, our newly formed electric vehicle subsidiary, is making very good progress. Switch India is operating with its own dedicated team. We're awaiting statutory approvals for transferring eMaaS business to Ohm Global Mobility India. In the meanwhile, the business continues to win tenders and the latest being the order of 300 electric buses from Bangalore Metropolitan Transfer Corporation. The company has also commenced the supply of 40 electric buses from the Chandigarh Transport undertaking. We are in discussion with investors to raise capital both at Switch mobility and as well as Ohm Global Mobility India for the e-mobility as a service space. Switch Mobility U.K. is expanding its operations and setting up manufacturing facilities in Spain. As you heard, we have on the call today Dr. Andrew Palmer, who is the Vice Chairman and CEO of Switch, and he will be sharing with you further details. Our product development teams are working overtime to not only expand the existing portfolio of IC vehicles, including CNG, but also developing solutions and alternative fuel space. We will keep you posted on these developments. Finally, before I hand over to Andy for subsequent questions, let me share the financials in brief. Revenue for Q3 at INR 5,535 crores is 15% higher than Q3 last year of INR 4,814 crores. EBITDA is at INR 224 crores, which is 4% in Q3, up from INR 135 crores in Q2 of last year. EBITDA for Q3 previous year was INR 254 crores. Profit after tax after exceptional for the quarter was positive as INR 6 crores in Q3 vis-a-vis loss of INR 83 crores in Q2 of FY '22 and a loss of INR 19 crores in Q3 FY '21. During the quarter, the company generated cash of INR 415 crores, which brought down the net debt as on 31st December 2021 to INR 2,697 crores. Debt equity as at the end of the quarter was at 0.42x. Operating working capital for Q3 had significantly improved to negative INR 277 crores from positive INR 32 crores in Q2. Capital expenditure for 9 months ending December 2021 was contained at just INR 269 crores as compared to INR 436 crores during the same period last year. At Ashok Leyland, the team is readying itself for growth and leadership. You will, of course, keep hearing more from us in the coming weeks. I would like to now pass over to Andy to tell you a little bit more about our developments at Switch.

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

Thank you very much, Dheeraj, and good afternoon, everybody. As you heard, my name is Andy Palmer, and I'm the Executive Vice Chairman and Chief Executive of Switch Mobility. As a brief introduction, I have 42 years of experience in the automotive industry, and I'm proud to have led the Nissan fleet during my 23 years tenure at Nissan, eventually as Chief Operating Officer. I've been Nonexecutive Director with Ashok Leyland for 7 years and joined Switch in a full-time capacity from July 2021. Allow me to introduce you to a little bit more detail about Switch and also Ohm. Switch has been formed with the aim of not just delivering zero tailpipe emission vehicles, but buses and vans to deliver a zero carbon transportation solution. Although the name Switch is relatively new, it's built through the acquisition of 2 innovative businesses, Optare on one side and the EV division of our Ashok Leyland on the other. For us, net zero vehicles aren't the future of 2040. They're here now. We introduced the first British-built electric buses to London roads in 2014, and we've delivered 300 vehicles since then. In total, we've clocked up over 50 million electric kilometers in developed and developing markets. Promoted by the Hinduja Group, we've set out the vision to democratize zero-carbon mobility. Switch's buses and light commercial vehicles are designed to provide the lowest total cost of ownership, thanks to 4 key technologies: lightweight technology, modular platforms, best-in-class battery packs, and digital technologies. We've also set the bar high and in fact much higher than simply zero tailpipe emissions. We source renewable energy, utilize carbon-free logistics, and have a clear second and third life battery utilization strategy. I'm personally proud that our net zero vision that we've approached with resulted in Switch being one of the few companies to exhibit a COP26. This approach is clearly appealing to many operators. We're already offering sophisticated EV products around the world, and we have a strong order book. And I'm proud to see serious orders rolling in, in India, in the United Kingdom, and now in Mainland Europe for our buses and our vans. Besides commencement of supply of 40 electric bus orders from Chandigarh Transport undertaking, Switch Mobility has secured an order from the Bangalore Metropolitan Transport Corporation, or BMTC, to supply 300 12-meter electric buses, with the charging infrastructure for operation and maintenance for a 12-year period on a gross cost contract model under the FAME II scheme. The buses are expected to reduce fuel consumption by around 5.5 million liters annually, leading to a reduction in carbon emissions by more than 14,500 tonnes per year, alongside, of course, cost savings for BMTC. And our business goes far beyond simply supplying the vehicles. In India, we offer mobility as a service solution to our customers through our subsidiary, Ohm. With the plans laid out by a number of European governments to electrify public transportation and the increasing usage of last mile delivery vehicles, now is the perfect time to establish a footprint in Continental Europe. Our new facilities will see us invest a planned EUR 100 million over the next decade, creating a state-of-art production hub in Valladolid in Spain. In keeping with our ethos, construction and operation of the site will be 100% net carbon zero. Operations will be powered entirely by renewable energy and a state-of-the-art energy management system will be installed. Carbon neutrality will remain a priority during the development phase. The materials sourced from suppliers with credible net zero policies and substantial commitments and logistics to meet these. Any carbon that cannot be removed during the construction process will be offset using gold standard carbon credits. We will work closely with suppliers within the Castilla y León region to bring these ambitions to life. Our ambitious plans go beyond U.K., Europe and India. But our current emphasis is on building net zero products for these regions. Buses aimed at the specific needs of India and Europe, but attaining more than 75% commonality, allowing us to decisively cut costs. A series of vans specifically aimed at the developing EV fleet market in India, and for which we already have an enviable demand for. And a very special LCV for the more developed fleet markets, where innovation that improves the fleet efficiency is desired. Funding plans for all of the above are advanced in both Switch and Ohm and we expect to close the current round of funding for both in the coming few months given that we see a strong interest from investment partners. Switch and its subsidiary is defined on the principles that lowest cost of ownership and zero carbon mobility do not have to be a compromise and can be achieved in a short span. We share a vision. We are committed to paving the way to zero carbon public transportation. We want to help people to move better. Thank you. Dheeraj?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Thank you, Andy. We'll be more than happy to take any questions now.

[Operator]

[Operator Instructions] The first question is from the line of Pramod Kumar from UBS.

[Pramod Kumar, Former Analyst]

Dheeraj, my question is to you on the recent CNG range and wield. Can you please help us understand the opportunity here because Leyland has not been partnering in the CNG category until now. So if you can help us understand what the kind of range of products, actually, what you're doing or what you plan to do in this category? And how big is the market opportunity and the potential impact on market share? And also, how does profitability on CNG looks versus the rest of the category because I do understand that it's very viable from an operator perspective. So is the profitability in this category slightly better than the normal diesel strategy, if you can just help us understand the kind of strategy you have here and the opportunity on hand here.

[Dheeraj Gopichand Hinduja, Executive Chairman]

Sure. So if you see the growth in CNG has been happening in the ICV segment. And in the last 1 year or so, the ICV segment, which used to constitute about 20% to 22% of the TIV, is now possibly the largest segment at about 32%, 33%. And this is a segment where we did not have a very large market share. It was just about 20%. And now within this segment itself, the CNG segment has grown to 40%. So you can see that over a very short period of time, the market has shifted dramatically in this ICV range to CNG. And there is a clear cost benefit. You see when you compare the diesel prices versus the CNG prices, I think there's a net difference of about 20% to 25%. And our recent introduction, we have a very vast range of ICV product offering. And we feel that the recent launch of the Ecomet range in CNG in 14 and 16 tires will not only help us regain some of the lost market share, but the initial indications of the product performance is far superior to competition. So we feel that from the current 20% or so, we should be able to even increase our market share growing further. And we also see that the CNG -- because of the network that has been created for CNG, we believe that higher tonnage models will also get attracted into this range as well. We already have the DOST range of products on CNG, and now this Ecomet range. But we are preparing, as I briefly mentioned, for higher tonnage vehicles to also be ready. We were slightly late with the introduction of CNG, but we are quite confident that going forward all the alternate fuel types that might look attractive, whether it's CNG, LNG, of course, we're talking about electric, as a company, we're going to be fully ready to address any of the company requirements. On specifics of the profitability of CNG, I don't know if Gopal, you or Balaji have any clear cut numbers on that.

[Gopal Mahadevan, CFO & Whole Time Director]

Not at the moment, Chairman. I mean, the CNG has just been launched. But like you rightly said, the launch of the Ecomet CNG that we've done has met with very good response. And also, I think there are -- while the question was in CNG, there are 4 other products which were launched in December; 1 multi-axle vehicle and 3 tippers, and that has also gone very well. This is non-CNG of course, but the CNG launch, our marketing team is saying, has actually been very well accepted by our customers.

[Pramod Kumar, Former Analyst]

And market share, any color how much we can -- because it's a big gap, right? You're talking about 12%, 13% of the TIV which you are not participating. And this probably explains the market share loss for you so far in the recent quarters. So what could be the market share aspiration with this gap getting plugged?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Well, if I can maybe not look at it on a very specific CNG basis, but address it more widely, we have lost market share over the last 18 months. As I mentioned, on a month-to-month basis, over the last few months, we have now started regaining our market share. We've touched over 28.8% last month. And I feel quite confident that we will exceed the 30% market share where we were earlier. And the range of new products, whether it's the AVTR, the LCV, now the Ecomet, the combination of that and the ramp-up that we're doing on our network in some of our traditional weaker areas in the North and Northeast, we've in fact appointed quite a few dealers in the last few months itself. Like I said, I think the whole team feels very confident that sustaining market share over 30% would be what we're aiming for.

[Pramod Kumar, Former Analyst]

And second question on the electrification side, it's both to Dheeraj and Andy. You did talk about $100 million CapEx, if I'm not wrong, over the next few years. I just want to understand, is that number good enough given the opportunity on hand? And also, in terms of the funding options of the monetization of the arm, is it a SPAC, which was earlier speculated to be a route which we would explore, or we are looking at a non-SPAC route. Because you did tie off of a transaction in the next 2 months. So if you can help us understand get more, and also what's the implication for Ohm, because that's where the listed entity has a stake. And so the promoters if you can just clarify a bit more about the structuring, because there was some discussion around this in the last quarterly call as well. So if you can just help us understand how has the structure evolved since then? And what are the routes of monetization you're looking at?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Okay. I think there are quite a few questions over there. Andy, please pitch in wherever you like. I'll just start responding to some of that. $100 million is not the total capital requirement. That's the immediate funding that we'll be doing. As we've said, we are currently raising close to $200 million. We feel that is adequate for the immediate next 2 to 3 years that we are looking at. We have multiple new products under development. And one of the key benefits, which Andy was explaining, is we are synergizing a lot of the procurement itself, which allows us cost reduction possibilities between the European and the Indian cost. So from that perspective, I think we would be, as we believe. Cost is a very essential element over here. We're targeting a range of products and development in a very timely manner with very good cost control. As far as the raising of capital is concerned in Switch and in Ohm, as Andy mentioned, we're in very advanced discussions with multiple investors. We did have the opportunity for SPAC, and I think there are still quite a few opportunities for us. But for the time being, if you consider the SPAC market, I think the initial peak that you saw last year -- in our business model, we feel that the Switch, Ohm businesses should be more focused on the development of the business rather than worried about quarterly results, as a listed entity would need to. So with the investor interest that we see, we are not considering the SPAC at this point of time.

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

Dheeraj, I'll just add for clarification, because I mentioned the number of EUR 100 million in my discourse. Just to be clear, that was for the Spanish entity over the next decade. So that doesn't relate to the overall CapEx that's been spent, which Dheeraj has already elegantly explained, that in the shorter term we're raising around $200 million.

[Operator]

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

[Gunjan Prithyani, Research Analyst]

First question is on the margins. Gopal, if you can just give us some perspective on what is the kind of commodity pressures that we have seen in this quarter? What are the price hikes that you've taken? Because if I look at the Q-on-Q improvement, there's clearly much better operating leverage, but margins seem to be a little bit underwhelming. So some idea on discounting, RM, and the price hikes?

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. See, thanks for that question, because a lot of the good performance of the company that it's doing is taken away by the severe price increases in steel and other commodities. I may be not exactly accurate, but in December last year, I think the price of steel was something like about INR 45, INR 46 a kg. That number is about INR 65 or so today, INR 65 to INR 69. So you can see that there's a huge increase in steel prices over 12 months. Obviously, there are 2 things that are happening when the industry is transitioning from BS IV to BS VI. And this is common for all of us, okay? So when there is a move from BS IV to BS VI, obviously, the vehicles are more evolved, there are emission equipment that has been added. And all of that has actually raised the overall cost of the vehicle, because it's a higher technology vehicle. And on top of that when you overlay a steel price increase, which has happened almost like 50% to 60%, and then add COVID on to it as a challenge, what happens is the industry, it's not particular to Leyland, the industry does have a challenge in terms of the pricing. Where we seem to have done better than industry, but of course, these are based on internal estimates, is the retention of the pricing that we have been able to get, especially in Q3 and even early part of Q4, where we have raised prices again by about 2%, has been retained well. And I must compliment the team here because what they have done is they have not only raised prices, but they have also been able to gain share in the last few months, as mentioned by our Chairman. So in January, with all of this, we have actually been able to get a market share of 28.8%, right? So that's been a smart recovery that has happened. As we move forward, we are expecting that the overheated steel, the commodity, would start to come off. And if that does, it will positively impact the margins for the industry. The second one is the further launches of CNG that have been planned and other products that have been planned would actually help us to gain share and gain volume slightly higher than industry. Once that happens, with the greater volumes, we are also going to see the benefits of operating leverage. But I think a lot of this is also going to depend on the demand. If demands were to go up over the next few months, next few quarters, which we believe it should happen unless there is a COVID breakdown again, God forbid, I don't think it's going to happen, then you're going to see a lot of pent-up replacement demand also coming in.The average age of vehicles today in the market is anywhere between 9 to 9.5 years, which is one of the longest in the industry. So with the economy going up, and with the demand going for this growth, plus the pent-up demand for replacement, we should actually see better pricing power in the industry. And historically, if you were to look at it, we were more profitable than other players in this segment. And in this quarter, I don't know, some of the results are yet to be announced, but our EBITDA margin of 4% is still the highest in CV.

[Gunjan Prithyani, Research Analyst]

Sure. That's helpful. Maybe if you can share what is the under recovery. It will just give us a color on how can we project it going into the further quarters?

[Gopal Mahadevan, CFO & Whole Time Director]

Sure, sure. I understood your question. Sorry to cut you in the interest of time. But you see, what happens is I have told you that steel prices have gone up, right? If they start to come off, then what is going to happen is, it's going to add straight to the contribution margin. What we have been doing over the last 3 quarters from April onwards has been to raise prices. Every quarter I think we would be raising about 2% or so, but the retention in Q3 and early part of Q4 has been almost at about 90%, 95%, which has been good for us. The second thing that we're doing, the team is doing, the manufacturing and the product development team are doing to counter this, and which will also have a long-term benefit for us, is also to take cost of the product. There's a large project that's going on to take out at least maybe about 100 to 150 basis points of cost out of the product in the next few quarters. And that's going to help us again. But to say that, I can't actually tell in rupee terms how much is in under recovery because you know the prices of steel, how they have gone up and you know the average price increases that have happened, which is why you're seeing that the margins have been impacted. But hopefully, I think we are pretty confident that things will start to pan out now, especially for the commercial vehicle industry. And when you see the demand going up, you are going to see margins getting much, much better.

[Gunjan Prithyani, Research Analyst]

Okay. The second question is on the Leyland Finance. If you can give us some color on the operating metrics there and the case for any infusion given the capital buffer wasn't that great and now we do have the change in the RBI regulation. So some thought process around that.

[Gopal Mahadevan, CFO & Whole Time Director]

Well, I think Leyland Finance as a team has been doing wonderfully well in the circumstances. Also, the overall finance industry has had its fair share of challenges. Their AUM as on December '21 was INR 25,800 crores. They have taken sufficient amount of provisioning and as on date that total COVID provision stands at -- they have taken additional COVID provisions over and above, what you call, the normal provisions that happen. They have taken about INR 286 crores. Their yield on advances, again, is pretty good at about 13.86%, and they have a NIM of about 6.7%. And the net NPA, NNPA as they call it, is at about 2.8%. So doing very well under the circumstances. They do cater to the commercial vehicle industry, I mean, specifically for Ashok Leyland. Of course, there's a clear arm's length and the decision is taken by the HLFL management about whether to lend or not. But they have a very interesting mix of products. So they have loan against property, they have 3-wheelers, 2-wheelers, and then they also buy out the microfinance papers. So it's a very well hedged, broad-based book that they have. It's not just commercial vehicles that they are catering to. So hopefully, again, here, while there is some pressure on the borrowing front because of the imminent increase in interest rates, I believe that they should be in a position to maintain NIMs, we'll have to wait and watch.

[Gunjan Prithyani, Research Analyst]

Okay. Investments, any guidance? And then I'll join back in the queue.

[Gopal Mahadevan, CFO & Whole Time Director]

Nothing significant for the quarter. I mean, I'm going to also ask the Chairman for his views. But we are not anticipating any major investments in the quarter. Even if we were to, I don't think even HLFL would require any capital in the fourth quarter. Next year, if they did require it, believe me, it's again growth capital. We will continue to invest into the business, because it has been growing its book very, very steadily. It is one of the fastest growing NBFCs in the country. Hardly started in 2012, and they have got a book of nearly INR 26,000 crores. So that's a pretty sizable book that the team has put in, including the nearly INR 1,200 crores of book that is there in Hinduja Housing Finance, which is its subsidiary.

[Operator]

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

[Amyn Pirani, Analyst]

First question is just a clarification, Gopal, if you can help. I think in this quarter you have transferred the EV business to Switch Mobility at a certain valuation and you have recorded a gain. So I mean, I just want to understand, this has been transferred on a book value? Like is there a cash transaction? I mean, how does this work?

[Gopal Mahadevan, CFO & Whole Time Director]

I think this -- we had made this announcement even in the last quarter, if you remember. And we had disclosed -- the disclosure was almost the same. What we have done now is to physically transfer. There has been no change between what we disclosed last quarter and what has happened this quarter. So we have now transferred the EV assets, which Ashok Leyland was holding, into Switch, because we are now having a dedicated structure for EVs. So it's rightfully so that we transfer that. And that has been done at a valuation done by a Big 4 and that's how the assets have got transferred. So the net gain that you're seeing is the gain that we have had on transfer of the EV assets. And also, we have just taken an impairment of the transfer of the 2 eMaaS assets that we hold in the books, even though they have not been transferred, because that's the right thing to do. And at a suitable moment in time, when we get the Reserve Bank of India approval, then these assets will be transferred to the eMaaS company upon such approval coming in.

[Amyn Pirani, Analyst]

Yes. So just taking that conversation further, I think we had discussed last time also. So how is Switch Mobility paying you? Because you anyways are the holding company of Switch Mobility, right? And I don't think they have raised money as yet from outside.

[Gopal Mahadevan, CFO & Whole Time Director]

That's right. That's right. So see, as a parent company, 2 things. One, we would need to -- this is, again, our own subsidiary, okay? While it goes into Switch and then comes back, the shareholding of Ashok Leyland shareholding of Switch is very, very significant and very high. So it is important for Ashok Leyland to support this company. So we have said that the repayment is expected by March. In the event, the capital raise, we don't expect the capital raise to go beyond it, but if it does, we are also very keen that we get the right kind of investors with the right kind of value to the company. So if suppose there is a slight delay, then we will give that additional period, but there is an interest charge on it which will be paid. So I don't see any major challenges on this.

[Amyn Pirani, Analyst]

Understood. That's helpful. And lastly, on the core business, you mentioned that there has been more retention of the recent price hikes. It is quite interesting because like you rightly mentioned, it's not just you, other players in the industry have also seen a significant impact on margins for the last 2 quarters. So is it just you, or are we seeing some kind of a reduction in price competition in the market from competition also?

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. At Leyland, to be honest with you, and you know this, in the past, we have seen this -- I'm just going back in time a little and out of context a little bit, in 2017, when we moved from BS III to BS IV, we were the only players to have raised prices by nearly 12% to 13%, and we gained market share on top of that. There was a lot of concerns like that you're the only company to have raised prices, are you able to gain market share? And we were able to because ultimately what the vehicle fleet owner wants is looking at the total cost of ownership and what is how good is the vehicle. In this business, downtime can be very, very expensive. Now here what we are doing, we never favored customer acquisition through pricing, because that can be easily replicated. So we have been reluctant in giving discounts, but in some times where there are critical accounts or critical markets, if we find that the pricing is going off, where we can manage and in the short term it makes sense to match those pricings or come closer to that, to retain the customer, we have to do it as a business, which is what we have done. But having said that, we believe at the moment these are internal information. So I can't really compare truck for truck, bus for bus, but we believe that our retentions have been much better, because we never chase customers purely on price. The AVTR range, for example, if you look at it from total cost of ownership, especially on tipper, is very favorable for the customer because they do save on a number of things, including the fuel efficiency and also AdBlue. So they do prefer this as a vehicle. Of course, they will look at the cost parity, et cetera. So we do, do some price adjustments, but it may not be as deep discounted as competition does. Similarly, for LCV as well. If you look at the LCV products, both DOST and BADA DOST, they have one of the lowest discounting in the industry.

[Operator]

The next question is from the line of Kapil Singh from Nomura.

[Kapil R. Singh]

Could you explain a little bit the structure that you're looking at in terms of holding in the EV business? How will it be structured? And what would be the broad holding that Ashok Leyland has in Switch today? And in what range will it be once the fund raise is complete? Will it be like more than 75%? Some direction like that would help.

[Gopal Mahadevan, CFO & Whole Time Director]

See, is this question addressed to me, is it to...

[Kapil R. Singh]

Whoever can answer.

[Gopal Mahadevan, CFO & Whole Time Director]

Basically, what we are looking at -- see, we'll have to do what is appropriate for the company in terms of fundraising. So the dilution that we require, the type of funding that we require; of course, this business would require some amount of capital. And that capital is necessary for it to become a very resilient and an important player in the EV space. Having said that, one thing you can be rest assured is that Ashok Leyland will continue to have majority ownership in this company, right? So this is very important. The idea of Switch is that there are 2 legs on which Ashok Leyland will stand. One is Ashok Leyland currently, which will have internal combustion and other alternate fuels. There's a lot of good work that is being done by the product development teams here. Other than EV, there's a lot of work that is being done on alternate fuel that will continue. The second leg would be Switch, which will cater to EVs, especially for buses and LCVs. So the idea is to have it -- now whether the shareholding will be 76%, 75%, I'm not able to gather at the moment, but you can be assured that it will be a significant majority.

[Kapil R. Singh]

Okay, sir. I'll look forward to that data once you are able to conclude the transaction. Second, Dheeraj, you mentioned that our CNG products are performing better than the competition. Could you give some color in terms of technology and which parameters you are looking at when you are talking about these? How are Ashok Leyland CNG trucks, on what parameters are the data?

[Dheeraj Gopichand Hinduja, Executive Chairman]

I think, as you know from a technology perspective, I would make it a little broader from the perspective. When you see this technology being extended into our higher vehicles as well, the modular platform that we've created that AVTR really allows us to transfer our chassis from diesel to CNG, LNG, at relatively very reduced cost. Now when you look at the performance of the vehicle per se, it will come back in terms of the efficiency at which they operate. So in terms of clear metrics on how much better, I would say that it's a little difficult to give every single parameter. But all I can say is that the initial sales that we have seen and the orders that we're already booking for February and March, because this industry goes by a word of mouth. And if you have a good product, automatically, you start seeing the order book building up very quickly and very rapidly. So at this point of time the issue for us is more of production and how quickly we can increase the production of the vehicle. But the true statement for us in terms of how the vehicle performs is coming through by the customer feedback on their comparisons against the competitor products that they have. Gopal, any specific metrics that you want to highlight over here?

[Gopal Mahadevan, CFO & Whole Time Director]

Not at the moment, Dheeraj. I think you have kind of encapsulated what we wanted to say. So it's very difficult to actually kind of thin slice it and share it. It will take a slightly longer discussion on that.

[Operator]

The next question is from Binay Singh from Morgan Stanley.

[Binay Singh, Executive Director]

Question is relating the PLI scheme. We do understand that Ashok Leyland has been approved under the Champion OEM scheme. What sort of investments and sales have you committed to do under PLI? Because it kick starts next year. So could you share any financial number on what sort of investments are you planning to do?

[Gopal Mahadevan, CFO & Whole Time Director]

This question is to -- can I take the question?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Yes, go ahead, Gopal.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. So see, basically, it's a good question. We have been empaneled under the PLI scheme and that's good news. But we will share more information because what we are doing now is -- the application time was very short. We have looked at the larger numbers. We will have to take a final call on the investments, because there are multiple options that we're evaluating at the moment, and take a final decision on that. So you will have to wait some more time to hear from us.

[Binay Singh, Executive Director]

Okay. Sir, secondly, could you just share your revenue breakdown, like earlier, you used to give it by segment for the quarter?

[Gopal Mahadevan, CFO & Whole Time Director]

Sorry, can you repeat the question, please?

[Binay Singh, Executive Director]

Yes. Could you share your revenue breakdown by segments for the quarter, if you have that handy?

[Gopal Mahadevan, CFO & Whole Time Director]

I think Balaji can provide that, broadly the MHCV and the...

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

Yes. For the domestic trucks and buses, it is at 61%. For LCV, it is at 16%, 1-6. Hello?Yes. For our domestic trucks and buses, I told you. Now, for LCV, I told you, it is at 16%. For spares, it is at 9%. So the balance will be towards the engines, exports, and other businesses.

[Operator]

The next question is from the line of Aditya Makharia from HDFC.

[Aditya S. Makharia, Analyst]

Yes. I just wanted to get your thoughts on -- Indian Railways is becoming very aggressive on the freight side. They are talking of commissioning another 400, 500 kilometers of the freight corridor in the next month itself. And also, they've been debottlenecking a lot of capacity. So how do you see growth rates for CVs over the next 3 to 4 years in this light?

[Gopal Mahadevan, CFO & Whole Time Director]

You see, let me put it this way. Yes, railways are improving their capabilities, but we must also understand that there is a huge amount of investment that is happening on the road network by the government. So they continue to invest on roadways. And all of these investments are happening for 2 reasons: one, to improve the road network across the country, which will help both trucks and buses. So what will happen is you are going to see a situation where customers will have some amount of choice between choosing between rail and road. But traditionally, if you look at it, the impact that such networks have had on the traditional form of trucking has been very negligible. The second one is, as far as buses are concerned, it would be very difficult to kind of have the flexibility that intercity buses have over rails because whole from door to door, railways still continue to be more time consuming than buses, if you were to study the time of travel to the depot and the exit and et cetera. Thirdly, I think railways cannot impact most importantly the ICV and the LCV segment. These would continue to be dominant in the trucking business because of the inherent advantages that shorter distances have. At some point in time you would actually see a coexistence coming in, which has happened in the Western markets, where both long-distance trucking and the railways start to complement each other. But finally, I would only say one thing. These are statistics and these could have changed a bit, so I may be a little dated on this. But the Indian economy, if you were to look at the supply chain cost as a percentage to GDP, it hovers around 13% to 14%, I'm told. In the world economies, it's at around 10%, which means there's a lot more productivity that needs to happen. There's a lot more turnaround time that needs to happen, which is why the government is actually investing in road base. It kickstarts the economy, but it also actually builds capabilities because supply chain costs have to be brought down if Indian industry has to compete globally. So that is actually good news for road transport, especially for trucks.

[Aditya S. Makharia, Analyst]

Got it. And any sense on more near term for FY '23; this '22 is almost coming to an end. So FY '23, would you like to estimate what sort of MHCV growth we could look at, at the industry level?

[Gopal Mahadevan, CFO & Whole Time Director]

I think it's better, and I'm going to leave it to Chairman as well, but I think let's wait for Q4. Let's wait for 1 quarter without any major setbacks and stuff like that, when things stabilize, then I think we should budget for '23 to be a good growth year. But Chairman, any views?

[Dheeraj Gopichand Hinduja, Executive Chairman]

I would agree with you, Gopal. If you see the previous peak that we have reached from a TIV perspective of 300,000, and I think it was 90,000 or so. Compared to where we are today, there is significant headroom. And I completely agree with Gopal, once we see the outcome of Q4, which is looking quite strong, that should really give us a good indication. The economy is strong. A lot of infrastructure projects, construction projects, so in all respects, and we see a return of the passenger segment, so strong demand for buses as well. So I think I wouldn't like to put a percentage on it until the end of Q4, but at the moment it's looking very strong.

[Operator]

The next question is from the line of Chirag Shah from Edelweiss.

[Chirag Shah, Research Analyst]

First question is on the tipper launches that you have done. You've done 3 launches. Can you elaborate on that? Why I'm asking this is because in the recent times we have lost market share in tippers because of shift in demand to a slightly more tonnage tipper in the industry. So will these 3 launches help us to gain back those market share? Can you just elaborate on what product we have launched in tipper?

[Gopal Mahadevan, CFO & Whole Time Director]

I can give you a broad detail of the thing, but I don't have exact, what should we say, exact market sizes and all that, if that's okay. So we have launched -- we have made -- in multi-axle vehicle, to start, we had the AVTR 3120 coming in, it's a 6x2. Then we have launched in tipper, the AVTR 4825. It's a very important segment for us and in the market itself, it's a 10x2 tipper. We have also launched the new N series, N2832 and N3532 high horsepower tippers. Again, very important because high horsepower tippers are actually growing in demand. These are 28 and 32 tonnes. And of course, Ecomet is a favorite. So Ecomet 14, 15, it's another tipper range for 14 tonnes, which has been launched as well. And I already talked about, and I think Chairman also spoke about, the Ecomet Star CNG, which comes in 2 GVWs, one is 14-ton and 16-ton. That has been done, of course, very recently. So I think that to answer your question, let's see, I think these vehicles should perform well. Very good initial -- very encouraging responses from customers, but they have just been launched, but we do see that we have -- see, the basic idea, as has been in the past -- we don't do any big bang range. The AVTR is more a modular range than anything else. But what we do continuously is to fill the slots. We keep filling the slots in the product portfolio, and with the least cost of investment, we try to get a larger share in the market, which is exactly what is happening, which we have been doing as well in the past. So if we look even in LCV, the BADA DOST was brought into a higher GVW, which has kind of expanded the addressable market 5% to 65%. And that's why our market share actually jumped from something like 17% or so to upwards of 20%. It had a straight jump at it, right? So that's how we will continue to launch our products.

[Chirag Shah, Research Analyst]

The last question was on defense side. So any update -- where are we -- the trial runs are done now? Any clarity on when the order flow will come from government side? Is there any clarity?

[Gopal Mahadevan, CFO & Whole Time Director]

See, all we can tell you is that we have won quite a bit of tenders, okay, both in armored and non-armored vehicles. We'll have to wait for the government budget allocation and for that to happen here. So it's very difficult for us to actually estimate as to when that will happen. All we can tell you is that we have the capability... Yes, go ahead.

[Dheeraj Gopichand Hinduja, Executive Chairman]

I would only add that, I mean, we continue to expand in the Stallion and the Super Stallion range, and we are diversifying in to track the vehicle aggregate programs as well. So from our perspective, we're very much ready. And as far as the government budgets allow, I think our product range has extended substantially in this domain.

[Chirag Shah, Research Analyst]

No. I understand that. That's why I was asking any clarity has come from government. I know that we are ready, but from their side we are not getting any communication.

[Operator]

The next question is from the line of Priya Ranjan from HDFC Mutual Fund.

[Priya Ranjan, Vice President]

2, 3 questions. One is, why do you think the life of the vehicle has gone to 9.5 years? Is it, there is some structural issue out here? Is it because in the last 2 years the truck utilization has been lower, so that's why it's bound to happen, if I look at the age, only by the age of the vehicle, but in terms of kilometers it has not yet reached to, say, 8 or 9 years in terms of regular use. And secondly, on DFC, I think in some of the segments of the DFC, there is a RoRo which is picking up significantly, at least in the western DFC side. So do you think this will also have some structural issue in the truck because, I mean, the utilization of the truck or I mean the plying of the vehicle on the road will be much lesser if you go for a RoRo.

[Gopal Mahadevan, CFO & Whole Time Director]

Okay. See, the first part of it is these are internal estimates, but these have been done after getting into studies with a lot of people on the ground. The basic point that comes up is, as vehicles start to get more evolved, right, and today we are at BS VI level, there will be a positive pressure; one, from customers, end customers, right, like pharma companies or e-commerce companies, cement, steel, chemical. They would all want to ensure that -- everybody is trying to actually move towards the green agenda. And when they're doing that, the push for green is also not just coming from the OE, it's also coming from the end customers, right? So when that is happening, they would want to have the latest generation of trucks supplying their both inbound and outbound freight, this is point number one. The second thing is that trucks today, there's a lot more technology and digital in those trucks, which provides a lot of rich information on supply chain. Today, supply chain is becoming almost just in time. Everybody is taking cost out of the product. So what is going to happen is when we've seen that the replacement demand had slowed down over the last 3 to 4 years, that demand will start picking up when the overall CV demand starts to pick. SP has, actually if you notice, had gone on a degrowth more from FY '20 onwards. When we thought that since there is BS IV to BS VI, there will be a lot of pre-buy that will happen in FY '19, '20. Unfortunately, that did not happen. Why did not that happen? Because of 2 reasons. There was a trifurcation of the entire segment when we had the GST coming in. We saw a temporary spurt coming in because of productivity, but after that we saw that there was a little bit of flatness. The second more important reason was because of the axle load norms, where suddenly there was a supply of capacity by anywhere between 18% to 25% because axle load norms were eased. All of that has now been reasonably consumed because the demand for trucks from FY '20 onwards has been receding and this was also aided by the impact of COVID. So when we are actually looking at a growth period, if we believe that the economy is growing to grow at 7.8%, 8.5%, 9%, depending on which statistics you are looking at, if this is going to be a high-growth economy, that cannot happen without transportation, which is the most important sector to aid this economy growing. So if you assume that this is going to grow, then we are going to see demand coming up. One, because of the growth in the economy and the sector. The second one is also aided by that people would not want to have older trucks in their -- many of the large operators don't want to keep very old trucks in their system. It creates a lot of noise in the system. This is one. The second one is, while we talk about trucks, we are also missing out on buses. When we get back into working in offices, going to schools and colleges, and intercity transportation starts to catch up, you're going to see a spurt in the bus demand as well. LCVs are set to grow because what has happened is, as you know, our behavior itself has changed, and we are not going to get back into the old pre-COVID behavior, where we have gotten used to getting deliveries at our doorstep. And so there's a lot of expansion in the e-commerce space, which is driving the LCV demand. while your RoRo is right -- I did study some reports on RoRo, but we'll have to really wait and watch how these things are going to happen. Because there are so many moving parts today, okay? You've got COVID; you've got material cost, which possibly will come off; then there is a pent-up demand for the last 4 years. There is an economy that is growing, almost all sectors are growing. The government is infusing a lot of funding into infrastructure. Roads are getting laid. So there are a lot more positives than negatives for the trucking industry as far as I see. So that is what gives us the optimism that we have. Chairman, I wouldn't know whether you would want to add something more.

[Dheeraj Gopichand Hinduja, Executive Chairman]

No, I think you've covered it quite comprehensively. Gopal.

[Chirag Shah, Research Analyst]

Sure. Secondly, on your PLI scheme, have you applied at the group level that includes the Switch Mobility. I mean, wherever you want to put the extra money in the electrification front? Or I mean, it's at the Ashok Leyland level?

[Gopal Mahadevan, CFO & Whole Time Director]

No, you see that the PLI scheme is essentially for, if I may use the term in very simple terms, it's for green fuel, right? So the internal combustion engine doesn't qualify for PLI. But there are common investments. That's the reason we said that we are reviewing this investment and we'll come back to you as to how we want to take it forward, because the first thing is to apply and put your foot on the door and get qualified. But what we'll have to do is to look at what are the investments that we'll have to do, how much of it is common, how much of it is in EV, et cetera, and how much of it is in other alternate fuels as well, right? And the investment has been made by Ashok Leyland. That's why the newspaper reports also say Ashok Leyland is qualified. It will anyhow benefit from the volumes of Switch. But here again, I just want to kind of mention that we are at the moment reviewing the whole thing in completeness.

[Chirag Shah, Research Analyst]

Okay, understood. And just one thought on the trucking side of the electrification, I mean, at least on the ICV. What we have seen in case of ICV moving towards CNG. So do you think that is a segment where we can have a substantial electrification going forward? Because the same problem of CNG, lower range of CNG is there in case of CNG also.

[Gopal Mahadevan, CFO & Whole Time Director]

We'll have to wait and watch. Chairman, would you want to answer this?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Yes. I was just going to say that the ICV is a segment that you will see, in due course of time, where you will see electric as well. We do sense certain customers already demanding, for their logistic purposes, to look at the possibilities of electric. Because a lot of the larger corporates, multinationals, they have their own green agenda. And they want to complete net zero pledge that they have made. So for them, moving to electric is what will drive all of us to ensure that the vehicles are ready. So that trend towards electric ICV will come in the next few years.

[Operator]

The next question is from the line of Kapil Singh from Nomura.

[Kapil R. Singh]

Sir, can you talk about the order book that we have for Switch, either in terms of volumes or revenues?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Andy, are you there?

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

Yes. Can you hear me? Sorry, I had a small technical problem. I think the question was around the order book. We can look at order books in different ways. But if I look to the recent bus order books, we have a substantial order book, as you know, in India. And I draw your attention to the recent announcement in Bangalore. As a part of pulling together the manufacturing in Spain, we also have a significant order book in Spain once that facility is opening. And as you know, we do well in the United Kingdom. So the 3 main bases, we do have a bus order base. And Dheeraj just alluded to the light commercial vehicles. And obviously, we're going to be bringing vans to market. We already have a substantial order book for our Indian LCV.

[Kapil R. Singh]

And is it possible to share any numbers?

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

No, I think it's not...

[Dheeraj Gopichand Hinduja, Executive Chairman]

Yes. I was just going to add, this industry is very much at an early stage. So we are tendering now much more aggressively in the multiple geographies that we're playing. But at the same time, we're very careful to ensure, because sometimes we are seeing the prices at which people are quoting are just not viable, and they're just trying to go for a market entry. So we've got the experience now to understand where and at what price, taking into the different geographies and the environment in which the vehicles operate at which we should bid. So I wouldn't like to put a number. The only thing I can tell you is between Europe and India, in buses and in LTV, we are moving quite aggressively in building up our order book.

[Kapil R. Singh]

Okay. Can you tell us the capacity room? Is that possible?

[Dheeraj Gopichand Hinduja, Executive Chairman]

Sure. Andy, you want to go ahead?

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

Yes, I can do that. So in India, current capacity on buses is around 500 units per annum. And in the United Kingdom, it's around 250 per annum. Obviously, the Spanish facility is not yet available. So that's a year down the road. So that's current capacities. Obviously, that doesn't take into account planned CapEx to expand that capacity.

[Kapil R. Singh]

Which would be how much? Expanding capacity?

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

We can discuss that, perhaps, another time.

[Dheeraj Gopichand Hinduja, Executive Chairman]

The only thing I would like to add is that this doesn't take into account the LTV. We do have the capacity for building the Indian requirement. And also, when Andy is talking about the U.K. capacity of 250, majority of that is based on double decker buses, which is the requirement, and the capacity would be closer to over 300 to 350 when you look at a combination with more single deck vehicles.

[Operator]

In the interest of time, this was the last question for today. I would now like to hand the conference over to management for closing comments.

[Dheeraj Gopichand Hinduja, Executive Chairman]

Thank you, and thank you, everyone, for your interest. As we stated earlier, we feel that Q3 has been quite an important quarter for us. We are seeing a lot more growth here on the right trajectory for our market share as well. We remain quite optimistic for Q4. And if the way that the Indian economy is moving and the growth that the government is indicating for infrastructure and construction, we feel that the market should hold well. We've seen the bottom of this cycle, and the next few years, subject to, of course, nothing more coming in the way of any wave 3 or 4 from the virus, we think the next few years should continue to be strong. And our product lineup is, as Gopal had indicated, the benefits of the AVTR range allows us to address the requirement of the customers very rapidly. And you will see multiple new products being launched, along with fuel types that are required by the customers. So we remain very confident as we go month-on-month and also remain very confident to increase our market share to where we were last 18 months ago as well. Thank you. Gopal, would you like to add anything or Andy?

[Gopal Mahadevan, CFO & Whole Time Director]

No, I think so. Thank you very much for your interest in Ashok Leyland and look forward to being in touch with you.

[Andrew C. Palmer, Executive Vice Chairman & CEO of Switch Mobility]

It's been a pleasure to have the opportunity to present Switch to you all. Thank you.

[Operator]

Thank you, members of the management. On behalf of Axis Capital Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.