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 day, ladies and gentlemen, and a very warm welcome to the Ashok Leyland Limited Q4 FY '19 Post-Results Conference Call hosted by Batlivala & Karani Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities. Thank you, and over to you, sir.
Thanks, Ali. Good evening, everyone. On behalf of B&K Securities, welcome to 4Q FY '19 Post-Results Conference Call of Ashok Leyland Limited. We are delighted to have with us today Mr. Dheeraj Hinduja, Chairman; Mr. Gopal Mahadevan, President, Customer Solutions Business and CFO; and Mr. Balaji, Vice President.I will now hand over the call to Mr. Dheeraj Hinduja for the opening remarks to be followed with a question-and-answer session. Over to you, sir.
Hi, good evening. Thank you all for joining us and your interest in Ashok Leyland. I would like to briefly touch upon the performance for the quarter and the full year. I am happy to say that we've been able to post another year -- another quarter of double-digit EBITDA. This is the 15th quarter of the 15th straight quarter. While the TIV had marginally come down, we were able to gain market share by 1.8%. The TIV performance was also a factor of the high base effect. This helped to ensure our revenues were marginally higher than last year. The EBITDA for the quarter was 11.1%, which was possible owing to the astute cost management and mixed management. Our ICV business and LCV business continued to grow.On a full year business, our revenues grew 10% and our PAT grew by 15%. The cash on balance sheet was nearly INR 700 crores. The LCV turnaround has been spectacular as has been the Hinduja Foundries Limited, which was also -- which has also become cash -- PAT positive. We are well on course with our BS VI readiness and at the tester level, we have outperformed -- we have performed very well. Our modular business program is also on course. As you have all witnessed yesterday with the outcomes of the general election, the outlook for the current year also looks robust and much more positive than we had expected. We are expecting a TIV growth in the region of 10% to 12% in the coming year. We also believe that with a stable government in place, we should see the economic reforms being pushed through and the continued focus on infrastructure and as the government has been seeking a possible scrappage scheme to come into place as well.As you are all aware, the BS VI introduction will be happening in -- from April 2020. As a result of that, we foresee a prebuy that would be happening in this financial year. Before I pass on to Gopal to explain more detailed figures, I also wanted to inform you that at the Board meeting today, the Board has decided to appoint Gopal to the Board of Ashok Leyland as well. And so he now becomes a whole-time director of the company.So I'll pass it to Gopal to take you through in more details on the financials.
Thank you, Dheeraj. So I'll just run through the financials very quickly because I'm sure a lot of you will have questions for us, especially Dheeraj.The total industry volume for Q4 was 1,12,469 and it was minus -- marginally lower at -- versus 1,17,603. But as our Chairman mentioned, it was also because of the huge base effect that we had last year. Ashok Leyland volumes was 1% higher at 41,519 and our market share was 36.9% as opposed to 35.1% in the same period last year, so we had grown by 1.8%.Our revenues were marginally higher, in fact slightly flattish, I would say, the INR 8,846 crores. The same number in Q4 was INR 8,780 crores. Our EBITDA number percentage was 11.1% as opposed to 12.8%. And here I am just going to pause and let you know the reasons for it. One was, there has been quite a bit of discounting that has happened, and we've seen the pressure -- the industry has seen a pressure on the top line in terms of materialization. The second one is, you -- we must remember that over the last 12 months ending March 2019, steel prices have been consistently increasing. So we've actually seen a cumulative convergence of cost increase in the fourth quarter. The other reason internally also has been that our defense revenues were lower than the same period last year as was exports. We are retaining our -- I'm sure, Dheeraj would be sharing with you our strategy for export later, but we are retaining our focus on exports. And that has also been an impact on the margin, which is why we have seen this 1.7% reduction. But having said that, I still believe that given the circumstances, 11.1% EBITDA has been very, very satisfying for the management team.On a full year basis, I'll give 2 numbers, the overall revenues for the full year was INR 29,055 crores, which was about 10% higher than INR 26,356 crores. For the full year, the EBITDA was 10.8%, marginally lower by 0.4% over the previous year. And our market share was almost flattish. It was at 33.8% as opposed to 34.2% in the same period last year.Having said that, what I would also want to say is that, in Q1, we had deliberately stayed away from some of the low-margin businesses due to which we have deliberately kind of stayed away from some of the businesses, but we kind of improved the shares consistently from Q2 onwards. Going forward, we are very clear that we would want to grow our volumes. We would want to grow our market share and at the same time, we will also keep a watchful eye on the bottom line.With this, now I am handing it back to Annamalai.
Thank you very much. Yes, sir, we'll start the Q&A session now. [Operator Instructions] The first question is from the line of Raghunandhan from Emkay Global.
Sir, two questions. One, can you please throw some color on the dealer inventory days and the balance sheet? There is an increase on inventory and the receivable days. How do you see this panning forward? Second question is, on the CapEx in FY '19 and how do you see this CapEx panning out for FY '20 and '21?
As far as dealer inventory days, since it's a number I am going to possibly answer the question, I think the dealer inventories, at any point in time, are above 20 days, with 3, 4 days more. We always have dealers having about 15 days inventory, but like we have shared in the past, we never push inventory into a dealer because there should be some amount of healthy stock available for in -- the service department. As far as our own inventory is concerned, as of the end of FY '19, I think, our inventory was about 8,900 units, not very, very high as compared to the normal standard. It is clearly about half a month's sale. Having said that, I think, as we move forward, the whole strategy would be to kind of pick up the demand trend and ensure that we do some astute capacity planning and inventory management as we move forward.
On the CapEx, sir?
Yes, on the CapEx, we should be about -- we estimate that we should be around INR 1,500 crores.
For FY '20? To what, sir?
Sorry?
To what, sir, like places...
The CapEx is for the following. This is for -- first, we have our LCV project, which is called a Phoenix. It's not a vehicle, it's a project code name. We also have BS VI. We have modular business program, and we also have the capacity enhancements that we will have to do because we have virtually been running without CapEx, very significant CapEx over the last 5 years. So we would need to do some capacity, and also I think Balaji also mentioned to me here that the other thing I missed out was electric vehicles. So that's another CapEx that's coming. See, these are not really huge lumpy CapExes that we have to worry. Each of these businesses would require a certain amount of CapEx fuel to take care of the growth in the future.
The next question is from the line of Binay Singh from Morgan Stanley.
Gopal, congratulations on getting nominated to the Board. I have 2 questions. Firstly, just a clarification, the CapEx for FY '21, like, do you see it tapering down or it'll remain around similar level?
See, I think we'll have to really kind of peer into the future to see how it will be, but I think it will be about INR 1,000 crores to INR 1,500 crores, which is not very high for a company of our size because we must understand that we are in 6 locations. And you know that -- what we do is we do sufficient injection of CapEx as we move forward, instead of doing big blast brownfield or very large expansions. So we keep progressively adding CapEx. So if we find the demand for EVs going up, then we may have to infuse further CapEx, otherwise, we will not do it. Similarly, we'll have to figure out what is the additional CapEx, if any, that's required in BS VI. All of this is going to be a factor of the demand that we have. But I think, at the moment, we should plan for at least another INR 1,000 crores to INR 1,500 crores CapEx next year, maybe more INR 1,000 crores than INR 1,500 crores.
Right. And other -- the second question actually I would like on nontruck segments, could you talk a little bit about how you see growth for them playing out this year in FY '20, from buses exports to defense and all, like how FY -- like if you could also share the numbers for FY '19 across segments?
I'll take that. On the exports side, you will have seen that year was not as bullish as we have planned, specifically because many of our target markets were -- had their own recession issues, like the Middle East, also Bangladesh and Sri Lanka. But going forward, we have a new range of products that are coming out and that includes the expansion of the LCV product, the Partner, which was launched very recently in the Middle East. So we are expecting that this financial year, not only with the lighter vehicle range we will be able to penetrate our existing markets, but we are actually opening up some new markets with entry into the Russian market as well. But going forward, and I think this is something we stated earlier, all of our products will be coming with the left-hand drive version, which so far we have predominantly been restricted only to the right-hand driving market. But as we go forward, from our LCV to our medium, heavy truck range and bus range, we will have a full portfolio. So we feel quite encouraged that this would be big additional volumes for the future. On the defense side also, as we've said, although we have won many tenders, the orders had not come through, but now that the government is back in position, we feel that this would be one of the key priority areas for them as well. So we're looking for a good number -- or for the execution of the tenders we've won so far in any case.
Right, right. And what would be the number for defense for FY '19?
Well, our number for defense in FY '19 has not been very significant. The defense revenues in terms of the CKD volumes have been -- they have been about INR 150 crores as opposed to INR 480 crores in the same period last year. But that is not because of any concern, let me just clarify here before anybody concludes on this. There is nothing wrong with the defense business because there are 2 things in defense that I would want to add to what our Chairman stated. One is, the defense business is a clear outcome of the orders that are placed by the Ministry of Defense. Last year, the ordering has come down because I think the government was faced with a lot of other issues. So we have seen the defense ordering, particularly for the vehicles of -- the Stallion kits that we supply is coming up. Secondly, I think, what we are doing is the right thing, which is we are building the capability of our defense business. We have put in a lot more people. We have won nearly 31, 32 tenders, out of which 8 or 9 trial orders have also completed. And we expect that as the defense spending in the country goes up, we are going to start getting annuity orders from these tenders because in a couple -- I think in some of the cases, we are even single suppliers. One is, kind of ready the platform for growing the defense business and that happens by applying for tenders, having the vehicles tested, winning the techno and -- the technical and the commercial bids and readying ourselves for the orders when they come. So as we move forward with the -- if the defense purse strings are opened, we would see further -- much higher revenues coming from defense.
The next question is from the line of Kapil Singh from Nomura Securities. As there is no response, we move to the next question from the line of Pravin Yeolekar from CGS-CIMB.
This is Pramod here. Two questions. One, how has Hinduja Finance performance in the last quarter and also the full year in terms of both supporting your business and also in terms of NPA trends?
See, all we can tell you is that Hinduja Finance performance has been very, very satisfactory. They have met their targets. Their consolidated book, including Hinduja Housing Finance, is INR 26,000 crores, but we'll have to wait for the results to be published because, at the moment, they are not in public domain. But you can be rest assured that the company has been doing exceptionally well. Even in the current circumstances, I think, they are achieving all their targets.
And reducing their NPA.
And reducing their NPA, I think, that's very important, yes.
And any update in terms of the -- since Mr. Dasari has exited in March, end of March, any update in terms of the new CEO appointment, where is the progress, what's the thought process there?
The search is on. The Board is very much engaged on this. And as we've said before, the Board is doing a thorough worldwide search, which includes many countries, but this is -- the process involves our internal candidates and external. But as I said, there is no date fixed yet. The process is on.
The next question is from the line of Amyn Pirani from Deutsche Bank.
My first question is actually a follow up on an earlier one. So the receivable days in your balance sheet has actually increased quite substantially if I compare to last year or even the last few years. So is this like a one-off thing? Is it something that will be the new level? How should we look at it?
Yes. Can you just repeat your question because one part of it is -- just dropped here?
Sorry. Am I clear now?
Yes.
So the debtor days or receivable days has increased quite substantially this year compared to the last 2, 3 years, so I mean, is there something one-off here? Is it something like a year-end thing which has happened? Or should we expect a higher level for the receivable days going forward?
Okay. Let me tell you what's happening is very quickly, and I am taking this question because it's a number question, but basically what happened is in last year, we had, like I mentioned to you, in the last year's conference call when we had quite a bit of cash in the balance sheet, also we kind of advised the investment community that -- we had this because there were sufficient customer advances that had come in, especially from dealers. So that is why the receivables had been a little lower than what it was. This time, the level of advances were significantly lower, so you've seen the receivable days going up. I think, see, in this sector, while we will aspire to be negative and we have -- and in terms of an operating working capital, if you just take pure receivables plus inventory minus payables for operations, we still are negative. But I think in the medium term one should expect that one would be possibly neutral or positive because that's what is a healthy ratio. We have to manage our cash otherwise, but I think last year was an exception, not current year, but last year was an exception that we'll have to figure out.And I'll tell you what happened, there is no -- I can't give a standard metric. I don't want to do valuation models. The point that comes up is we have been very, very good at managing our working capital over the last 5 years. So you're actually seeing negative working capital almost in all the year-ends and that happens because of a lot of customer advances coming. We continue to budget that well. Only if the demand goes up, you can expect that the level of advances will come out even more. I would say that we'll have to wait and watch on this. But we are not -- I think, we are at a very, very healthy working capital level to the company.
Okay. And what is the net debt for the company right now or net cash, what is...
INR 100 crores is the net cash. INR 715 crores.
INR 715 crores net cash, okay, okay. And just lastly, on this expected prebuy ahead of BS VI, are you already getting some indications because unlike in the last few emission changes, this time around, at your level, it will not happen in 4Q. I am assuming it will happen in 2Q and 3Q. So are you already getting some kind of indications as to what that prebuy could be?
I think you're right. We are expecting the prebuys in Q2 and Q3. But I think there was also a wait-and-watch policy in terms of what's happening with the elections and the stability in the economy. So since this has just transpired yesterday, I will not be able to give you a more precise answer, but the indications from the interactions we've been having with customers indicate that Q2 and Q3 should be much stronger.
The next question is from the line of Sonal Gupta from UBS Securities.
So just on -- could you give us a sort of a breakup of the revenue mix like you'd give every quarter in terms of trucks, buses, exports even for this quarter?
Can I suggest one thing? In the interest of time, can I ask Balaji to give those broad numbers after the call, if that's okay?
Sure, sir. And just on the discounts, like you mentioned in your opening remarks, that discounts have been quite high. So what was the average level of discounts in this quarter?
Well, the average level of discounts are in the -- they are in the range of nearly 15% upwards, 15% but sometimes 20%. It depends on the type of truck and the type of vehicle and properties. So it goes from anywhere between INR 2.5 lakhs to INR 3 lakhs, INR 4 lakhs. Of course, the larger 49 tonners also have better realization, but I think that what happens is they are in the range of anywhere between 12% to 15%, which is not small.
So I mean just to -- because typically you've been saying it's been like around 420,000 was the number for last quarter, so any sort of number in that...
They are in almost the same range. They are at 425,000 to 450,000 -- 440,000 or so.
Okay, sir. And just lastly, in terms of what was CapEx for this year?
For this year, the CapEx was INR 950 crores.
INR 950 crores. And just for next year, like FY '20, you guided INR 1,500 crores. Does that -- any investments that you see outside of the CapEx in other subsidiaries, et cetera?
Well, some investments will happen in Optare, Albonair. And let us see, we made quite some investments in AL UAE also. So it could be over and above the INR 1,000 crores, maybe INR 3,000 crores. I don't know -- I'll have the really -- see, what is the CapEx capitalization that really happens. In terms of cash flow, I expect it to be between INR 1,000 crores to INR 1,500 crores and over and above that maybe another INR 200 crores of investment that may happen in the subsidiaries.
[Operator Instructions] The next question is from the line of Prateek Poddar from Reliance Nippon Asset Management.
In the opening remarks, you talked about exports, focusing more in exports. Could you just talk a bit about that? That's question number one. Second is, F '21, sorry, that's a bit slightly long term, but F '21 would be a year wherein you will recover from prebuy and hence it would be a bit muted. So in that sense, how is the company gearing up or what steps are you taking to mitigate that impact? Question 2. And my third question was to -- was on the CapEx spend. I would have thought that in F '21 CapEx intensity would be lower than F' 20 because BS VI investments are all over. So I am just -- I mean could you just talk a bit about that as to why is that the CapEx intensity doesn't go down in F '21?
So as I was saying on the export side and more specifically, we see a lot more traction happening in the African market, there are about 7 to 8 markets where we are very active in and they themselves are seeing growth rates where the GDP is growing at over 6% to 8%. And also we do see some signs of recovery in some of our traditional markets of Middle East, Bangladesh. And taking that into account, along with the new products that we have to offer, from our buses through our light vehicles as I mentioned, we've got the Oyster bus, we've got the Partner truck, and of course, we've got our traditional Falcon buses as well. This year, we supplemented at the -- towards the end of the financial year a new range of LCV products that come in. And in our ICV range, which is categorized between 9 to 16 tonnes, we have our range of ecomet bus and GURU. We feel that taking these products together, we ended the current financial year at around 12,500 vehicles. We should see movement of -- we should see growth of at least 15%, if not more percent tender. But going forward, beyond this, after FY 2020, every single product will be available in LHD and we are looking at expansion of -- expansion into the ASEAN markets as well. So together, that will have much substantial impact for us. With regard to...
Taken by AL too, there's going to be downturn...
Yes. So for the -- I think in anticipation of a downturn, but I would also like to repeat that if you look at all the empirical evidence, it shows that in every emission year change, there has in fact been growth as well. So when we've gone from the BS II to III, III to IV, so we feel that although Q1 of FY '20 might have some slowness in Q1, thereafter, we feel that once people get more awareness about the technology the pickup should happen. But irrespective of that, we are preparing with cost reductions. That exercise has already begun and we hope to be able to retain our double-digit margin.
Okay. And the question on CapEx. In F '21, I would have thought that the CapEx intensity should have gone down further more than what we have seen in F '20, that doesn't seem happening. So any specific reason for that?
I think we do feel that the variance of the products that will be coming and the initiatives on electric vehicles together, so within that band of INR 1,000 crores, for the size of the company, as Gopal was saying, is not substantial, and we need to be constantly innovating into the product range. In certain areas, there might be requirement for capacity enhancement as well, but INR 750 crores to INR 1,000 crores is something which we view is required going forward as well.
And is it fair to say that fiscal year '21, when you get the LHD capability, you are -- you get the LHD capability, we could see a substantial growth on the exports front, something which we'll be talking for -- talking about it in the last 2, 3 years. Could it really materialize once we get this LHD capability?
Yes, I think we have discussed this in the past. And due to delay in the introduction of products and unfortunately due to the downturn in the economies in which we work, this ramp up did not happen. But with the expansion that we're looking at, I'm quite confident that this -- you will finally see a breakthrough in the international operations activity.
And sir, one last question, if I may squeeze it in. In one of the newspapers -- in one of the interviews, you talked about the new vision for Ashok Leyland. Could you just highlight about it a bit more?
Well, that's actually quite -- I can't define the vision in a very short time frame, but all I can tell you is that we had originally set up a vision to be in the global top 10 in trucks and buses on categorized above GVW of 7.5 tonnes and in buses to be in the top 5. That was set in 2011. And in the financial year, '18/'19, we were able to achieve that. We're now within the top 10 of our trucks. Anticipating that, we have set up a new vision, which is, in fact, more challenging and which encompasses the growth that we see in LCV international operations, and also our customer solutions business. So I think we're happy to share this with you, but possibly require a separate occasion to share the vision for Ashok Leyland.
[Operator Instructions] The next question is from the line of Ronak Sarda from Systematix Shares & Stocks.
Two questions. One is on the modular platform, which you spoke about. Can you just highlight something more -- some more details there? What's the status and which segments are we targeting?
The modular platform will be introduced along with BS VI effective April 2020. What we are looking at is not only improvements within our own manufacturing processes as a result of this, but the advantage that it brings is that it allows the customer to really build a product that is for their purpose and their requirement and application. Where this doesn't get effective is in our existing ICV range or the LCV range and it really goes in the product range upwards of 16 tonnes.
Okay. Sure. And the second question is, again, I mean, today, there was some media news talking about the scrappage scheme. Can you share some insights? If you have discussions with the government officials for the last few months, there were some doubts on the implementation of the scheme. How do you think this can be implemented in a smoother way?
I don't think we have any detailed insight, but the government in the past has spoken on a number of occasions with regard to their policy of having a cleaner environment where they wanted to introduce the scrappage scheme of vehicles. They've looked at over 12 years or 15 years. They haven't classified that yet, but we expect that with the initiatives that they have taken, with the introduction of electric vehicles as well, we anticipate this is something that they would introduce. And if it does, then it would be very beneficial for all the truck companies as the volumes are quite significant, which would require replacement demand.
Okay. And so Gopal mentioned something about project Phoenix in the LCV side. Can you share some more details? I mean, obviously, we have the tax and is it taken more on products or is it something different?
Basically, today, in our LCV range, we have a product called Dost, which is 2 tonnes upwards and then we have a product called Partner, which is over 5.5 tonne to 6 tonne classification. So there's a mid-segment, which has a very high industry -- total industry volume is pretty high for that as well and that is where the Phoenix project comes in, addressing the 3 tonne, 3.5 tonne to 5 tonne category. And we believe that, that would not only provide us a new opportunity, but it also has a significant volume in the international market. This will come with various variance as well.
And we should expect that in FY '20 or '21?
Introduction from FY '20 -- April 2020 onwards.
The next question is from the line of Chirag Shah from Edelweiss.
Sir, congrats for good set of numbers and congratulations, Gopal, for the elevation. Sir, two questions.
Chirag, your audio is feeble, if you can be a little more louder.
So am I audible now?
Yes, it's better.
Thanks for the opportunity and congrats for the good set of numbers. And also Gopal, congratulations for the elevation.
Thank you.
Sir, two questions. First on capacity. So based on your current investment program that you are running, what is the kind of peak production that you could achieve, if you can just share like...
What is the peak production? We can touch a capacity of upwards of 180,000, I am talking about MHCV.
And I would also say it's not as simple because it's very dependent on the various aggregates as well.
Aggregates, absolutely.
The requirement of cab vehicles. So -- but as we foresee and with the growth aspirations we have in our market share as well, we don't see a capacity constraint coming in, in the new financial year.
Okay. And when would you need to really step up the CapEx? At some point of time, you will need a brownfield. I understand that you had some spare capacity because of the LCV project also, but -- so can we make an assumption that at least for 2-odd-years, you don't need to look at a major brownfield or a greenfield?
Actually, as you would have seen, we have been trying to optimize all of our facilities. We already have 6 facilities available. And rather than growing into a new one, at the moment, we are trying to see how we can best optimize further even with the expansion for LCV as well. And that is what will allow us to retain our operating margins. So at this point of time, in the immediate future, we don't need to move into a new facility. We're going to maximize with what we have.
Yes. And the second question was around housekeeping one. If I look at the Q4 results now, Gopal, there seems to be a sharp reduction in other expenditure as a percentage of sales. And on a Y-o-Y basis also, it is down by almost 10%.
Chirag, if I can take your question. The main reason for that is that the regional sales offices have been closed down after the introduction of the GST. So consequently, the vehicle movement which was happening quite frequently in the last year is not there in this year. That's the reason why you are seeing a drop. Apart from that, there has also been a stringent control on the cost incurrence inside the company. So these 2 are the reasons why the other expenditure is lower.
And on the raw material side is what you indicated earlier, the discounting pressure because RM to sales has seen a big jump. So both -- and I presume the commodity cost pressure is behind and if there would be any tailwind that would start flowing in the P&L?
We have to see about the commodity cost pressure because, while it is still favorable now in April, May, and hopefully, it will so as we move forward, we have to wait and watch Chirag. I mean it's a little too early because predicting these numbers, I -- let me share with you what -- and I'll also ask Chairman to share his views. I think basically what we are doing in the company is the following. We want to see how to grow our market share further, how do we grow higher than the industry. It's not easy, but that's our broad plan for the year. The second thing that we have to do is to figure out that all our costs are intact. So we are getting into what we did about 3, 4 years ago as a program, a specific program is being done to take out all overhead as much as possible. That is being done as a methodical program, and I think there is opportunity for us to reduce our cost there. While these 2 activities are going on, the other thing is we are redrawing our strategy for exports. I think Dheeraj has brought in certain perspectives, which we find exciting and the whole export strategy is being reworked out, including the organization and where should people be operating from, how do we improve the effectiveness, et cetera.As we're doing this on the product side also, the capabilities are built in. Today, we are much more fuller and maybe in 6 months' time, even more so, because we have both the complement of LHT and RHT in the LCV and also getting ourselves ready on the ICV side, which is going to be crucial. And finally, I think, where Dheeraj is spending a lot of time and focus aside of the normal thing is also to ensure that we are passing all the gates of BS VI and MBP methodically without a miss so that we are completely ready for the BS VI transition when it happens. So this year is quite a full year. So we are taking cost out, we are look at redrawing our strategy for domestic growth. We are also redrawing our strategy for exports. But of course, the effect of exports will come in, in the medium term and also looking at BS VI and MBP. Well, Dheeraj, would you want to add anything more?
No, I think I'll just stress what Gopal has said. We want to continue this growth. We have tried to break up the market, try and identify where we need to put extra focus. We want to grow the market share, but we will not buy market share, I think, that's important to stress.
Yes.
So this has to be done on a profitable basis.
And one last thing on the tax rate, if you can indicate, so are the losses of the LCV business been absorbed fully or we have some favorable losses left for the next year. So what does the tax rate look for next year?
Listen, the tax, no, I don't think, you should just take a normal effective tax rate.
Okay, for next year, because this year, it's slight -- it's on the lower side because of the merger also, I presume.
Yes, that's true, but then it gets compensated also with the deferred tax. But yes, there is some advantage. I don't want to say it's not there, of course. But next year, I think, you should have a standard effective tax rate.
The next question is from the line of Gunjan Prithyani from JPMorgan.
I have 2 follow-ups. Firstly, on the industry growth, now for the last couple of years, we've been seeing that the tonnage growth has been far higher for you versus the volume growth, but this year has been different from that perspective, that tonnage growth has been relatively more modest. So what is driving this change? And does this mean anything in terms of margin profile for you?
Tonnage growth, I think that -- is about the tonnage. I think that the -- I'm sorry, but the line is a little bad. There's a lot of disturbance from our side. So the tonnage growth seems to be high and whether it affects the margin profile of the...
Do you want me to repeat the question?
I'd be grateful if you can.
Yes. So within the MHCV, I think for the last 2 years at least we saw that HCVs were growing much faster, so the tonnage growth was much higher than the volume growth. But this year, from that perspective, the tonnage growth has been relatively muted compared to the volume growth. So what is the kind of shift you are seeing within the industry? Is it people getting more -- buying smaller tonnage vehicles because of the outlook on the freight front? Or is there some other change that you're seeing within the history? And in the past, you've mentioned that higher tonnage is better on the margin. So given this shift, do you think this has anything to read from the margin perspective?
Yes, I think that there are 2 things that are happening parallelly and that's why I think there is an astute mix that we have to do. One is, we're seeing higher tonnage vehicle demand going up. So you now looked at the 47 tonners, 49 tonners coming in, 4123s, et cetera. So the margins of those vehicles are definitely better than the smaller vehicles. But having said that, we are also seeing that there is a potential for us to grow in the ICV segment. So when I am looking at it, what we do internally is we're looking at how do I fill the slots in vehicles and also in the market demand, because if I start pushing the ICV business, I would want to grow it higher than the rate at which the market -- ICV market is growing. If that happens, then I will get an operating leverage benefit because it will take out some of my fixed expenses. So we need to ensure that even if we were to push some of the ratably lower-margin business because obviously, the larger vehicles will be most highest margins, how do I get the benefit of the volume to get an operating leverage benefit on the EBITDA? This is one part. The second part that we're doing is also, see, even in the ICV business, how do I improve the margins in the ICV business because there are multiple variants. If you notice, we had -- we have ecomet, we had bus, then we bought GURU, which has got -- which is slated to have slightly better margins and then we also now bought GURU 1010. So what is happening is, I am also trying to slot the vehicles internally as to what we call it as hub application segment and then trying to see how do I improve the overall mixed market within a segment like ICV? How do I improve the volumes in ICV, which will give me operating leverage, and how do I also astutely get capabilities to score higher in my MHCV, I mean the heavy trucks, which will definitely improve my margins.
Okay. And the second question I had was on the scrappage policy. Is there any engagement with the government that you have any sense on what could be the cutoff period, 15 years or higher than that? And any potential size opportunity that you would have assessed internally if you can share with us?
I think that it is a little too early, but I think SIAM is working on that because, I think, that's where the engagement with the government would be more than at the company level. But having said that, we are hopeful that the scrappage policy will come through because there is a continuity in the government and hopefully that will translate into the scrappage policy being implemented, because if it was a different government, we should have had some concerns on whether this will happen or not, but let's hope the scrappage policy comes in. That's all we can say at the moment here.
The next question is from the line of Basudeb Banerjee from AMBIT Capital.
A couple of questions. One, continuing with the scrappage policy. So how much time it will take for you to suddenly add up capacity if that gets announced because as you said in the call, your peak production is around 180,000 and taking a 10%, 12% growth, you will be almost at 160,000 MHCV in fiscal '20. So not much headroom left. So how much lag period you will need to spruce up your capacity all of a sudden?
Let me clarify actually my sentence. What happened was I think I didn't finish my sentence. What I said is, at base, I can actually do a 180,000 and scale up further because there is a very simple debottlenecking that we can do to get it done. So then Dheeraj did mention that we are not facing a capacity constraint at the moment. So please understand here, capacity is not just here at our factory because there it's not like I have to build -- let me clarify, we don't have to build a very large brownfield or a greenfield venture to augment capacity. We keep on slotting the capacity to see where the bottleneck is and keep on debottlenecking it, continuously this happens, okay. That is why our strategy has been not to put big bang CapEx except when we get into specific programs like a Phoenix or there is a modular vehicle program or there is an electrical vehicle or if there is a BS VI. But other than that, believe me, our manufacturing head and team have been continuously improving capacity at various locations and throughput and productivity. This is one part.And whatever numbers I am saying is without -- and don't hold me to it because it's a conference call, but the basic point is, we are not talking in 3-shift at all. So I have other bankable capacities, which we have not used fully, okay. So we don't have a major concern on capacity at all. If we need to augment capacity, and, if we -- if I may, in a lighter way say, if we have a problem of plenty in terms of demand, not to worry, we won't lose that demand.
Sure, sure. And second thing, sir, do you think government will allow manufacturers to take benefit of operating leverage by executing scrappage policy orders or that will be passed on to the buyers?
Yes. See, I think -- I don't know about operating leverage with respect to scrappage. I think just as SIAM has mentioned, I think we'll have to wait and watch for the announcement of the policy. We are waiting for it with -- we have been hoping that the policy will get done. Because you see, I mean, logic tells us that if we are going to a sophisticated emission norm such as BS VI, because we are very particular about the environment, pollution and all that, I think, then it is also important for them to ensure that the emission at the bottom of the pyramid is also removed like BS 0, BS I, BS II, BS III, that has to happen. Otherwise, we would have -- actually, this has new BS, only that the emission being -- having better emission vehicles only on new vehicle sales. So the existing vehicles should also have to happen. And frankly, I think as the technology improves, I don't have statistics to prove it and maybe it's difficult to prove it, but I always keep telling people, as I said, look at some of the vehicles we had 10, 15 years ago, where are they? I mean, if you look at pass cars, for example, they are not there. Some of the models that were running around as [ famous 6 ] are not there after 10 years. So similarly, if you take trucks, there is a naturally phasing out that is happening, that will get accelerated if the scrappage policy is around because there is an incentive to scrap.
The next question is from the line of Sandeep Manam from Franklin Templeton.
I have 2 questions, actually. First is, in your export markets, let's say, Africa, Middle East, ASEAN, who would you be the key competitors and what would be your differentiated value proposition? Is it in terms of -- would it be mainly price or some other attributes? And second question is, for the BS VI transition, what is Albonair's role? Will it be the main system integrator or will you be dependent on other entities, I mean, outside -- mainly outside entities?
In the international market, every market really has a different competitor varying from Japanese, Korean. In some of the African markets, it's the Chinese. And I would say, while price could be one differentiator, but one of the main areas where people are preferring to buy Ashok Leyland vehicles is the robustness and it's known to be durable and rugged. And so areas where the road conditions are not good, it, of course, performs well, but also countries which have a good infrastructure, our products do well, and there we compete not only in terms of the pricing, but also the service and after sales support that we can provide. That I would say are really the main ingredients we have. As you know, the motto of the company as well, Aapki Jeet, Hamari Jeet, is to make sure that how can we provide the customer the best service because these products, you need to ensure very high uptime for them. And that, along with the distributors we work with, is one of the main areas of focus in all of the markets. With regard to Albonair, they are -- I mean, they are working with other OEMs as well in the exhaust after-treatment. And that's where they've got a lot of experience with the SCR solutions and that's where they will be coming into play for Ashok Leyland as well.
Okay. Just one follow-up question related to Albonair. So will Albonair be the main system integrator for all the after-treatment activities? Or there will be some other vendors and Albonair parts -- some of the parts go into that. How should we think about that?
See, I just want to clarify the role of Albonair. Like our Chairman mentioned, they are there in the after-treatment systems. What they do is, they produce what is called urea dosing systems. So the urea dosing system actually uses urea to be dosed as an atomized mixture into the air and when the exhaust comes in, then what happens is it gets split into nitrogen and H2O. Now the reason -- so before that, there are various other processes that have to happen from the manifest to the urea dosing system, you have DOC, DPF, et cetera. There's a lot of technique -- technical happening. So that anyway is getting done from other players. So there are multiple players -- there are multiple vendors that a BS VI system involves. It's not a single solution, and there is also technology involved. Where we have an advantage and where we would use it as an advantage is to use Albonair in the urea dosing system, which comes in at the end of the process, and we are looking at other players also. We wouldn't want to put all our eggs into 1 technology because we want to ensure that we take advantage of Albonair's presence and also see other players so that we have multiple offerings on the BS VI solutions, not offering, I would say multiple solutions for the BS VI.
The next question is from the line of Mukesh Saraf from Spark Capital.
First question is on the mix of vehicles that we have sold in terms of tippers and, say, haulage. Could you give us some sense how FY '19 was for tippers specifically, and how do we see this going forward?
Well, I think that basically what we have done is we have done pretty well in terms of tippers, where there has been a little bit of ceding has been on multi-axle vehicles and tractor trailers, but even tippers form a sizable part of the market, and ICVs have also -- we have grown pretty well. And what was your question? You wanted the exact numbers, is it?
If you could just give the broad of the market and probably of Ashok Leyland, tippers would constitute to what proportion of the volumes that we're selling?
Tippers would constitute roughly about, I would say, 20% of our volumes.
Right. And is it fair to say that this was probably growing much higher than the overall average growth in FY '19? Or how was the growth?
I would say that even ICV has grown very well. Intermediate commercial vehicles, I think, our share has been very good and we have been growing in ICVs also. It's not that we have been growing in -- I mean it's not that our volumes have not grown, but our market share has been a tad flattish in tractor trailers and multi-axle vehicles.
Right. And second question is on the modular platform. I think last quarter you had mentioned that you will see cost reductions and probably up to 150 basis points of margins coming in just on that platform. Could you give us some more sense on that, on how that would come in and any more update on that?
Well, I think, that's a development product. I mean it's in -- we've got the prototypes running and it's made. But the first part is always to make sure that the product comes out as well and it meets all the testing and all the parameters that we've set out to achieve. Now as we still have another 10 months before introduction, we're now working on the cost reduction aspects, value engineering aspects. So I would not like to state a number right now, but all I can tell you is that it will be a very competitive product against competition.
All right. And just lastly, on LCVs business, are you also working on alternative fuel there because we are seeing some other players working on alternative fuel for LCVs, especially under BS VI, as the small diesel vehicles might get a bit too expensive?
As we look at the change in the transportation segment with the hub and spoke, we are working on the development of the electric version of the light vehicles as well. But whilst we are doing that development, I think, we're quite conversant that India taking up electric vehicles for the distributions within city, although desirable, it's very expensive and it will take time for this to be widely accepted. So unless there is some subsidy that the government introduces, I think, till the battery costs come down, it will be difficult for the consumers to justify the cost of it. But we will be ready, as and when the market requires it, we will be ready with the product.
Due to time constraints, we will take the last question from the line of Priya Ranjan from Antique Stockbroking.
Just on the demand side, last year, our growth was primarily driven by the tippers. So -- and now the election has gone over, so typically during the election period, the growth in the tipper has been lower because of the ordering, et cetera. So how do you see now that segment because apart from that, the monsoon is also coming?
Yes. So you are concerned about the growth in tippers, if I may ask?
Yes, correct, correct.
Well, we'll have to figure out because, see, if the mining activity while -- see, let me put it this way, see, frankly, where I -- where we find it difficult actually to respond and we appreciate your concern, I mean, in terms of -- because you have to look at performance and project performance as we move forward. But yes, I mean, if monsoon comes in and if the tipper demand goes up a little bit, yes, it will affect the entire industry. So we will have to become more and more competent to address the -- as you know address our volumes at that stage. But I think, overall if the mining sector has to be opened up and then if the infrastructure gets opened up again, then what we are going to see is, I believe that for every backhoe loader, technically or a digger, there are 4 tippers that are required, that's roughly the ratio at which the industry operates. And then, when that happens, the demand for tippers would come in. I think the larger issue is whether we are going to have a GDP growth because I have been sharing it with all you folks, in some of the things, my philosophy is very simple. I think commercial vehicle, especially trucks, does nothing but transport GDP. So if that GDP were to grow, I believe that the commercial vehicle industry should do well. But if we see a recessionary trend in terms of growth, then I think then the people will not want to buy trucks, that is the larger question. I believe that is the elephant in the room. So if we are confident that with the new government, the stability that it's bringing in and the stability of policies, if you believe that India is going to be a high-growth economy for the next 10 years and that there are improvements in supply chain and, et cetera, then I think in the medium term, the commercial vehicle industry will do well and -- which we believe is going to happen. We believe that it's -- I think the medium term prospects of this industry are very, very good and that the best days are yet to come. In terms of capability of vehicles, in terms of the way the vehicles are going to be used, in terms of the coexistence of a railway freight corridor and the on-road trucks, in the way the roads are getting laid, I mean who are the roads getting laid at 25 kilometers or 21 kilometers a day, it's all for trucks and maybe possibly for buses, it's not for pass cars. So I think there is a larger infra play that is happening at the country level. And if there is a larger infra spend that is going to happen, all of this is going to have a positive impact. But at the same time, let us -- we'll assure you that we are looking at how to take a cost out, how to improve our operational efficiency, how do we get new products inside, how do we export better. So I think there is a lot of work that's going on and we feel pretty positive even though in the short-term things look a little -- not very clear. But I think in the medium term, we strongly believe that I think the commercial vehicle industry is going to grow well.
And just unrelated to that one, I mean whatever the adjustment was supposed to happen related to the axle load norms in terms of the mix of the vehicle, et cetera, so that period you see that, that is over now or you see still there is some late to it?
I don't know. To be honest with you, I don't want to because this is a call, but somebody told me that again in Rajasthan, that the axle load norms are being implemented, I mean the rated load norms are being implemented, I have no idea, rated load, not axle load. Will the country continue to -- I think they will also weigh the impact of the higher axle load norms on things like safety and on the roads on infra because what happens is, if you overload a truck, the first impact that happens is the safety, the second one is on the road. Having said that, we also need to realize, as we've mentioned in the past, that we are also studying. There is some impact on account of axle load. I cannot deny that, so there's more that can be put on to the back of a truck. But at the same time, if you were to start excluding tippers, axle load norms will not be impacted, similarly ICV business or LCV. Then if you look at other types of vehicles, like scooter carriers, car carriers, oil tankers, cement mixers, the chances of axle load coming on to these kind of vehicles are not really high. So there is a residual impact which happens on the balance trucks. How long this will happen? Whether the larger players will continue to implement the revised axle load? What does it translate into in terms of more maintenance, running cost, tire wear, oil change, wheel balancing? We really don't know. This is a little too early for us to estimate. But what we are planning is, see, axle load norms could continue. If that happens, how do I drive profitability in Leyland? That's exactly what I think Dheeraj and the entire A-team are working on.
And just on the parts business side, how has been the growth for the quarter and the full year?
Parts, I think the -- if you look at the parts revenue, I think, we've had -- we've actually grown by roughly about 20%, 25%.
And this has been the trend for the full year or is this for the...
Yes, it's almost predominantly the same trend.
Due to time constraints, that was the last question. I now hand the conference over to the management for their closing comments.
Thank you all for participating. I would say that the financial year '18/'19 was a good one for Ashok Leyland. We were able to portray the -- and maintain our market share and at the same time, keep our operating margins, as we've said, at the double-digit level. We're looking at coming year, to begin with, with the election results, I think it sends a much more positive result for us. And Q2, Q3 are looking to be very strong with a possible prebuy as well. And our outlook at the moment looks to be in the range of 10% to 12%. So Gopal, anything you'd like to add?
No. I think you summarized it, Dheeraj. I don't believe that there's anything additional to think. But very clearly, the focus is -- I think as the Chairman mentioned and as I also mentioned, I think the focus of the company and hopefully all of this will happen because we're very clear about our growth, we are very clear that while we grow, we'll also be profitable, so we're trying to see how to take cost out of the company. There's a lot of operational initiative programs that are also running in the company. And of course, the BS VI and MBP are very critical and crucial programs for us, which is also being reviewed consistently, and we are happy with the progress that's happening. So hopefully with the new government, like Dheeraj mentioned, that we will see a revival of the demand happening. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Batlivala & Karani Securities Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.