Ashok Leyland Ltd

NSE:ASHOKLEY

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, ladies and gentlemen. I'm Momita, moderator for the conference call. Welcome to Q4 FY '21 Earnings Conference Call of Ashok Leyland hosted by Axis Capital. [Operator Instructions] Please note, this conference is being recorded. I would now like to hand over the floor to Mr. Nishit Jalan from Axis Capital. Thank you, and over to you, sir.

[Nishit Jalan]

Thank you, Momita. Good morning, everyone. Welcome to Q4 FY '21 Result Conference Call of Ashok Leyland. From the management team, we have with us Mr. Vipin Sondhi, Managing Director and Chief Executive Officer; Mr. Gopal Mahadevan, Director and Chief Financial Officer; Mr. K.M. Balaji, Vice President, Corporate Finance. I'll now hand over the call to Mr. Vipin Sondhi for his opening remarks, post which we can move on to the Q&A. Over to you, Mr. Sondhi.

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

Thank you, thank you, Nishit. Namaste, and good morning to all the viewers and all the listeners. Thank you very much for being on this call. It is my tremendous pleasure to be in touch with you again and to this post-result conference call with Ashok Leyland, and I thank you very much again for the interest shown in Ashok Leyland. They are much appreciated. First, of course, I hope all of you, your family members, are safe and healthy during this challenging pandemic situation, especially the second wave. And it's so important we don't let our guard down while enabling the vaccination process to be accelerated. You're probably aware that our vision -- Ashok Leyland's vision is to be a top 10 global CV player, creating reliable and differentiated products and solutions while delivering outstanding stakeholder value. While we are focused to achieve our vision, a deep sense of social responsibility, as many of you over the years would have seen, also lies at the heart of Ashok Leyland. We firmly believe that the success of our business is inextricably linked to that of our stakeholders. And for over 70 years, we worked towards the good of our customers, employees, communities, value chain partners, very importantly, the investors, and these trying times will be no exception. We at Ashok Leyland remain committed to the prosperity of our stakeholders. Sustainability is the foundation upon which this commitment will continue to be built. In order to bring in a singular focus across the various sustainability initiatives going beyond corporate social responsibility, which we're already doing, we have carved out a separate environmental, social and governance. ESG Committee, you're all familiar with ESG. And ESG Committee of the Board headed by an independent director at our recently concluded Board meeting. The role of this Board committee will be to provide appropriate oversight and guidance in the company's journey on organization-wide ESG initiatives, priorities and leading ESG practices. I'll now run you through the quarter 4 and the full year performance. After witnessing volume de-growth for 8 consecutive quarters, the MHCV domestic truck industry volumes started registering a year-on-year growth from Q3, 16%. This continued in Q4, wherein volumes doubled driven by the lower base of last year. Last year, quarter 4 volumes witnessed ramping down consequent to the transition to BS VI emission norms, effective, as we're all aware, April 1, 2020. While the bus TIV continues to lag, and we know the reasons thereof, it is expected to recover with the opening up of restrictions gradually and the replenishment of fleet to BS VI by the state transport undertakings. During Q4 FY '21, year-on-year MHCV truck volumes for Ashok Leyland have grown at 111%, which is better than the rate of growth of the industry. Ashok Leyland's MHCV truck market share for Q4 FY '21 has, therefore, improved to 28.9% vis-a-vis, 27.6% in Q4 FY '20. Sequentially, over Q3 FY '21, MHCV truck volumes for Ashok Leyland have grown by 57% in Q4 FY '21 which is higher than the growth of the industry of 53%, thereby resulting in market share improvement of 0.8%, 28.9% in Q4 versus 28.1% in Q3. This performance is backed by the successful launch of the AVTR, what we call the AVTR range, India's first modular truck platform. The AVTR platform gives customers a choice to customize their truck as per their unique requirements. And this platform has been delivering best-in-class total cost of ownership across segments leading to customer delight. The impact of commodity price increases, particularly steel, which went up significantly in Jan '21 has been partially negated through price increases and internal cost reduction initiatives. We have taken price increases in Q3 as well as in Q4. The demand for LCVs is driven by e-commerce and growth in the rural economy. Domestic LCV volume for Ashok Leyland have sequentially improved by about 7% in Q4 FY '21. LCV volume for Q4 FY '21 was at 17,042 numbers, which is higher than last year, 8,057 numbers by 112%. The launch of the Bada Dost was a success, and has been well accepted by the customers in the market, and more than 4,550 vehicles have been sold in Q4 FY '21. On a full year basis, LCV domestic volumes for Ashok Leyland have grown by 4% at 46,671 numbers. Last year, it was 44,912 numbers, bucking the industry trend. LCV truck volumes for the industry actually de-grew by about 11.5%. Despite the pandemic, our MHCV and LCV exports at 3,164 numbers have grown by about 8% sequentially. Quarter 3 FY '21 was 2,941 numbers and is also 40% higher than Q4 last year at 2,255 numbers. On a full year basis, our export volumes at 8,001 is lower than last year, 8,920 numbers by 10%, a lot because a number of regions around us were closed because of the pandemic. Revenue for the fourth quarter has grown by 45% sequentially to INR 7,000 crores and is also 82% higher than quarter 4 last year, which was INR 3,838 crores. On a full year basis, INR 15,301 crores of revenue in the current year vis-à-vis INR 17,467 crores last year, which is lower by 12.4%. EBITDA has improved to INR 534 crores, 7.6% in Q4, up from INR 254 crores, 5.3% in Q3. Q4 EBITDA is also higher than Q4 last year, INR 183 crores, by about 1.9x. Full year EBITDA at INR 535 crores, 3.5%, is lower than last year, INR 1,174 crores, 6.5% by about 54%. Ashok Leyland has reported a PAT of INR 241 crores in Q4 vis-à-vis an after-tax loss of INR 19 crores in Q3. The after-tax loss in Q3 was primarily due to a onetime VRS charge. On a full year basis, the after-tax loss was at INR 314 crores vis-à-vis a PAT of INR 240 crores last year. Ashok Leyland has manufactured 26,596 MHCVs in Q4, 17,911 MHCVs during Q3, and has ended the quarter with an MHCV inventory of 3,448 numbers, 3,171 numbers in Q3. Full year production was 54,071 MHCVs vis-à-vis 71,189 MHCVs last year. MHCV inventory was 1,243 numbers in March '20, representing vehicles for exports and defense. Q4 closing operating working capital was negative at INR 133 crores, which is lower than negative INR 525 crores in Q3. FY '20 operating working capital was also negative at 667 crores.Capital expenditure for the full year was contained at INR 621 crores as compared to INR 1,292 crores last year, CapEx incurrence is towards the Modular Business program and the Phoenix program, et cetera. Investments in the current year was INR 368 crores vis-a-vis INR 447 crores invested in the same period last year. Net debt as on 31st March '21 was at INR 2,607 crores. That's a gearing of 0.37x, up from INR 2,005 crores, coupled with gearing of 0.28x as of March 31 '20. Net debt as on December 31 '20 was at INR 2,880 crores, a gearing of 0.43x. The Board has recommended a dividend of INR 0.60 per equity share of INR 1 each for the financial year ended March 31, 2021. Now moving on to the outlook, the domestic automotive industry saw a healthy sequential recovery in the second half of FY 2020/'21 post the gradual removal of the lockdown. However, with the sudden onset of the second wave, the industry has again received a setback. Regional restrictions imposed in several states have again brought the country to a halt during May and June 2021. Rural sentiment, which was untouched in the first wave, is likely to be subdued after the second wave, but there is a flip side to this as well, a flip positive side. We think that the onset of a more normal monsoon and therefore, healthy crop harvest, coupled with focused government support and incentive schemes, are likely to support household cash flows. And therefore, rural sentiment as well. Quarter 1 of FY '22 is different from the same period last year as we are now better prepared this time. With the second wave gradually ebbing and a possible third wave on the annual as mentioned earlier, we must continue to be extremely cautious and focus our efforts on vaccination and safety protocol. We, however, expect a quarter-on-quarter recovery during FY '22. Most segments covering MHCV and LCV trucks and buses would continue to report growth on a year-on-year basis, mirroring the expected growth of GDP at 9.5% this year. MHCV trucks will benefit from construction, a lot of government spending on infrastructure, and last mile connectivity demand propelled by e-commerce is likely to support LCV truck volumes. The passenger segment has been impacted due to closure of schools, work from home, low state transport undertaking demand and weak tourism prospects. However, as the markets open up, and economic revival takes place, coupled with favorable policy initiatives by the government for state transport undertakings, we expect to see an increase in bus demand as well. Commodity prices are at an all-time high. Steel, aluminum and copper are expected to remain at current multiyear highs for a few months before a possible softening in the second half of FY '22. As in the past, we are further enhancing our focus and thrust on VAV programs, which together with product price corrections will help mitigate commodity price movements in a more sustainable way. We are closely monitoring the availability of electronic control units, ECUs, and are in close touch with various suppliers. Going forward, we foresee tremendous opportunities. We will continue to grow the exports, defense, PSB, LCV and parts businesses, even as we expand the reach and products of our core MHCV business. Our focus on digital will help leverage the benefits of efficiency and cost. Customer requirements will be at the core, the heart of all our digital initiatives. The emerging businesses, such as electric vehicles, the EVs and customer solutions business, CSB, will assist in complementing the core business. As you're perhaps aware, in line with the expanding importance of electric vehicles and green mobility, Ashok Leyland has created a dedicated EV-only entity called Switch Mobility. Switch Mobility brings together Ashok Leyland's capabilities, both from Optare U.K. and Ashok Leyland's EV division. With a dedicated team of people around the globe and combining the best of Indian and British design technology through frugal engineering and sourcing advantage, we aim to create unique products and offerings for our customers globally. Furthermore, we also plan to create another company which will provide mobility as a service to end customers for EVs. Through this, we expect to differentiate our EV solutions by capturing the entire value chain. We at Ashok Leyland are rock-solid and resilient and are confident and extremely well positioned as a pure-play commercial vehicle player with new generation products, talented people to deliver profitable growth as the market revives. And I thank you once again on behalf of all of us in Ashok Leyland for the interest that you've shown in us. And with this, I throw open the floor for questions. Gopal, Balaji are with me today to answer them. Thank you very much. Back to you, Nishit -- sorry, Momita. Back to you Momita.

[Operator]

[Operator Instructions] Our first question comes from Mr. Binay Singh from Morgan Stanley.

[Binay Singh, Executive Director]

Congrats on good numbers in a very tough environment. Could you talk a little bit about your operating margin, both? Is there any one-off in any of the line items? And secondly, could you comment on the gross margin, which is at a multi-quarter low, despite a very good product mix? So how do you see that playing out? So that's the first question. Secondly, on your electric vehicle initiative on Switch Mobility, what sort of a product action do we see from Ashok Leyland both in India and globally in the coming financial year? So is there anything near-term that we see on the electric vehicle side playing out?

[Gopal Mahadevan, CFO & Whole Time Director]

Okay, I'll just second -- I mean, what I'll do is I'll answer the operating margin and just give a quick color on the EV and then hand it over to R&D. See, I think what we have been doing over the last 4 quarters, there are 3, 4 things that I would want to share with investors, one is when we opened with COVID in Q1 of last year, we actually had the odds stacked against us because when the economy started -- I mean when the unlocking happened, the unlocking happened more in the rest of the country than in the south. And for us, it was actually a little bit of negative. That's why we -- while we kind of followed the rules, et cetera. But from Q1, Q2, Q3, Q4, if you were to look at it, our market share started to consistently improve once the unlocking was kind of more rational and it was spread out throughout the country. Not rational, I would say, kind of spread out equally throughout the country. That's how we saw our market shares going up. While we did that at the beginning of the year last year itself, the entire leadership team had decided that we need to take some -- while we will try to enhance revenues, we will also kind of buttoned down on the costs. Ensuring that by the time we come to Q3 and Q4, the performance of the company kind of gets better and better, which is exactly what has happened in Q4, which we were discussing last year as well. So there was this large initiative that we had 47%, 50%, and then the sales and marketing team were actually spreading the network to see how do we get better traction with customers in a very tight market, which was having the challenges of COVID. And thirdly, most importantly, as Vipin actually mentioned, the other part was the -- I would say, the non-MHCV business has done wonderfully well. And you've seen LCV, you've seen aftermarket power solutions and even exports started to recover by the fourth quarter. Still some miles to go because the effect of COVID is still there. But I think all of this kind of converged into Q4. And you must remember, this is the -- this has been an exceptionally challenging year for the industry, not only for -- because of COVID, because a general thing, which was all through the world. The second challenge was that we were actually -- on all of us. I mean all MHCV manufacturers are launching BS VI, right, completely new technology in an economy which was completely kind of posed. The third was, of course, I think our MD mentioned about the availability of semiconductors, which was, again, a big challenge. And then we also saw continuous locking and unlocking that was happening in here in the transportation business. And the bus business was virtually kind of an industry, which typically does about 40,000 units was doing 7,500 last year. I'm giving approximate numbers. So we said that this is what it is, and we need to work around it and work through it and work over it to ensure that we are able to deliver margins, which are getting improved quarter-on-quarter and doing possibly well in fourth quarter. Nothing exceptional has happened in the fourth quarter, which has improved margins, to answer your question. And with respect to the gross margins and contributions, there has been a challenge, let us understand that, because all of you know this better. Commodity prices, especially steel, has been going through the roof, and we have seen that happening even in the car as we speak. So we expect that this -- the heated steel prices will start to kind of pull off sometimes in the second half, and that could also help. As far as the EV initiative is concerned, all I would say is that this is very important. I think -- can we request everyone to mute? There's a lot of noise. Thank you. So the other thing that I would say is that EV is an important initiative, EV and alternative energies are very important initiatives. And we need to be future ready, even as we kind of grow in the current scenario, which is internal combustion, which will also continue. So which is why the idea was to have the old electric vehicle initiatives coming through Switch, but more of that, I think, would be better heard from our MD -- Vipin you may want to add?

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

I just want to add to what Gopal said. It's really creating -- you're aware, we have Optare in the U.K. and that is carved out as Optare EV and the division that we have on in Ashok Leyland so that we capture the strengths and synergize across U.K. and India and put up what will be a focused EV company, which is Switch. Now we are working on product design and development. And obviously, we'll speak to you separately when we are absolutely ready to announce that. But to just give you the brief, Ashok Leyland , as you know, already makes EV buses. We already are applying in Ahmedabad for the last few years and recently have started in Patna. So that process goes on as Switch gets ready. And we will be back to you when we are ready to talk more about the future on the EV buses, but you'll hear a lot about it.

[Binay Singh, Executive Director]

Vipin, just a follow-on -- a follow-up on the gross margin thing, do you -- how do you expect the margin to trend from here on? Can you talk about the price hike that you've taken to offset these? Anything planned in the near future?

[Gopal Mahadevan, CFO & Whole Time Director]

We are doing 2 things. One is there are 3 things that we are working on. And each of them are actually kind of dependent or inversely dependent on the other. One, is we will continue to increase our penetration in all the markets. That's important for us. We are a pan-India player and not just nearly a southern player. So that -- those initiatives -- I'm talking solely about MHCV. And there is this huge opportunity in LCV, which we have not talked about because while we talk about MHCV, LCV is a supercritical business for us now. And we have all that we have done in the past, we are kind of reaping the benefits of it now, complements to the entire team, not only LCV, but the entire Leyland team who has actually worked wonderfully well over the last year. The second thing is all our product launches have gone pretty well. We launched AVTR and MHCV completely differentiated from the rest of the pack. And LCV Bada Dost was launched. And in case some of you don't know, the Bada Dost got the CV of the Year Award across vehicles. And it's an [indiscernible], remind you. So it's a completely differentiated product. It's an important segment. It has opened up a new slot for us. And so we have Dost and Bada Dost running parallelly, and that has again improved the overall revenues and the margins for us. This is the second part. The third part is, I mean, this is one trend, but the second thing is, of course, we need to actually increase our penetration and also our share of customer business. The second thing is on cost. So we would continue to work on cost, that is -- like last year, we had T750. We have another initiative that is being run. And that is -- that would -- that the whole program is to look at how do we manage material cost more efficiently. And that could be a whole bunch of initiatives, including looking at alternative parts, we're looking at design. Is there an improvement that can be done? Which do not affect the product quality, in fact, enhancive. But at the same time, kind of give a cost advantage to it. So this is the second part that we are looking at. The third part is, of course, the overheads. So we will continue to kind of adjust the overheads. See, one of the challenges that we have as a large organization, which is very clear that it needs to be the global top 10, is to ensure that we don't, in the interest of the short term, short change the long term. So wherever we require to make certain investments or cost, we just continue to doing that. But at the same time, if you look at our overheads of last year, we have been able to manage it very astutely, and that initiative will continue. So this 3-pronged strategy I believe should help us to do what is right, which is to look at improving margins. But at this moment, to state that we will be able to continue on improved margins, et cetera, it's a little too early because we don't give these forward-looking statements. All we tell you when shared with investors is the efforts that the entire management team is taking to ensure that we continuously work on cost and efficiency. I think I'll now -- Vipin, would you want to add something, especially on the pricing and what we are doing, and also on the D400 initiatives.

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

Yes. No, I think you've summarized it very well, Gopal. I mean just to say that every aspect of cost and operating efficiency is focused by each one of our colleagues. And obviously, we are running -- we're running enthusiastic campaigns with people participating. So that every element of waste in the value chain is identified and removed. While we continue to invest in opportunities for growth, and make sure that the customer end is actually seen and focused upon. Digital has helped us a lot to identify a lot of it. So there's a digital play taking place right across the organization with the customer at the heart of the decision-making process. Back to you.

[Operator]

[Operator Instructions] Next question comes from Mr. Raghunandhan from Emkay Global.

[Raghunandhan N. L., Senior Research Analyst]

Congratulations, sir, on good set of numbers. Sir, 2 questions on LCV side, more launches were expected for Bada Dost range and even capacity expansion was also planned. If you can share some updates there, it will be helpful. Secondly, on engine, defense and spares businesses, can you share some details for FY '21 performance and directionally your expectations ahead for these segments?

[Gopal Mahadevan, CFO & Whole Time Director]

So I'll keep this brief, but better answered by our MD. I think we will continue to look at opportunities to fill in the slots in LCV. What the variants are in Bada Dost, how much will be the capital investment, we'll have to come back to it a little later. But all we can tell you is that we are moving very, very fast in LCV. We are growing very fast. Our market share has grown. And we will continue to fill in the slots because there is this opportunity. So -- and there is this opportunity to kind of fill in the slots at Dost level and at Bada Dost level as well. And we're missing out 1 more important thing, which we have shared with you earlier. Our entire export strategy is to look at accessing some of the markets, addressable markets with a smaller vehicle, which is LCV. And then penetrating it further with ICV and then start the MHCV as well. The reason is very simple. The radius of efficiency is quite small in terms of services, not efficiency, the radius of service becomes very small in the case of LCV because LCVs are typically intra city or just cross city market. So it becomes very easy to launch a product, ensure that the uptime of the vehicles is good, having the service and sales network. Once the brand is kind of established, and this will take a lot of time, then you kind of quickly scale up with an ICV business and the ICV vehicles and then move on to MHCV. So this is something that we are looking at keenly. And today, we are far, far better poised to kind of address the export market than we were 5 years ago, simply because we have a vast complement of vehicles today both at left-hand drive and right-hand drive. And this is going to be -- so the LCV initiative will also be very important from an international business perspective. But before I can say anything more, I want to hand it over to our MD.

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

So I'll just start from where Gopal left on international operations. It's really to expand our footprint and enhance it more and more in the retail part of the footprint. So now as Gopal mentioned, we have a bouquet of products. We have a variety, an AVTR variety in the Phoenix, both are packaged protected for left hand and right-hand drive. And we continue to appoint prominent distributors in Africa and the Middle East that are already very, very strong in the country. They're homegrown in the countries in which they operate. So you'll hear more of us on the international side. But coming specifically, you asked about the Phoenix or rather the Bada Dost. The Bada Dost has come out of what is what we call the Phoenix platform. And the Phoenix platform within the range in which it operates will throw up more and more variants over the next quarters. And therefore, we will be expanding our, let's say, presence, but within where the Phoenix platform extends. On top of that, we will obviously be looking at participating more and more in the light commercial vehicle business overall because of, let's say, the tremendous confidence we have in our products and the gains we've had in share. You spoke about engines. I think what we call the power solutions business has really done very well last year, that despite the pandemic, we actually grew year-on-year. In the agriculture segment, we have a predominant market share. We are working with the construction equipment industry as well to give them engines. And as you know, there's a transition that's taking place in CE -- what is called CEV4, where we are we are ready, well positioned and working with our customers. Defense is a matter of pride. We continue to expand our Stallion and Super Stallion range of vehicles. We are diversifying into tracked vehicle aggregate programs, repowering BMPs. So additionally, we are expanding our armored vehicle portfolio to new bulletproof vehicles. So we're looking at all aspects of mobility solutions with auxiliary power units. And we continue to give this focus to defense as well. So on all these fronts -- sorry, and we continue to focus on all these areas to further strengthen our portfolio off the core, which is MHCV.

[Operator]

The next question comes from Mr. Prateek Poddar from ICICI Pru AMC.

[Prateek Poddar, Research Analyst]

Actually, this is Prateek Poddar from Nippon India Mutual Fund. A couple of questions. Sir, one is just on the export strategy. If you could just talk a bit about how many dealers have you appointed in the last 1 year in the MENA region and in the Africa regions, that would be helpful. The second question, I mean, is just a continuation, that it will be 9 months with the launch of Phoenix yet the export traction seems very limited, and that is a key part of our strategy to have the decyclicality in the revenue, which we have talked about in the analyst meeting. And lastly, your thoughts on CapEx for FY '22. So 2 questions.

[Gopal Mahadevan, CFO & Whole Time Director]

So Prateek, I'm going to let the business side kind of responded to by Vipin. I think we'll give a CapEx outlook it should be in the range of anywhere between INR 750 crores. We keep saying this number, but actually, we keep it very tight. The reason why we share the numbers is anywhere CapEx would be about INR 750 crores, depending on how much of investments we want to do. But broadly, we know that we need to invest in capacity, we may need to kind of debottleneck. We are not -- I wanted to clarify one thing, though, because I think because it's a 1 hour call and there's limited information that this -- we are not looking at any major brownfield or greenfield expansion or stuff like that. We are very -- I think our manufacturing guys have taken upon themselves. And in some audible challenge of making the plans even more efficient, and they have been continuously improving the throughput. And we will need some debottlenecking investments, especially on the LCV side, which we will do. What we are doing is we are paying out the rope as the demand keeps going up instead of just creating capacity. So overall, I think it will be INR 750 crores, if there is a change, we'll let you know. On the dealerships and export strategy, I would request Vipin to kind of...

[Prateek Poddar, Research Analyst]

Sorry, If I may interrupt, sorry, just 1 small question. On the investments in subsidiaries, also there can be a outlook provided over there. You said INR 370 crores this year. Next year, what kind of investments are you looking at?

[Gopal Mahadevan, CFO & Whole Time Director]

We don't know. We don't know. We -- we may require maybe another INR 200 crores, INR 250 crores. At the moment, I don't know. We may not also invest if it's required. The major investment, I mean, typically, that happens is, one, if suppose we want to put in further initiatives. If we want to make an investment in say HLFL for capital adequacy, we may do that because I think they have been doing wonderfully well under the circumstances, whether they managed -- I would say, not even whether they have managed the whole COVID challenge very, very well, reasoned by the healthy book, sufficiently provided. And they also have expansion plans into solutions, which we'll talk about later. So if there is any capital required, which is actually money well invested, we will continue to do that. If any of the other subsidiaries required some support, we will do that. But this CapEx that I'm talking, INR 750 crores is the only CapEx.

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

Okay. Should I take? Prateek, don't hold me to the number, but 6 or 7 strategic, large distributors in clusters are strategically placed around the African continent and also at the Middle East. Now the question you asked is, why haven't we kind of grown as much, you've got to remember that many of these countries, one, have not yet come off like we had a second wave. Many haven't yet come up and opened up significantly. Secondly, the trade routes, whether it is from here to the port, from the port to, say, Middle Eastern and the African route and then inland play have also come in under a lot of pressure. So as these open up, these distributors will come into play, and it's very, very important that we be ready and well positioned, which is what we've done during this period of relative closure over the last 15 months. The one thing that has been very good and exciting that we launched the Gazl and the Falcon, which is in the Middle East, which is on the partner platform, they've gone well. We are enhancing the positioning of our products in the Middle East, taking them to the next higher level, as we gain prominence, as we gain more products. So we see subject to opening up subject to opening of the trade routes and the countries, these distributors will be ready, and they are strong. They are strong big guys on the ground.

[Prateek Poddar, Research Analyst]

And what's the plan for next year? And is it fair to understand that with these 6, 7 new distributors onboarded, FY '22, the outlook for exports will be much, much more stronger than what we have seen in FY '21? And just off on the COVID impacts also.

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

Yes, no. My estimation is definitely a yes. It is all subject to the opening of the countries. So pertaining to that extent, the readiness is there, the products are there, the training of people on both sides, virtually that goes on. But the physical movement and the testing, therefore, hereof is the only question mark. Subject to opening up, let's say, from July onwards, not only here, but in those countries as well, we will see better.

[Prateek Poddar, Research Analyst]

And targets for next year in terms of opening up of setting up of new distributors or strategic distributors? And sir, if I can, I mean, if you can help us understand what kind of volumes can these distributors give? Or who are these distributors? Are these like local distributors over there or they are big industrial groups who have 1 or 2 presence? Also are they quite influential? Just trying to understand the nature of these dealerships, what kind of growth they can drive for a short period?

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

Okay, so as I have talked about distributer. One, they are big industrial houses who are of that country and who've grown up in that country, let's say, cluster of countries, in some case, 2 or 3 countries around them. They also are dealers in automobile. So they understand, not in commercial vehicles, but I'm talking about -- not in Indian commercial vehicles, there could be other commercial vehicles. But they're focused on various -- they actually have diversified companies. They do have, most of them, except maybe 1. Most of them have an automobile background of some kind. So they're familiar with the industry. And what we are ensuring is that there's a separate vertical that's developed as a separate general manager or CEO, which will focus -- who will focus with a separate team on Ashok Leyland products.

[Prateek Poddar, Research Analyst]

And how many dealers you wish to -- I mean, super dealers or these conglomerates you wish to add in FY '22?

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

That we'll continue. I won't put a number. We will continue to -- what's -- we've got to look at what is the opportunity. The opportunity is having appointed 6 or 7, we've got to make sure they come out and perform. And wherever we noticed any gap, we will fill those gaps. But the main thing is now to ensure that these people come out, we focused with them and help them develop and grow.

[Operator]

The next question comes from Mr. Aditya Makharia from HDFC.

[Aditya S. Makharia, Analyst]

Yes, just 2 big picture questions. One is that in the recent, the annual day event, which was held, the company mentioned that hydrogen fuel cells will play a very important role in the next 10 years because EVs will not be possible for the large 16 tons plus kind of trucks. So a, how do you see this evolving, alternate fuel environment? And the second is with the dedicated freight corridor now being connected to Mundra, so you have the connection from Mundra to Delhi to transfer the containers. How will the CV ecosystem adjust to this new sort of alternate mechanism, which is now ready with the range?

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

Okay. Gopal, you want to comment or should I take it?

[Gopal Mahadevan, CFO & Whole Time Director]

Go ahead, go ahead, please go ahead, please go ahead.

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

Okay, Aditya, very good questions. And we -- what we see is while EVs will be essentially a metro and -- metro and suburban, let's say, suburban city play, at least in the initial period as an ecosystem develops, whether it's for passenger buses or for E&CVs. The larger vehicles, as you rightly said, will be -- and especially those which are intercity and intercountry and a large country like ours, we think we'll be powered -- continue to be powered with IC engines for the future. Combined with, let's say, oil blends, which we are talking to the government with, whether it's LNG or whether it's biodiesel or any other form, ethanol. And in a future term, as you said, and we are very clear about that hydrogen fuel cells. Now this will play out over the next few years. Are we getting ready for it in terms of testing, developing our own capabilities, talking to people who are important in the ecosystem? The answer is, yes. We do think that the large trucks that we apply across the nation could well be powered by the wide hydrogen fuel cells. Now, there's a lot of conversation going on. You read about it in the press, as well as the fact that the government in its budget has allocated a significant sum of money to what is called the national hydrogen mission. So an ecosystem will develop, and we want to ensure we are part of that ecosystem. Of course, it will take time, but we are working on it. The dedicated freight corridor lines will not have -- I mean, there's a study, which has been done really. The certain study is available. The impact on the overall TIV will not be significant. That could be on the long-haul in certain applications, but what is important is that last-mile mining infra projects, those won't be impacted at all. The other is the customer may or may not be comfortable with transshipment taking place. And as long as we continue to compete, we continue to provide the customer with confidence that we can deliver door-to-door instead of transshipment taking place. And we as a commercial vehicle industry, I think the impact of the DFC will not be that significant. Now having said that, the initial load that will transferred to the DFC will be from the current passenger lines, which hold up our passenger vehicles in any case. So it is the existing load that will transfer to the DFC. And then as the DFC goes further, more and more load comes in. But we obviously will view this very carefully and ensure that we are competitive and provide the customers with that.

[Operator]

The next question comes from Mr. Mukesh Saraf from Spark Capital.

[Mukesh Saraf, Vice President of Equity Research]

My question is on general longer-term margin trends. I mean, if you look at, say, the previous peak in FY '19 in terms of the TIV, we touched about 11% margins. So just trying to understand what are the positives and negatives right now playing out, especially, say, the way BS VI costs have come in and then steel costs going up? And probably last time around, we had the function of a benefit, which we will not have now. If we go back to the FY '19 kind of TIV levels, could we kind of beat those previous margin peaks based on, say, the AVTR platform and maybe some other steps that you're taking? Or how do you see that playing out?

[Gopal Mahadevan, CFO & Whole Time Director]

I'll just very quickly tell you that I think there are 2, 3 things that we see happening. One is we believe that we are somewhere close to the bottom in terms of demand. Let's look at the demand scenario. We're saying that because of COVID, a lot of -- while -- I think that there's a lot of opening up that is still further to be done. And once that happens, it's going to positively impact freight movement. The other opportunity, which I had mentioned earlier and so had our MD was that on the passenger side, what really -- there's 80% of the TIV has come up. There's a huge opportunity that is going to come up as the state transport undertaking, intercity buses, schools, offices and all start opening up. So at some point in time, this will happen, whether it will happen in 6 months, whether it will happen in 1 year, is in the long-term COVID going to stay, we don't know. Now even if it were to stay, assuming that it has to stay, I see another -- we see another opportunity in that. And it's not that we are morbid about it. The point is social distancing as a norm as a habit will also start. Somewhere, it will start. And when it is already started and it will continue. When that happens, you're going to see lesser number of people in a bus. That's the number of people packed in possibly. So when that happens, you're going to see that the demand for buses could actually go up. The other portion is that as we move forward, with the demand catching up with the easening of COVID, we also would see that trifurcation that has happened in the industry, right, so long haul, ICV and LCV actually creates further opportunities in terms of profitable trading. We're seeing that happening. People are not getting -- they are getting more specific. There's a lot of I would say, analysis that is being done. There's a lot of now signs to the freighting industry, which is, again, good for us. So as we move forward, I think we're going to see that the pricing adjustment will also happen with the demand coming up. We could possibly see margins being more rational in the MHCV side. That's what we have -- the LCV margins are good, the industry is far far more rational than MHCV side. And that is also helping us because the LCV business is significantly more profitable. But as we -- and when the total cost of ownership is seen from a customer end, especially on the MHCV side, with vehicles being on the BS VI technology, I think you would see that with the demand coming in, we should see investments in this sector going up. This is a larger take that we want to -- we kind of want to share. So while now it looks very challenging and we are going through a lot of challenge in terms of COVID, a little bit of discounting happening, trying to get the eye of the customer and all that, I think the whole industry, the freight industry, is becoming far, far more organized than what it was in the past. And that is good news for MHCV players. Vipin would you want to add something?

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

No, I think you've done it. You've summarized it well. Let me just add, Gopal mentioned total cost of ownership. Now the important thing is what does the AVTR deliver, it is the modulator business platform, which actually, Gopal mentioned about virtual customization to enhance our customers, a customer-specific application. The customer knows his or application, he actually builds a truck based on that basis. So there are no wastages. And today, we are getting fluid efficiencies, we believe, which is superior to others. Therefore, that creates a value. Now the value is in the product, but the value will also be in the services that we provide. What's important is we have something called the i-Alert platform. It's real-time information in coming from each truck back into a controlled room so that we are monitoring the performance of the truck, the health of the truck, the viability of the truck and then feeding it back to to the customer so that he drives or she drives efficiencies across their freight movement as well. All of that value is what we'll capture into better margins while ensuring that operational efficiencies were run very, very tight. So we see that as a positive move. And remember, just wanted to add also that Tippers is an important part of the segment. And the costs are also moving up, and we're getting ready for the third part as well. Those will be better portions.

[Mukesh Saraf, Vice President of Equity Research]

And just a very quick one. Secondly, how are the inventory levels right now in the system? I mean, at the channel level and at the plant.

[Gopal Mahadevan, CFO & Whole Time Director]

I think Balaji has been too quiet in this call. So Balaji, would want to share the inventory levels at least at the factory level, what it is?

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

Inventory level as at the year-end was 3,400 vehicles, Mukesh.

[Mukesh Saraf, Vice President of Equity Research]

This is at the plant?

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

This will be certainly no higher than the last year. We had last year, 1,243 vehicles with 0 inventory on the domestic MHCV side. All this last year inventories are representing IVO and different cycles because of BS VI, which...

[Mukesh Saraf, Vice President of Equity Research]

Right, right, right. And channel inventory, how would that be right now?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, I would say that the channel inventory is -- you see, what is happening is the channel inventory is -- I can't -- I don't have the numbers readily with me, unfortunately because I wasn't prepared for it. But there is sufficient stock in the channel. The point is because when you actually transfer into the channel, then there is a lockdown. Then you -- the channel does have -- it's having a sufficient number of stock. There are 2 things that I will share with you though. One is we don't push into the channel. So what we are trying to do is closely monitor the retail and then ensure that wherever we are actually selling to the channel, and this is then channel wise. We have to ensure that the retail is the same or higher than the wholesale that we do to that. So I think over the next couple of months, you will see the situation change. And we are -- this is being done on the expectation that the current opening of that has happened, we'll continue to do. And once that happens, we will actually see that the throughput through the channel will be much, much more efficient.

[Operator]

The next question comes from Mr. Satyam Thakur from Crédit Suisse.

[Satyam A. Thakur, Research Analyst]

Just a couple of questions. Firstly, if you could share how the trend on industry discounting in MHCVs has moved. In December quarter, you had shared that it had gone up, so what happened in the March quarter, and then subsequently in the June quarter because some checks are indicating it might have gone up further. So where are we on that now?

[Gopal Mahadevan, CFO & Whole Time Director]

Well, the -- I'll also have our MD give us perspective, but broadly, the discounting levels are still quite high. I'm not going to say that they have come off. In fact, they have been marginally higher. That's the point. I mean, I think that while we will continue to pursue market share, we will grow market share. But what we are doing is we are looking at -- and we have done that over the past 5, 6 years, right? I mean, we've looked at total cost of ownership, differentiated technology, service, network, channel profitability. These are the 5 levers that we will adopt to, ensure that we are growing in the customer's mind share. Finally, the customer, whichever customer who actually buys the truck saying that this is INR 50,000 cheaper or somebody is giving a discount. I think those kind of sales will last for some time, but they cannot last continually because what will happen is the customer owns this vehicle for 10 years. So what we would want to do is to store better quality inside the vehicle, ensure that we are backing it with the AMC, if necessary, even with extended warranty because we are confident about our products, and that is how we are doing our sales. But with all of this, we have been gaining share over the last 4 quarters. And we will -- I think that this is the right strategy for the medium term. But to answer your question, discounts are higher than what it was in maybe even a couple of quarters ago. And hopefully, there would be rationality coming in as we move forward. But our -- one thing that I would want to leave a message very clearly, and I'm sure our MD will also kind of mention the strategy, is the -- we'll pursue growth and we will pursue profitable growth. And it is not going to be one at the cost of the other, and hopefully, we will see this happen. MD, over to you.

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

So just to add, really, it's about selling value. It's about selling the technology that we've built in and which is going to deliver. And as the customer experience -- you remember, customer experience in the last 15 months or 12 months has also been limited, again, because of starts, stops, starts, stop. But as whatever feedback we have, it's about delivering value. And as growth comes back, this will -- the discounting will ease off as well. The focus will be not to buy share, but to earn share and earn it profitably through the quality of product, service and digital technology.

[Satyam A. Thakur, Research Analyst]

And the second question that I had was, could you share some light on -- throw some light on what's happening really with our customers on the MHCV side? So the truck operators broadly, and combining what you -- we know also from the line finance, so what's the collection and fancy trends like in June, what is the truck fleet utilization like in June for our customers? And is it improved enough in June now that gives us confidence that the recovery in sales could be very near or how would you think about it?

[Gopal Mahadevan, CFO & Whole Time Director]

See, I would only say 1 thing. I think the fleet utilization in the month of June is a little too early because we're just coming out of -- May, June are not really great months, right? So I would say that let us wait for a couple of more months. See, logic tells us this is nothing. I mean, we don't require some great signs to know this that if the economy opens up, we are going to see more trucks rolling on the roads. We're going to see more transportation. And if all of you point it there, believe that there is a good run for the index. I'm not telling it in a lighter note. We're kind of sitting together all the patterns, right? If we believe that sensex and the index is going to do wonderfully well. Stock markets are going to do well. That can happen only as the GDP starts to grow. And if more production happens, then all industries start to grow. So there is no reason why we believe that something different is going to happen. But fleet utilization numbers in the month of June is something that -- it's not a great thing. But as far as the -- I mean, it's not a very important statistic. I don't know the number to be candid with you, but I'm sure that fleet utilization in June is far, far superior to fleet utilization in May. That is for sure because we are seeing that the unlocking is happening. And the government even is looking at opening up schools over the next couple of months. And hopefully, with the COVID injections coming through, the confidence that all of us will have to get back on to normalcy, will also be much higher. The second part that I would say before I hand it over to our MD is on the collection efficiency. I think the collection efficiency of HLFL has been quite healthy. I'll provide you the number. The overall efficiency is now at almost, I think, about 90%, if my memory serves me right. And that's where we are. So the collection efficiency for April, for example, is 90%, that's right. I don't have the number for May and June, but things are definitely much better. HLFL assets concerned has got an ROE of 11.6%. They have had GNPA of 4%, NPA of 2%. We have also -- there has been sufficient provision taken for COVID. Cumulative provision that has happened over the last year. And FY 2021 is nearly INR 200 crores, over INR 200 crores. So I think -- and that portfolio, the other thing is while they do help -- they partner Ashok Leyland, in financing Ashok Leyland subs. They have a very healthy mix of the contracyclical portfolios. So loan against property, they acquired assets from other lenders then they've got 2 wheeler, they've got 3-wheeler. They've got off-road applications. So that mix of business is also kind of ensuring that the entire business is derisked. But we are definitely seeing improvement in the collections even in the MHCV customers over the last 2, 3 months. And that is also, I think, felt in the banking sector as well. So things are definitely looking much, much better than they were 2 quarters back. MD over to you. I know I kind of gave a very longish answer, but over to you, sir.

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

No, no, you've absolutely covered it. I have really nothing to add, except that May and June have been tough for the country as a whole on health and safety. And hopefully, and we must ensure that we follow protocol, we get vaccinated and help the economy now move forward. And as the economy moves forward, freight is the natural impact of -- I mean, it's a core industry. And if the core industry will move, if the economy moves, and we are confident that the government with public spending will ensure that we are focused on building infrastructure and the movement of goods and services across the country.

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

Sir, before -- I mean, wind up. It will be better if we brief the audience on the ICDs front.

[Gopal Mahadevan, CFO & Whole Time Director]

Yes. So we can do that. I mean there is nothing actually to brief. But since people are curious about it. And frankly, for us, it's not something that's hugely material. But as of 31st of March 2021, all the ICDs have been repaid back. So in fact, a little earlier in '21. So ICD in the book on 31st of March 2021 is 0.

[Operator]

Due to time constraint, that was the last question for the day. Now I hand over the call to Mr. Nishit Jalan for closing the call.

[Nishit Jalan]

Thank you, thank you, Momita. On behalf of Axis Capital, I would like to thank Ashok Leyland management and all the participants for joining the call today. I understand that some of the participants are faced with difficulty in joining the call, my apologies for that. Vipin, Gopal, any closing comments from your side or should we just end the call?

[Gopal Mahadevan, CFO & Whole Time Director]

I think I'll hand it to Vipin to give the closing comments.

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

Okay. No, I think, first, thank you very much. I think just number one, we must be focused on health and safety, all of us as citizens, to ensure that we help ourselves as well as the government and the economy to come out of this safely. The second is, we at Ashok Leyland look very positively at the future in terms of products, in terms of what we are doing on EVs, in terms of the product platforms we have created, and we'll continue to do that. We will continue to gain within domestically, but also go overseas. We are proud of supplying to the defense and our associated businesses. Finally, we will continue to create value for the customer in all aspects of what the customer needs. It's more and more catering to specific needs of customer through better products and better services. And finally, I think we have a great set of people, very talented people who are good for the present and the future of Ashok Leyland. And I must thank the investment community for your continued support to us. And thank you very much. Please stay safe and stay healthy.

[Operator]

Thank you, sir. Ladies and gentlemen, with this, we conclude our conference call for today.

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

Thank you, everybody.

[Operator]

Thank you, sir.

[Gopal Mahadevan, CFO & Whole Time Director]

Thank you, moderator.

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

Thank you, very much.

[Gopal Mahadevan, CFO & Whole Time Director]

Thank you, Balaji.

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

Thank you.

[Operator]

Ladies and gentlemen, with this, we conclude our conference call for today. Thank you for your participation, and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you, and have a good day, everyone.