Ashok Leyland Ltd

NSE:ASHOKLEY

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Ashok Leyland Q4 FY '24 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nishit Jalan from Axis Capital Limited. Thank you, and over to you, sir.

[Nishit Jalan]

Thank you. Good afternoon, everyone. Welcome to Q4 FY '24 Post Results Conference Call of Ashok Leyland. From the management team, we have with us Mr. Dheeraj Hinduja, Executive Chairman; Mr. Shenu Agarwal, Managing Director and Chief Executive Officer; Mr. Gopal Mahadevan, Director and CFO; and Mr. Balaji K.M., our Deputy CFO.

I'll now hand over the call to Mr. Hinduja for his opening remarks and post which maybe we can start with the Q&A.

Over to you, Mr. Hinduja.

[Dheeraj Hinduja, executive]

Thank you. Good afternoon, ladies and gentlemen. Before I start on the results, earlier today, we announced the appointment of Mr. K. M. Balaji as Chief Financial Officer; Mr. Gopal Mahadevan, currently CFO and Whole-Time Director, will continue to be associated with Ashok Leyland as Director, Strategic Finance and M&A. Mr. Balaji, currently Deputy CFO, will take over the role of Chief Financial Officer with effect from 1st June 2024. Mr. Gopal Mahadevan, as Director of Strategic Finance and M&A, will continue to serve on the Board of Directors of Ashok Leyland and its subsidiaries. In his new role, Gopal shall focus on the growth agenda of Ashok Leyland subsidiary companies as well as M&A strategies for Ashok Leyland. The team will be further strengthened with both of these gentlemen.

Coming to the results. FY '24 has been a record year for Ashok Leyland, whether it is revenue or EBITDA margins or profit. We have achieved all-time high numbers in FY '24. Coming in a year when we are celebrating our 75th year of existence makes it even more special. While revenues grew by 6% over last year, our EBITDA has grown by 57% to reach INR 4,607 crores. Our PAT for FY '24 at INR 2,618 crore is also the ever-highest. Our EBITDA margin touched 12% in FY '24 from 8.1% in the previous year, reflecting our continued focus on better price realization, efficiency and sourcing and business operations, along with a better revenue mix.

The softening of commodity prices has also helped. I would like to specifically mention that FY '24 has also been a year of record cost savings for us. Our material cost as a percentage of revenue is lower by 4.4% over FY '23. Another factor that supported profitability was impressive growth in our high-margin business covering spare parts, defense and power solutions.

FY '24 performance gives us even more strength to move forward toward our midterm objectives of achieving mid-teens EBITDA. Market has also shown confidence in the company's ability to grow in the future as our stock price recently touched its peak. Since April 1, 2023, this is about 50% appreciation in the company's market cap. Our net debt at the end of FY '24 is close to 0. This is after INR 1,500 crore investment in Optare, Switch and OHM during the year. I'm also happy to state that Ashok Leyland is now back to #1 position in MHCV buses with a very impressive market share gain in FY '24. While we had a few challenges initially, our market share growth of Q4 as of April reflects a positive momentum in the MHCV trucks as well.

Going forward, we are confident of increasing our market share in both the trucks and bus segments. Our medium-term goal of achieving 35% market share in MHCV segment remains intact. In the 2 to 3.5 tons HCV segment, we are now #2 with a market share of more than 20%. We have planned for 6 new product launches in this segment in FY '25, which should give us a further boost to our market share. Currently, we address about half of the LCV market in India. We are looking to expanding our LCV product portfolio to cover at least 70% to 80% of the market in the next few years. LCV presents a huge potential for us to grow our [ CV ] volumes in the future. Our market share in CV exports out of India has improved significantly in the last 2 years. Despite subdued market conditions in SAARC and in some parts of Africa, Ashok Leyland registered growth in export volumes. This reflects that our strategy of local market presence-focused product development for our IO market and our strong distribution relationships in key markets is working well for us.

As some of these markets start turning, we see good volume expansion in our IO business. Our focus on profitability remains. We are clear that we are not going to discount our products to win market share. We are confident that our market share wins will come on the back of our products' superiority and our expanding reach. Our product portfolio is very robust, and our future pipeline is strong. Ashok Leyland products are known for their reliability, fuel economy and application suitability. Actions are in place to further widen the differentiation on these aspects. We are proud of delivering our first-ever battery electric bus ICV in the last quarter. Our 55-ton electric tractor-trailer is also ready and first units shall be delivered within the next few months.

We already have customer pilots going on for H2 ICE truck. We are ready to deliver to NTPC our first set of fuel cell buses. Our first LNG trucks were delivered earlier to MGL. We are proud that we have now a complete portfolio of alternative fuel vehicles in the market. Switch and OHM are progressing well. We have just started delivering our first eLCV in the market. In the next few months, we shall launch our second offering in the eLCV space as well. Both these vehicles will be segment first and have the potential to transform the last-mile mobility in the country. We are preparing to make supplies of 950 electric buses to Delhi and 320 buses to Bangalore. The development of our e1 electric bus for Europe and Middle East is an advanced stages.

OHM, our eMaaS subsidiary has now been fully activated. It is now managing electric bus operations in Bangalore and Ahmadabad, Bihar and Chandigarh. Ashok Leyland's balance sheet is strong enough to support fund requirements of both Switch and OHM. At the beginning of the year, there was widespread anxiety that CV numbers in Q1 and Q2 might de-grow because of elections and other factors. April numbers have proven this wrong. In April, MHCV industry grew by 10%. Our addressable LCV industry also showed positive growth.

The pulse on the ground is very positive. Most macroeconomic parameters are favorable. There is a prediction of a good monsoon. A stable government post the elections will see a flurry of robust economic measures. The country is poised to grow at a faster pace in the foreseeable future. All this over as well for the future of the CV industry. We wish to remain optimistic for the CV industry for both H1 and FY '25.

I now hand it over to the moderator for any questions that you may have. Thank you.

[Operator]

[Operator Instructions]

The first question is from the line of Chandramouli Muthiah from Goldman Sachs.

[Chandramouli Muthiah, analyst]

Firstly, Best wishes both Gopal and Balaji on your new roles. My first question is just on the outlook and the comments, Mr. Hinduja had given on FY '25. So I think previously, over the past 3 to 4 election cycles, before COVID, we have seen a pickup in M&HCV demand in the year following elections. And then last year, also, I think you had given us a little bit of color on the sort of outlook you have for the M&HCV and the LCV segment. So I just wanted to dig a little deeper on that to see how you're thinking about both M&HCV and LCV growth opportunity ahead in FY '25?

[Shenu Agarwal, executive]

Okay. Thanks, Chandramouli for the question. Before I speak on FY '25 industry, let me just give a perspective on FY '24, especially on the MHCV side. Overall, MHCV industry, of course, had a single-digit growth, about 3% to 4% for the year. But I think we should look at it in a different way. We should divide FY '24 in 2 parts. First part being the first 7 or 8 months, and the second part is the last 3, 4 months. If you look at the first 7, 8 months, the industry was growing at a pace of 8% to 9%. And of course, in the second part, which is last 3, 4 months, industry did degrew, but there was a specific reason for that. And the reason was a very high base number that the industry was operating at in the last quarter. And that was because of the OBD-II norms that had forced some prebuy.

So we have to just keep in perspective that if we exclude that period of high base number because of which the industry degrew, industry has been growing before that by 8%, 9%. And then in April, again, the industry has grown by about 10%, right? So to that extent, there is nothing fundamentally wrong in the industry. And I say that also because we find a lot of positive momentum on the ground. The pulse on the ground is very, very strong. All macroeconomic factors are in the favor. There were a lot of apprehensions before the start of the year that elections might drag the industry growth. But that has not happened. At least in April, it has not happened. Even in May, we think that the momentum is there on the ground, right? Of course, the results will come in the next few -- next week or so.

But we remain very optimistic about MHCV industry in FY '25, not just for the whole year, but for H1 as well. And also for LCV, again, the prediction was that there would be a negative growth in quarter 1 and quarter 2, but April was reasonably good. April industry was about 2%, 3% positive, right? So on both the segments, we are quite optimistic.

[Chandramouli Muthiah, analyst]

Got it. That's helpful. My second question is just specifically how the mix of vehicles has moved within the M&HCV segment over the past 3 to 4 years, I think, pre-COVID, the 40-tonne plus vehicles were sub-5% of our M&HCV volumes. And at this point, we are closer to sort of 30% of our MHCV volumes coming from that 40-tonne plus segment. So I just want to understand, going forward, how you see this migration are your key customers continuing to prefer replacing those 25 to 35-tonne vehicles with 40-tonne plus? And any fundamental factors behind this decision-making? Just trying to understand how the mix might move going forward.

[Shenu Agarwal, executive]

Yes. That's a good question. I think, I mean, even in the last year or last couple of years, we have this trend emerging, and we think it will continue to emerge in this fashion. So a few things are happening that we all know. One is that there is a great pull toward tractor-trailers and also towards tippers. Now both these products, they need more power because the kind of applications they work around. Also, another thing is that we know that the aging of the fleet is at its highest. It's at about 10 years, I think, and the normal used to be like 7, 8 years, right?

So there is a lot of replacement demand, replacement market that is emerging and it will continue to emerge for the next few years until we get back to a lower age -- normal age bracket. Now what is happening is, I think around 70% of vehicles in the market are up from BSIV era. And therefore -- and these are all mid-tonne, low-tonne vehicles. And when these get replaced, they will obviously get replaced by more higher-tonne vehicles, right?

So I think this trend is going to continue. Replacement demand is going to be very strong in times to come. And slowly these BS IV vehicles are going to be converted into the latest technology vehicles.

[Chandramouli Muthiah, analyst]

Got it. And just lastly, a bookeeping question. I just want to understand, I think a couple of quarters back, you had mentioned that you are currently in a high tax rate year. But FY '25 onwards, you did mention that you're working towards getting to a different tax bracket. So I just want to understand how we should think about tax rate for FY '25?

[Gopal Mahadevan, executive]

See, at the rate, we will decide on the tax rate for FY '25. This is Gopal, hi Muthiah. So on -- as we proceed through the year because there is a threshold profit that we need to achieve for getting into the lower tax rate because of some working that we'll need to do. But having said that, I think that in all probability, we would get into a lower tax rate next year.

[Operator]

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

[Kapil Singh, analyst]

Sir, I wanted to ask you regarding the industry outlook, one of the things is that the base in the first couple of months was also low last year. So when you're talking of strong growth, are you talking for Ashok Leyland or you're talking for the industry as well where you think -- and any indication do you think we could be somewhat close to high single digit, double-digit, somewhere in that band for the full year?

[Shenu Agarwal, executive]

Very hard to give you a specific number right now. We are -- it's too early in the year. Yes, I agree to some extent, April had a low base, but then 10% is not bad at all, right? So -- and even LCV has shown us some good prospects. We really think, I mean, industry because I'm not saying just from the numbers, et cetera, but we really think that the pulse on the ground is very strong. Like I said, we also look at other factors that affect the CV industry in short and medium run, great demand, diesel prices, freight rates.

Most of them are looking positive. Most of them are in the green, right? So we see no reason as to why the industry should not continue to perform well. Like I said, there was some anxiety about the elections. So irrespective of our base in elections, if they've had a power to dampen the industry, it would have dampened right, but that has not happened. So even that factor is not playing out that well. And even May is looking promising right now. I mean this is just depending on the trends in the market or the kind of inquiries that are being generated as of now. So yes, we continue to be optimistic, but very early to give you a specific number, but I think it should be a good year.

[Kapil Singh, analyst]

That is very helpful and encouraging to hear. Also, if you could talk about the fact that we've achieved close to 14% margins this quarter and full year, we are at 12%. Do you think there is headroom here to keep improving margins over the next couple of years as well through the same way as we have been doing in last maybe 1 to 2 years? And any broad perspective, do you think -- because we have talked about mid-teens kind of margin as the aspiration. So just your thoughts on how things are evolving. Any comments on commodity outlook and pricing environment and discounts as well, please?

[Dheeraj Hinduja, executive]

I think you're right, our stated objective is to retain to this mid-teens EBITDA margins. And that is why I think we are very clear of not really seeing a discounting gain and growing our market share on the basis of products and our extended network as well. I do believe it is possible to maintain this. We've done a lot of internal work in terms of cost reduction, productivity improvements, efficiency. At the moment, commodity prices are going in our favor as well. So I would say that our objective is very much to maintain these types of margins.

[Kapil Singh, analyst]

Okay. And lastly, if you could just help us with the CapEx and investment plan for FY '25, please?

[Shenu Agarwal, executive]

Yes. So see, last year, our CapEx was close to INR 500 crores. And you would have seen that we have been very, very consistent with our CapEx. And the reason for that is this is like a well thought out plan on the product. It's not like any -- you wouldn't see any jerky reactions from Ashok Leyland on CapEx side. Because it's already laid out for next few years. Of course, it is very dynamic. So we keep on looking at the market conditions and change the plans here or there. So even for FY '25, our CapEx would be between INR 500 crores to INR 700 crores.

[Kapil Singh, analyst]

And sir, investment plan, please?

[Shenu Agarwal, executive]

Investment is -- the only investment I think, or a significant investment required will only be in Switch, maybe to some extent OHM, we don't see much requirement in OHM right now. But we haven't finalized the exact numbers. It should be kind of lower than what we did last year, but we'll let you know. I think it will take another month or so. But at least for the next -- or at least for the first half, I don't think there is any need to invest even in Switch.

And I would also like to tell you that Switch in quarter 4 has been EBITDA positive. So this is the first quarter where they have turned around into being a profitable company. And even in FY '25, we are -- as I said, we are still kind of refining the plans, but we hope that Switch would remain EBITDA positive -- Switch India would remain EBITDA positive.

[Operator]

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

[Gunjan Prithyani, analyst]

Just a couple of follow-ups. Firstly, on the margin, there is -- there's been quite a tight control on the staff cost also if I see sequentially and even most other cost items seem to have been rationalized a lot. So is there any specific to call out that you think will normalize going into fiscal '25 or these are new lower reset base? That's how we should be thinking about fixed cost going ahead.

[Shenu Agarwal, executive]

Yes, Gunjan, thank you for that question. It's a very interesting question. See, I mean, in automotive sector, you know that the cost tends to go up, even if you don't increase the headcount at all, the cost tends to go up by 10% to 11% because of increments and other recognition and reward that you do for your employees.

Yes. But in our case, you would have seen -- while we, of course, gave very handsome increments to our people. But in our case, you would have seen that the cost has not gone up to even that extent. Yes.

So there is definitely some efficiency that we do try to create some productivity enhancement measures, we do try to undertake as far as our executives manpower is concerned or even our blue color manpower, yes. So to that extent, I think even going forward, there are several avenues that we would be looking at how we can increase productivity of our people and therefore, keep the overall manpower cost on a tight leash.

[Gunjan Prithyani, analyst]

Sir, if I recall, I think on a full year basis, last year, you had mentioned that there was some INR 300 crores, INR 400 crores of cost savings or costs which were taken out. Is there a number that you can sort of share? Maybe I don't recollect what exactly the number for last year was, but there was a fixed cost program where you were talking about taking out the fixed cost and being very, very efficient around it. Is there a number that you can share with us? And how should we think that is there more efficiencies to be made going into fiscal '25.

[Shenu Agarwal, executive]

Yes, Gunjan, I mean we never said INR 300 crores, INR 400 crores. But I can tell you, it is a significant number. And as far as the future is concerned, this year also, we are looking at a very ambitious target on cost savings, which is even better than last year. So we'll continue on that journey. And I mean, at Ashok level, we think that cost optimization is a journey that never stops. There is always an opportunity to reduce your cost, cut your waste. And I mean, the simple reason for that is technology keeps on changing. You come up with new products, new platforms.

And whenever you come up with a new technology, new platform for the first time, you really, I mean, build some extra cost in it just to be on the safe side. And therefore, there's always an opportunity to relook at your product, even your business operations to see where the opportunities are. So I can tell you that at least for this year, we see there is a great opportunity in cutting costs further...

[Gopal Mahadevan, executive]

And just to add here to what Shenu says, there's not just merely fixed cost that we are looking at. We are looking at the cost of the product and taking even some of the variable costs out. So this is a continuous journey of improvement that will happen. We will be deploying digital. There's a whole host of opportunities that come in. And so we have to be -- we are turning to be a completely fast-paced, digitally driven organization that has got a lot of opportunities.

[K. Balaji, executive]

In short, no, we are not leaving any expenses. We look at every item and then look for cost reduction, be it the material cost side or on the overheads expenditure side.

[Gunjan Prithyani, analyst]

Okay. Got it. That's good to hear. The other question that I had was on these subsidiaries. Now you mentioned Switch being profitable. I mean, I would imagine the scale is very, very small right now. And the contracts that we're doing on the e-buses side, the running does not -- running of those buses doesn't lie with Switch, right? I just want to be clear around that. It is -- the buses are run by the other subsidiary and Switch is only the manufacturing company, right? Is that understanding correct?

[Shenu Agarwal, executive]

Yes, in principle, correct, Gunjan, but just to correct or just to clarify that switch, we are not saying is profitable yet. We are saying it is EBITDA positive, right? So we have -- still have some journey to go -- Switch India, yes, I'm talking about Switch India. So we still have some journey to go as to make it overall net profit positive as well. Now coming to your answer, yes, we -- as you know, a few quarters back, we had activated subsidiary directly under Ashok Leyland, which we call OHM Mobility. That company is our eMaas company.

And in future, all the contracts, GCC contracts that will be signed or we will undertake will be signed by OHM Mobility. There are some contracts that we still have in a Switch Mobility, which we are trying to transfer to OHM but it requires several approvals, et cetera. So we are in that process. And wherever it is possible, we will transfer those contracts to OHM.

[Gunjan Prithyani, analyst]

Okay. And last question on Hinduja Leyland Finance. If you can just share a little bit on the operating metrics around what's the AUM, what's the net worth? And where are we in terms of the process of that amalgamation or reverse merger that we were working on?

[Unknown Executive]

See, as far as the Hinduja Leyland Finance is concerned, I would say that the reverse merger process is back on track. It had some procedural issues more than anything else. So otherwise, what was envisaged as the original model strategy continues. So we expect that this may take a couple of more quarters. But I think once that happens, we believe that there is a value upside that will be seen, not only for Hinduja Leyland Finance, but also for Ashok Leyland because the investment that is there in Ashok Leyland book is not reflective of the value that Hinduja Leyland Finance and its own subsidiary by the way, Hinduja Housing Finance has.

So we are even looking at some sort of a value release even in Hinduja Housing Finance at the moment, but not a listing. We are looking at whether there are opportunities for getting in third-party investors, but it's at a very early stage. But we'll let you know that. The whole idea is to see that these -- some of these subsidiaries that Ashok Leyland has, it actually start getting reflected in their true value. That's what it is. And the other bit is as far as Hinduja Leyland Finance is concerned, the overall [ AUM ] of Hinduja Leyland Finance is 38,000 and Hinduja Housing Finance is about -- around INR 11,000 which makes it about nearly 50,000. It's a pretty large-sized finance company today. The things are -- I don't have the exact number, but to give you a trend, GNPA is at about 4.5% and the [ NPA ] is about 2.25% or 2.3%.

So it's been pretty well managed. It is pretty diversified. It is not just focusing on commercial vehicles. They've got 2-wheelers, 3-wheelers, off-road, a low second property. And of course, they also do buyout of paper, sell down. So they have their own path chartered out. And the CV share is now hardly about 27% to 30%...

[Gunjan Prithyani, analyst]

Net worth, if you can share...

[Shenu Agarwal, executive]

Beg your pardon, please.

[Gunjan Prithyani, analyst]

Net worth as of the end of the year for the...

[Gopal Mahadevan, executive]

Offline. I don't have that number ready, but I share that net worth...

[Operator]

The next question is from the line of Jinesh Gandhi from AMBIT Capital.

[Jinesh Gandhi, analyst]

A couple of questions from my side. One is you talked about the fleet average age has been increasing, and this has been happening for the last few years. Any sense on what is causing this delay in replacement demand coming back up? Is there any structural issue there? Or I mean, why it was not getting justified now?

[Gopal Mahadevan, executive]

No, Jinesh, it does take time. I mean, because this -- the aging of the fleet started actually happening during the COVID times, right? So I mean a lot of people are kind of trying to come out. I mean -- so a lot of it is happening. It's not that it is not happening, but it has -- what I said was that it needs to accelerate further. And I mean all indicators are positively saying that it will. But it takes time. I mean it's not like -- it's a major investment. It's like fleece. So people do take time to invest and time to take at opportunities to grow their business. And I mean, time their vehicle purchases accordingly.

[Jinesh Gandhi, analyst]

Okay. But are you seeing the large part of this replacement getting delayed because of small and single fleet operators holding back on their own purchases? Is that also one of the reasons or...

[Gopal Mahadevan, executive]

That is true. So the larger fleet operators will replace earlier than the smaller ones, yes. And smaller fleet operators, of course, they get -- when times are bad, they get into more of a problem. For larger fleet operators, it's really easy to kind of absorb bigger shots and then come out of it more quickly, right? So that is what I was saying. So it takes a little bit of time.

[Jinesh Gandhi, analyst]

Got it. And secondly, with respect to -- we talked about CapEx to be just about INR 500 crores, INR 700 crores. I believe we have still reasonable headwind to grow from the current capacity as utilization is going to be close to 80%. If you have to figure next round of capacity addition, can we go through brownfield route only or we'll have to look at the greenfield?

[Shenu Agarwal, executive]

See, we are evaluating our manufacturing footprint as we speak, right? Because, of course, for next 2 to 3 years, we see no problem as far as capacity is concerned. But hopefully, we have to prepare ourselves for a period beyond that. So we are looking at it. We'll come out with more details and share with you. Right now, it's hard to say how it will come. But yes, we would -- one thing we know is that after 3 years, we might need additional capacity.

[Jinesh Gandhi, analyst]

Right. And the last part of the capacity would be fungible between the alternate fuels, which you're looking at, including EVs versus pure CV, would that be the correct understanding?

[Shenu Agarwal, executive]

Definitely, the idea is to create common capacity, yes. I mean, common lines where we can do both, which will give us a lot of flexibility in the future, and it will also kill a lot of uncertainty -- market uncertainty to flow into our production planning, right? So that is the idea. Even the new plant in Lucknow that we are constructing is based on the same principle. So it should be the same line, on the same line, we should be able to make electric buses as well as the traditional -- buses with traditional fuels.

[Jinesh Gandhi, analyst]

Got it. And lastly, can you talk about what is our outstanding order book for e-buses, which we have on our hand and now are all the hurdles being taken care for us participating in the further tenders or future tenders on e-buses?

[Shenu Agarwal, executive]

Yes. I mean, Switch right now, actually, we are very happy with the progress of Switch India. Switch is actually going to have a different struggle now. I mean the order book is very handsome. We have 1,500 in hand, we have 950 to deliver in Delhi and another 320 to deliver in Bangalore and then a few more.

So as we are kind of -- as we are going to deliver these, we have to really ramp up on various aspects on production, sourcing capabilities, et cetera. So Switch might have a different problem this year where it will be kind of pushing the vehicles out. Of course, as far as tenders are concerned -- new tenders are concerned, we will be participating in the tenders. Of course, we are going to do that on a profitable basis. If we think that we are going to make a loss -- upfront loss, we are not going to be interested in that tender. But there is ample opportunity even for profitable lenders in the coming year.

[Jinesh Gandhi, analyst]

Got it. And eLCV is again, do we have a sizable order book or that will build up right now since deliveries have started?

[Shenu Agarwal, executive]

The eLCV, we've only launched into the market at the end of March. And the order book is building up. There's a lot of interest from e-commerce and logistics companies especially many multinationals who are looking for the last mile to be green as well. So I would say that it's early days, but a lot of strong interest. And we will also be launching the IeV 3, which is the smaller version in the next 3 to 4 months.

[Operator]

The next question is from the line of Raghunandhan N.L. from Nuvama.

[Raghunandhan N. L., analyst]

Congratulations team on strong numbers and best wishes to Gopal and Balaji. Sir, firstly, on the segment, how has been the performance in Q4? And how do you see the outlook for FY '25? Can it cross INR 1,000 crore mark?

[Shenu Agarwal, executive]

Raghunandhan, defense actually is one area we are very [indiscernible], even in FY '24, we could grow our top line on defense by more than 2x. And that INR 1,000 crore mark, we have always been saying we want to reach there and we are very glad to say that we were -- in FY '24, we were almost there. We did not touch it, but we were almost there, yes. But having said that, I would also tell you that our order pipeline, also the visibility for the next couple of years is very, very strong. Yes. So now having kind of almost touched that INR 1,000 crore benchmark for defense, we are going to set up a much higher target for ourselves.

[Raghunandhan N. L., analyst]

Sir, if you can elaborate a little on the new products and MHCV, LCVs, can you provide more details on which categories applications you are trying to strengthen [indiscernible] position or fill white spaces?

[Shenu Agarwal, executive]

It will be a combination, Raghunandhan, as for obvious reasons, we can't diverge all the details on the new upcoming products. But yes, it will be a combination. Large part of it will be covering our white spaces. But even otherwise, it will be strengthening our product positioning in the market to the next level. So all the launches would be aimed at increasing market share. So I mean, as our philosophy also, when we look at any new product or any new launch, we look at how we can be better by -- from ourselves or better than competition. Yes. So in each case, it should give us better market penetration.

[Raghunandhan N. L., analyst]

And on the gross margin side, it has shown an improvement. Can you talk about the enabling factors in opening remarks, the Chairman referred to pricing and discount discipline. There is also a positive mix and there is also share of defense, which would have gone up. Can you provide a little more details of gross margin and going forward, do you expect things to sustain on the discipline side or do you see any risk of competition increasing?

[Shenu Agarwal, executive]

Raghu, I mean, gross margin, of course, we have had an impressive increase in FY '24 over the previous year. But I think more than that, what we are happy about is that it has come through all round performance, whether it is mix or whether it is cost savings, raw materials and other costs, or whether it is price realization. I think everything has played really well. On the mix side, like I said, defense is a good -- I mean, reasonably good margin business for us. We have grown more than twice. Power Solutions business is also a good margin business for us, and we had a 40% plus growth there in FY '24. Then spare parts is very high margin for us. We had a growth of about 32% in spare parts. Then even in LCV, not just that we could increase the market share, but also our focus remains on margins.

And even on the bus side, I mean, we are actually very happy that bus margin has done very well. I mean, we have grown our market share by about 5.5% in buses. At the same time, we have grown our margins quite well. Yes. So I think overall, it is good thing. I mean in terms of mix and in terms of our ability to realize better prices in the market, which, of course, as you would agree, comes mainly from your superiority of the product and your ability to reach the customer.

So yes, I mean, as far as FY '25 is concerned, a lot of these actions I think will get translated into the next year because it's not like one-off action. It's kind of a journey. I have a series of actions that we have planned. Even on the cost we think we can do even better than what we did on in FY '24. A lot of it also depends on some of the external factors. So we will keep gauging the market, the competitor's response, et cetera. But I think if the industry continues to do well, like it did in April. I think even those external pressures would not be too much to handle.

[Operator]

The next question is from the line of Priya Ranjan from HDFC Asset Managers.

[Unknown Analyst]

Two questions. One is on the mix of what was the non-vehicle revenue percentage in this quarter. And secondly, if I look at the consol [ PVIT ] and stand-alone [ PVIT. ] Even last year, we have roughly around INR 500 crore loss. Even this year, we have around INR 520 crore loss. So is these losses are primarily only to Switch or something else? Can you just elaborate on that?

[Gopal Mahadevan, executive]

So as far as the mix of revenues are concerned, I mean, we normally don't give out the complete breakdown here, but the main revenue order is, of course, the trucks and buses which they account for nearly about 60%, maybe nearly about 70% of the revenues. And then you have light commercial vehicle, which again accounts for about 11%, I'm just talking about on an annualized basis. So you have 70% and 80%. The rest is coming with the rest of the businesses.

But most important is the growth of all of these businesses like commercial has been flattish. But if you really look at it, the market share has grown in a market, in India, the addressable market has actually come down by 4%. But other businesses like aftermarket, defense, power solutions and have actually had record revenues. And exports has posted a 5% growth despite very challenging circumstances in the international market and all major players in India actually posting a degrowth. So to that extent, the whole bouquet of businesses have done very well. And like Shenu mentioned earlier, the bus business has kind of sharply grown, domestic bus. The market share has moved from somewhere around 32% to 38.8%. That has shown a little bit kind of a small 1, 1.5% reduction, which the team is pretty confident that it set right pretty soon.

Now as far as the delta difference between profits of Ashok Leyland and consolidated are concerned, the major impact is only on account of Switch. And that too, I think the U.K. operations are where the challenges are. And we can't blame the management directly on that or because the market in Europe, which is you all know, is going through a lot of turbulence and challenges. All European economies are actually going through a lot of uncertainty. The U.K. market themselves are not doing well. U.K. has its own internal problems in terms of fiscal challenges that it's having.

So Switch India on the other front is actually launching products. See these kinds of situations, what is most important is to ensure that you don't move away from your strategic direction, which is to ensure that you are launching the products, creating the customers, keeping yourself ready when the market is going to grow. At the same time, the management of Switch U.K., while they are doing all of this, they have also been reducing expenditure, trimming down costs as much as possible to ensure that the cash burn is reduced.

I think that this year Switch India should do well, but we'll wait for things to infer. We've got an exciting range of products also now in light commercial vehicle. They have been making -- the OHM, which is the other subsidiary is making bids in some of the tenders, which will again be an order book OHM needs and order book for Switch also because the [ OE ] that's going to supply OHM is going to be Switch. So I think we are very positive about the outcome of these businesses, but I thought I'll give a slightly longer answer to your question because otherwise, people will feel that this is just some loss-making entity. It's not just that I think there's a lot of effort and excitement around the EV business.

[Operator]

The next question is from the line of Jinesh Gandhi from AMBIT Capital.

[Jinesh Gandhi, analyst]

In the past, we had won several orders or other several tenders on defense side, but it didn't materialize. So are we seeing any progress on those tenders now given there is quite a bit of activity on the defense procurement side?

[Gopal Mahadevan, executive]

Jinesh, those are orders, those defense tenders have been won, but we'll have to wait for the -- it is not materializing, the government has its own pace of ordering. So some ordering will start now because the government is also managing defense budget absolutely. Here again, but what is happening is aside of the core Stallion revenues, we have started both, between Ashok Leyland Defense Business and ALDS. I think they are now actually growing very rapidly. And -- while we don't want to issue a forward-looking statement, I think '25 numbers and '26 numbers will be much, much better than even what we have posted in '24, which itself is a very high record number.

[Jinesh Gandhi, analyst]

Okay. So this is coming from Stallion indeed, these new...

[Gopal Mahadevan, executive]

I think more than -- not only Stallion, it is coming from other new orders also which have been started executed in FY '24. I think the composition is getting better, between it is no longer -- we don't -- we want to actually ensure that the concentration Stallion, while it should continue to grow, should come off, the concentration should have come off.

[Jinesh Gandhi, analyst]

And last question on Switch U.K. So it was looking to put up capacity in Spain. So any update on that? Are we still going ahead with that given the pain which is there in Europe?

[Gopal Mahadevan, executive]

No, I think we will see. I mean, I think it's very strategic -- it's a very small strategic kind of pit that we have put on the map because what is important is that at a point in time when Europe starts to expand, we need to have presence to quickly wrap up sales there. It's not really guzzling cash. There are very few people. But what happened is at the time when we actually put that -- made that investments, the European market was looking very promising.

And this was -- you must remember pre-Ukraine, Russia and all that. Then what happened is there has been a little bit of a downturn in the European market. And we are now looking at -- waiting for things, but we are not stepping up. The first vehicles actually, by the way, has been delivered -- will be delivered in the coming September. I think it's a few numbers, but we want to ensure that we do make that small step in Spain.

[Jinesh Gandhi, analyst]

Okay. So that it's on track. I mean...

[Gopal Mahadevan, executive]

Yes.

[Operator]

The next question is from the line of Nishit Jalan from Axis Capital Limited.

[Nishit Jalan]

Sir, one question around the industry growth. One common thing that we keep hearing is that the impact of dedicated freight corridor will have on the road freight and then the truck demand. So just want to hear your thoughts. We have seen commissioning happening. It's still not full commissioning. Are you seeing any impact -- what kind of impact are you seeing on the roads where DFC has got a commission, especially on the container traffic? Any numbers or anything that you can highlight here?

[Shenu Agarwal, executive]

No, Nishit, as you said, this has not played out fully yet. A lot of links in the chain are missing, right? So, so far, there has been no impact. But even going forward, we have actually done a very massive in-depth study of this whole thing, talking to various people in cement, steel, et cetera and even other sectors. So I think there is -- see, the whole [ DCO ] of this new model or potential new model around DFC is not working out yet. Yes. So there are some like fundamental issues in the model, which have to be sorted out. And I really think it will take a long time. It will take a few years, at least before it starts taking some shape. So yes, I mean, this is a longer chat we need on that, but maybe when we meet, we can talk about more about this. But I don't think it is going to be a major or significant impact in the short term.

[Nishit Jalan]

Okay. Okay. That's good to hear. So Shenu one more question around Switch Mobility. So given that there will be more and more requirements for investments around EVs. Any medium-term outlook or any medium-term investment plan that you can share on Switch Mobility. I'm not asking for 1 year or 2 years, maybe over the next 5 years, what kind of investment would be required in Switch Mobility to do product development, set up capacity?

I'm assuming -- and OHM as well, right, because OHM will be a little bit more working capital-intensive business because you are not selling the product outright to the STUs, right? It's more of a build-operate kind of model. So any thoughts on how much -- what kind of investment should we require over the next 3 to 5 years in both these EV entities put together...

[Gopal Mahadevan, executive]

Let me answer that. As we have said, the India Switch story is moving very well. And LCVs will start picking up as well. And as Shenu said, we are concerned really is now how to get all the buses delivered based on the order book and more tenders that we have been involved in, I think those results will come as well. And this shows, irrespective of the performance of U.K., the India site should be able to manage immediate funding needs. And as Gopal was explaining, U.K., Europe will pick up. And our -- we have been spending time on development of new vehicles. So all of them are now coming out. So for Delhi, for Bangalore, it's a brand-new 12 meter low-floor bus that is going in Europe. It is a brand-new e1 that has been developed over the last 2, 2.5 years. So all the investments that have been done will now start bearing fruit.

And in our view, the majority of the CapEx for these new products, we have already born. Now the market will pick up. And I would say that every government, every city is moving towards electric. So let's wait and see, and I think we can probably give you a more precise response to this in another few quarters.

[Operator]

Thank you. As there are no further questions from the participants, I would like to hand the conference over to the management for closing comments.

[Dheeraj Hinduja, executive]

I'd like to thank all of you for your continued interest in Ashok Leyland, and I would like to reiterate, I know there have been a lot of questions with regard to the expected growth for this year and what the outcome could be for this year. All we can say is that indications remain good, especially with the customer base. I think that's really the true test, how are the customers feeling and their replacement demand itself and you can segment the market as well. So there are pockets that might see some slowdown, but they're more than made up by other areas of the vehicle. From Ashok Leyland side, our interest or I would say our goals remain on maintaining our EBITDA margins and continuing to grow market share, but not buying market share. It will be done on a profitable basis. And we are, as we said, on track, both in LCV and MHCV. So overall, we continue to be fairly positive on the outcome in the near future.

[Shenu Agarwal, executive]

Thank you.

[Gopal Mahadevan, executive]

Thank you.

[Operator]

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