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Sector Outlook: Positive
Strong beat on profitability
Ashok Leyland reported Q4FY24 standalone revenue of Rs. 11,267 crores, a 3% decrease year-on-year but a 21% increase quarter-on-quarter, missing market expectations. The company’s realisation per vehicle stood at Rs. 20.18 lakh, up 4% YoY and 3% QoQ. Gross margin improved to 28.2%, driven by lower raw material costs and a richer product mix. The standalone EBITDA margin reached a record high of 14.1%, surpassing estimates due to better operational performance. Gross profit per vehicle was Rs. 5.68 lakh, while EBITDA per vehicle was Rs. 2.85 lakh. PAT rose to Rs. 900 crores, with a net profit margin of 8%. The management noted a recovery in demand in April and May. The growth outlook is strong due to high demand in the over 16-ton segment, bus market, and industry upcycle. The company’s EV segment is expanding with new model launches and strong bus orders. Switch India is currently EBITDA positive and expected to maintain this status.
Key Concall Highlights
Demand:
- The company expects recovery in FY25 post-elections, driven by positive macroeconomic factors. Elections are not significantly affecting demand.
- Replacement demand is expected to rise as more vehicles over 10 years old need replacing.
- Exports grew 5% in FY24 despite weak markets in SAARC and Africa.
- Management aims to gain market share in truck and bus segments, targeting a 35% share in the medium term.
- The bus segment grew strongly in FY24, increasing market share from 33% in FY23 to 38% in FY24.
- In the LCV segment, the company achieved a 20% market share in the 2-3.5 ton category.
- Plans to launch six new LCV products in both ICE and EV segments to cover about 80% of the untapped market in this segment.
Margins:
- FY24 EBITDA margin improved to 12% from 8.4% due to better realisations, lower commodity costs, and cost-saving measures.
- Growth in high-margin businesses like spares and power equipment supported margin improvements.
- Going forward, the company will focus on maintaining margins instead of offering discounts.
Other Updates
- The company is net debt-free despite investing Rs. 1,500 crores in OHM.
- FY24 capex was Rs. 500 crores; FY25 capex is projected between Rs. 500-700 crores, with no need for capacity expansion in the next 2-3 years.
- Switch Mobility launched its first electric LCV and plans to launch another model soon.
- Set to deliver 950 electric buses to Delhi and 370 to Bengaluru; developing E1 buses for Europe.
- Switch India is EBITDA positive with an order book of 1,500 buses and will bid for profitable new tenders.
- UK Switch Mobility is facing challenges due to a slowdown.
- Defence business revenue doubled in FY24 to nearly Rs. 1,000 crores, with better margins.
- Spares revenue grew by 32% in FY24.
- Hinduja Leyland Finance is seeking a third-party investor for Hinduja Housing Finance.
- Hinduja Leyland Finance’s AUM stood at Rs. 38,000 crores, housing finance at Rs. 11,000 crores; GNPA at 4.5%, NNPA at 2.2-2.3%.
- 27% of Hinduja Leyland Finance’s book disbursements are towards CVs.
Valuation and Outlook
Ashok Leyland demonstrated strong performance in Q4 FY24, with improved EBITDA margins driven by better price realisation, efficient sourcing, optimised product mix, lower commodity costs, and growth in high-margin segments like spare parts, power solutions, and defence. Post-election, demand is expected to rise, supported by resilient macroeconomic activities and potential rate cuts. Revenue growth is anticipated from increased defence orders over the next two years. A focus on margin improvement through pricing discipline and cost control measures is expected to boost profits significantly. Additionally, India’s strong infrastructure and development narrative is likely to increase commercial vehicle (CV) demand, with replacement demand accelerating due to ageing fleets and the introduction of more efficient vehicles. The company’s cost-saving initiatives are expected to further enhance margins. Despite near-term uncertainties from elections and monsoons, the CV industry is poised for substantial long-term growth.
