Ashok Leyland

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Update on the Indian Equity Market:

On Wednesday, markets continued to decline for a third straight session on the back of unsupportive global cues. The Nifty index ended lower by 0.6% at 17,226 levels. REALTY (-1.9%) PSU BANK (-1.4%) and MEDIA (-1.4%) were the top losers while AUTO (+0.5%) was the only gaining sector today. BAJAJFINANCE (-2.9%), BAJAJFINSV (-2.5%), and ADANIPORTS (-2.4%) were the top losers while SUNPHARMA (+2.8%) KOTAKBANK (+1.5%), and MARUTI (+0.9%) were the top gainers.

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Edited excerpts of an interview with Mr. Sanjay Saraswat, head of Medium and Heavy Commercial vehicle (M&HCV) at Ashok Leyland with CNBC-TV18 on 14th December 2021:

  • Ashok Leyland saw a pick-up in sales in the month of November-21, the overall numbers were above street expectations.
  • The M&HCV sales improved 10% YoY, but Light Commercial Vehicles sales continued to remain under pressure.
  • The Internal Combustion Engine (ICE) Trucks are performing well and growing faster than other segments.
  • Although MCVs performance is not satisfactory, it is expected to perform well from 4QFY22E.
  • According to the truck financers, the demand for Tipper Segment is improving on the back of increasing infrastructure and mining activities. Mr. Saraswat commented that the Tipper segment is growing equal to the industry growth. The company has improved its market share in the last 2 months and is continuing to improve further on an MoM basis. The company has a wide range of Tippers available as it has recently launched Avatar Brand under Tipper Segment which is doing phenomenally well.
  • From FY22E, Company has decided to keep the wholesale and retail volumes equal. In the month of Nov-21, the retail and wholesale sales volumes were almost the same.
  • According to the Federation of Automobiles Dealers, although the demand is back in Commercial Vehicles it is still away from pre-pandemic levels. Mr. Saraswat commented that FY18/FY19 was the best period in terms of sales and currently the numbers are far away from that period. But every month and quarter things are improving and moving in that direction.
  • The company is experiencing chip shortage issues for some of the models which are impacting the sales. The company is not able to fulfill the demand for vehicles especially LCVs due to the shortage.
  • Year till date FY22E, industry sales have doubled on a YoY basis. The base of FY21 was low due to pandemic and BSIV to BSVI transition, especially 1HFY21. For 2HFY22E the growth rate is expected to decline as the base improved gradually. For FY22E, Mr. Saraswat expects the volume growth to be in the range of 30-35% YoY.

 

Asset Multiplier Comments

  • We expect sales to pick up gradually in 2HFY22E on the back of seasonality, improvement in core economic indicators, increase in replacement demand, and easing restrictions.
  • We believe, Ashok Leyland is well-positioned to benefit from a strong recovery in the CV cycle on account of new product launches and a well-diversified product portfolio. It will also benefit from the cyclical recovery, especially in buses and higher tonnage trucks where it has a higher market share.

 

Consensus Estimate (Source: market screener and investing.com websites)

  • The closing price of Ashok Leyland Ltd was ₹ 126/- as of 15-December-21. It traded at 26x/17x the consensus EPS estimate of ₹ 5.0/7.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 158/- implies a PE multiple of 21x on FY24E EPS of ₹ 7.6/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect H2FY22 to be even better- Ashok Leyland

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,000 (-0.6%) near its low of 17,959. Among the sectoral indices, AUTO (+2.5%), IT (+0.5%) were the only gainers. PSU BANK (-2.1%), OIL & GAS (-1.4%) and PHARMA (-1.3%) led the laggards. Among the stocks, MARUTI (+7.3%), M&M (+3.0%), and TATAMOTORS (+2.4%) led the gainers, while SHREECEM (-3.0%), RELIANCE (-3.0%), and HINDALCO (-2.5%) led the laggards.

Excerpts of an interview with Mr. Gopal Mahadevan, CFO and Whole Time Director, Ashok Leyland (ASHOKLEY) with CNBC-TV18 on 15th November 2021:

  • Things were expected to improve in April-21 but the second wave of covid impacted Q1FY22 for the entire industry and eventually, Q2FY22 saw a sharp recovery. With the reduction in covid cases, increased levels of vaccination, and reopening of economic activities, things are expected to improve quite swiftly in Q3FY22 and Q4FY22.
  • This will have a positive impact on the commercial vehicle industry. The core industries like infrastructure, commodities, and the manufacturing sectors are already showing good growth which augers well for the CV industry, specifically the truck segment.
  • Ashok Leyland is waiting for public transport to improve which hasn’t happened yet. Although offices are resuming, schools are still shut. The impact of office resumption will be seen on increasing bus volumes.
  • From Ashok Leyland’s standpoint, Light Commercial Vehicles are doing well and their market share stood at 23% in Q2FY22.
  • Ashok Leyland is trying its best to improve volumes and share of customers, consistently.
  • They are going to launch their CNG range of intermediate vehicles by Q4FY22 which would again kind of improve their presence in the ICV segment.
  • Ashok Leyland took a price hike of 2-2.5% approximately in Q1 and Q2FY22. They took a price hike in Q3 as well to set off some part of the raw material price increase, especially steel where the prices have gone through the roof due to consistent price increases.
  • They do expect costs to soften as things begin to rationalize. One thing to watch out for would be the semi-conductor demand because it is quite significant. There are constraints not only for the CV sector but also for passenger cars, 2-wheelers, and electronics. When this eases out, a push from the supply-side towards greater delivery will be seen.
  • Gross margins are expected to improve as demand improves.
  • Three reasons why a fraction of market share was lost:

1) Market share is based on wholesale. However, Ashok Leyland doesn’t intend to pump stocks into dealerships beyond a certain point. It is only focused on maintaining customer accounts and adding new ones.

2) Ashok Leyland is a significant South player but the volume growth there has not been as good as what it was in the rest of the country. South volumes are expected to start catching up in 2HFY22, especially in December and January which will push Ashok Leyland’s market share up.

3) CNG plays an important role in the ICV segment which accounts for a third of the overall MHCV market in terms of trucks. So, with the launch of CNG vehicles in the fourth quarter, market share is expected to go up.

  • At ₹ 3100 crores, its net debt position is comfortable and the D/E ratio is at 0.5. Ashok Leyland will continue to optimize net debt, work on working capital and astutely manage Capex.
  • The chip shortage issue was expected to be solved by September-21 but that hasn’t happened yet. In South-East Asia, capacities are being set up. As per analyst reports, the chip shortage is expected to ease by Q4FY22.
  • Ashok Leyland expects this to ease out and doesn’t see chip shortage as a permanent issue. Once capacities are set up and distribution gets rationalized, the shortage should come off.

Asset Multiplier Comments

  • We expect the raw material inflation to impact the bottom line in the medium term.
  • With the gradual reopening of the economy, bus demand is expected to pick up. The reopening of schools will also provide an impetus to the demand for buses.
  • With the launch of CNG vehicles in the fourth quarter and the anticipated festive demand, we expect an improvement in EBITDA margin levels.

Consensus Estimate (Source: market screener and tikr.com websites)

  • The closing price of ASHOKLEY was ₹ 147/- as of 16-November-21. It traded at 237x/ 28x/ 19x the consensus EPS estimate of ₹ 0.6/ 5.2/ 7.6 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 152/- implies a PE multiple of 20x on FY24E EPS of ₹ 7.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

India will be a very important market for Electric Vehicle segment – Ashok Leyland

Update on the Indian Equity Market:

Nifty 50 ended 46 points down at 15,815 (-0.3%) amid Finance Minister Nirmala Sitharaman’s announcement of another stimulus package. Among the sectoral indices, PSU BANK (+2.4%), METAL (+1.3%), and PHARMA (+1.3%) were the top gainers while MEDIA (-0.6%), IT (-0.5%), and FINANCIAL SERVICES (-0.3%) were top losers. Among the stocks, DRREDDY (+1.8%), HINDALCO (+1.74%), and DIVISLAB (+1.7%) were the top gainers. HDFCLIFE (-4.1%), TITAN (-1.32), and SHREECEM (-1.2%) were the top losers.

India will be a very important market for Electric Vehicle segment – Ashok Leyland
Edited excerpts of an interview with Mr. Gopal Mahadevan, Chief Financial Officer at Ashok Leyland with CNBC TV18 on 28th June, 2021:
Ashok Leyland reported revenues of Rs 70,005mn and turned profitable after 4 consecutive quarters of losses in 4QFY21.
• FY22 Outlook: Internally company is budgeting for a growth. The growth will depend on how the economy and country open up after the second wave. It will also depend on the third wave and how the delta virus turns out. Overall, the industry and company are expecting a good growth in FY22.
• Jun-21 performance: Sales of the commercial vehicle happens in the last 2 days of the month and it is early to comment on the revenue growth of the month of Jun-21. But a significant growth is not expected as the opening up of the economy has happened recently.
• Ashok Leyland is preparing for the growth in terms of supply, keeping sufficient inventory, being in touch with dealers, network and financials. At the same time the company is keeping track of costs and keeping itself efficient.
• The company expects growth if there is no third wave and economy is open consistently. The forecast for country’s GDP is 9-9.5% which means there is growth from now to Mar-22.
• For Ashok Leyland, the Light Commercial Vehicles (LCV) business seems very promising. The reason being launch of ‘Bada Dost’ which is a completely new segment where the company has seen growth and increase in market share as well. Company is very positive about the LCV segment and doesn’t see demand getting affected significantly as there is a lot of activity witnessed in cities till now. There is intra city transportation, which this segment caters to. E-commerce is also helping this segment to grow.
• Heavy Commercial Vehicles: Growth is seen in three segments. 1) Intermediate commercial vehicles have seen healthy growth where Ashok Leyland is present. 2) Tippers are growing because of the infrastructure impetus provided by the government. This will continue to grow and also there is positive overweight on real estate which will help the demand of Tippers to grow. 3) Multi-axle Vehicles are used for multiple purposes like interstate transportation. So, once these lockdowns or states open up fully, growth of multi-axle vehicles will be visible where Ashok Leyland is very well positioned.
• Plan of action: 1) Heading for LCV growth, 2) Keeping in touch with dealer and customers for both Tippers and Multi-axle vehicles, and 3) Keeping variants of intermediate vehicles ready to capture the market further when it starts growing.
• Scope of Electric Cars and Buses: Mr. Mahadevan thinks that future will be mixed of both green and electric vehicles. He sees capability being built in internal combustion and expects it to stay for few more years and the company will continue to build capabilities in internal combustion and diesel. Ashok Leyland is also future proofing the company by initiative of Switch where all the Electric Vehicles initiatives of the company going forward will be housed under Switch. Switch is 91.5% owned by Ashok Leyland. Switch will have a subsidiary in India which will take care of the global market and will be the manufacturing hub. Switch will also cater to the Indian market and SAARC markets. He believes that India is going to be a very important market as far as EVs are concerned.
• His comments on margin as steel prices are going up: Margins are a factor of three things: 1) Revenue and growth of revenue, 2) Raw Material, 3) Management of the middle line. Ashok Leyland is working on revenue and market share growth. They are also managing the middle line as efficiently as possible. To tackle the high raw material cost problem, company is running a project to improve the performance of the product and take out cost. So, when the steel prices will cool off in the 2HFY22, it is expected that the company will benefit from all these three initiatives.

Asset Multiplier Comments
• Healthy medium-term demand prospects along with market share gain possibilities and structural margin-accretive factors will help Ashok Leyland to achieve robust growth.
• We believe post the Covid second wave, the domestic auto industry is expected to continue on the path of recovery and also expect pent up demand post 1QFY22.
Consensus Estimate (Source: tikr. com and market screener websites)

• The closing price of Ashok Leyland was ₹ 125/- as of 28-Jun-21. It traded at 57x/22x the consensus EPS estimate of ₹ 2.2/5.7 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 140/- implies a PE multiple of 25x on FY23E EPS of ₹ 5.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Passing on the rising input prices to customers – Ashok Leyland

Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 14,146 (-0.4%). Top gainers in NIFTY50 were Powergrid (+4.4%), Hindalco (+3.7%), and GAIL (+3.6%). The top losers were ITC (-3.0%), Reliance (-2.6%), and Axis bank (-1.9%). The top sectoral gainers were METAL (+1.3%), REALTY (+0.7%), and MEDIA (+0.2%) and the sectoral losers were IT (-1.4%), FMCG (-1.1%), and AUTO (-0.4%).

Excerpts of an interview with Mr. Anuj Kathuria, COO – Ashok Leyland with CNBC TV18 dated 5th January 2021:
• The industry remains under pressure owing to the rising input prices which have forced companies to pass them on to customers.
• The pressure that the industry is getting is from the input material. So everybody would like to pass it on to the customers, and Ashok Leyland is also doing the same.
• Month after month they are seeing the subsequent month is giving a better result. So December was no different, in fact, in December their sales have gone up, the total industry volume (TIV) has gone up.
• They saw the demand continued to come from the intermediate commercial vehicle (ICVs) and the tippers. They definitely feel that quarter 3 for them was a good quarter.
• For tippers, the demand is coming from the infra projects that are getting mobilized. A lot of road construction activity has started and that is not something which is pent-up demand, this is going to be led by the further projects getting mobilized, and that will continue in my view to be very robust even in Q4.
• The long haul segment will definitely be better, but to what extent that they will have to wait and watch
• FY22, as compared to FY21, will definitely be a growth year, but again, they are talking about a lower base in FY21. In FY22, the overall demand should be much better than what they have seen in FY21.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of ASHOKLEY was ₹ 105/- as of 6th January 2021. It traded at -121x/ 41x/ 21x the consensus earnings estimate of ₹ -0.9/ 2.6/ 4.9 for FY21E/FY22E/23E respectively.
• The Consensus price target of AHOKLEY was ₹ 92/- as of 6th January 2021. It trades at 19x of FY23E EPS estimate of ₹4.9.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Truck demand coming back; not enough buyers for buses – Ashok Leyland

Update on Indian equity market:
Markets continued the upward journey to end the truncated week as Nifty closed the day 140 points higher at 13,274. Within the index, ADANIPORTS (4.6%), HINDALCO (4.4%), and ICICIBANK (4.4%) led the index higher while RELIANCE (-0.8%), BAJAJFINSV (-0.6%), and HDFCLIFE (-0.6%) were three out of 11 losers. All the sectoral indices ended in the green with BANK (2.4%), PVT BANK (2.3%), and PSU BANK (1.5%) leading the pack.
Excerpts of an interview with Mr Anuj Kathuria, Chief Operating Officer, Ashok Leyland (AshokLey) published on CNBC-TV18 dated 3rd December 2020:
The monthly sales data for the month of November reported the seventh straight monthly improvement in sales, though the demand for buses was tepid.
He said that initial signs of demand coming back in the long-haul segment. The truck demand is coming back due to the movement of cement and steel whereas travel restrictions in the country have led to muted demand for buses.
The industry is witnessing growth in intermediate commercial vehicles. The tippers segment is holding strong and the company is expecting further improvement in MHCV (Medium & Heavy Commercial Vehicles) segment in December as well.
He said that the industry may see some replacement demand as the ownership cost of BS-VI (Bharat Stage-VI) is comparably lower. He also highlighted that state transport undertaking activity has intensified and the company is seeing more orders coming through.
The company is expected to show QoQ improvement in margins, but higher commodity prices could limit the gains.
Consensus Estimate: (Source: market screener website)
The closing price of AshokLey was ₹ 95/- as of 04-Dec-2020. It traded at 36x/ 20x the consensus EPS estimate of ₹ 2.6/ 4.8 for FY22E/ FY23E respectively.
The consensus target price of ₹ 90/- implies a P/E multiple of 19x on FY23E EPS of ₹ 4.8.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Ashok Leyland bets big on modular platform, says it will reduce the cost of ownership for customers

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally lower at 11,813. The top sectoral gainers were Realty (+1.0%), IT (+0.8%) and Metal (+0.2%). The worst sectoral performers were Pharma (-2.2%), Auto (-0.7%) and Media (-0.6%). The top gaining stocks for Nifty50 were TCS (+2.3%), JSW Steel (+1.6%) and Tata Steel (1.5%) while the losers were Dr Reddy (-2.7%), Sun Pharma (-2.6%) and Hindalco (-2.6%).

Excerpts from an interview with Mr Anuj Kathuria, Chief Operating Officer (COO) – Ashok Leyland aired on CNBC18 TV on 22nd February 2020:

  • After unveiling tractor-trailer in 46-tonne category range, Hinduja Group flagship Ashok Leyland COO said modular platform range will reduce the cost of ownership for customers and the company is offering few vehicles to select customers.
  • Mr Kathuria said that the modular platform is going to have an entire range of vehicles starting from the 16-tonne right up to the 55-tonne. The platform allows the customers to configure the vehicles as per their applications and business requirements. It naturally would help them get a superior total cost of ownership and total cost of operations. It reduces the number of parts that are required to build vehicles. It inherently ensures better aftermarket support.
  • He added that the modular platform vehicles are BS-VI compliant. The technology used on BS-VI is mid-NOx technology that ensures the operating cost or the fuel efficiency or the fluid efficiency is best-in-class.
  • About the transition from BS-IV to BS-VI, he said that the offerings that Ashok Leyland can make to the customer are many more. They increase multi-fold but definitely there will be certain sweet spots in the configurations. However, if tomorrow a customer comes up with a new application and new requirement, it can be configured very quickly, most of the configurations are being homologated, so the time to market would be significantly different on this platform.
  • According to him, the Medium and Heavy Commercial Vehicle (M&HCV) growth is linked to the economic growth of the country.
  • The decline in demand for M&HCVs has been up to 45%. From his point of view, this decline is a combination of the cyclicality as well as certain structural changes that happened. Thus, the CV (Commercial Vehicle) industry will have to wait and watch the axle load norms that brought in excess capacity overnight of almost 20-25%. This would take some more time to be absorbed by the industry.

Consensus Estimate: (Source: market screener website)

The closing price of Ashok Leyland Ltd. was ₹ 81/- as of 25-February-2020.  It traded at 43x/27x/17x the consensus earnings estimate of ₹ 2.0/ 3.2/ 5.0 for FY20E/ FY21E/ FY22E respectively.

“The worst is behind us” says Ashok Leyland Chairman.

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.2% lower. Bajaj Finance (+3.3%), Bharti Infratel (+3.3%) and Yes Bank (+3.2%) were the top NIFTY50 gainers. Zee (-3.7%), Indusind Bank (-2.3%) and Ultratech Cement (-2.2%) were the top NIFTY50 losers. Among the sectors, NIFTY FMCG (+0.3%) was the only sectoral index that closed positive. NIFTY MEDIA (-1.4%), NIFTY PHARMA (-1.1%), NIFTY METAL (-0.9%) were the worst-performing sectors.

 “The worst is behind us” says Ashok Leyland Chairman.

Excerpts from an interview with Mr. Dheeraj Hinduja, Chairman, Ashok Leyland broadcasted on CNBC on 5th November 2019.

  • Demand slowdown has been caused by multiple issues including issues faced by financing companies and the availability of liquidity in the market.
  • Last financial quarter is traditionally a strong quarter for Commercial Vehicle (CV) OEMs. 4QFY20 will be a strong quarter followed by a slow 1QFY21 due to the technology transition from BS-IV to BS-VI.
  • Management is looking forward to FY21. Historically, the year of transition is a strong year.
  • The transition from BS-IV directly to BS-VI in a 3 year period is one of the shortest transition times globally. Other countries have taken 7-10 years in which period the cost absorption has been done in a phased manner. There will be a significant cost-push on account of the transition.
  • Even post the cost-push due to BS-VI, management says Ashok Leyland will be cost-competitive as ever. The customers will see real value in products launched.
  • Looking forward, there are some good signs such as many initiatives that the government is taking and the revival of financing. Most of the OEMs have now corrected the state of their inventories that had built up. The next few months look to be quite positive.
  • The market is not going to recover overnight, but the worst is behind for Ashok Leyland.
  •  It’s been a year since the previous CEO, Mr. Vinod Dasari quit.  Search for the CEO is on. FY20 is a year of important changes with respect to BS-VI, their new modular platform and the introduction of a whole line up of LCV products. The Board had taken a decision that they did not want a major disruption in the Management at this important juncture.  But a new CEO is required and the Board will be announcing a successor in the next few months.