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Targeting market share gains in MHCV/LCV and margin expansion

At its 2023 Investor Meet, Ashok Leyland (AL) highlighted its aspiration to grow profitably in domestic M&HCV, expand non-M&HCV revenue at a faster pace, and the inflection point for Switch Mobility (EVs) as it prepares to launch six platforms over the next two years. The management expects the ongoing uptrend in M&CHV to continue, with AL focusing on increasing its market share by 3pp to 35%. It aims to expand its play in LCV to increase its market share substantially. It has guided for double-digit EBITDA margin in FY24 and midteens EBITDA margin in the medium term.

Outlook: M&HCV/LCV industry volumes to grow over 10%/5% in FY24

* AL expects FY24 industry volumes to grow over ~10% for M&HCV and 5% for LCV. While 1QFY24 is weak due to pre-buying ahead of BS-6 Phase-2 norms, AL expects a strong recovery in volumes from Jul’23. This is based on strong feedback from its customers, who have a good order pipeline. AL expects the ongoing healthy CV cycle to extend, considering favorable underlying macros and a positive outlook for the key end industries.

* The average age of M&HCVs has increased to 10 years (normal average of 7.5-8 years), which should augur well for replacement demand. AL is starting to see some recovery in replacement demand.

* In the total M&HCV population of 5.2m units, over 1.1m vehicles are more than 15 years old. While currently there are no major benefits of voluntary scrappage policy (w.e.f Apr’23), strict enforcement by the government would be key for the success of this policy. Moreover, infrastructure for scrapping is currently poor and needs to be developed to support large-scale scrapping.

M&HCV: targeting market share of 35%

* AL aims to increase its market share in the domestic M&HCV segment to 35% (vs. 32% in FY23) by a) gaining market share in weak markets like North (25% now) and East (24% now), and b) increasing share in ICV trucks to 35% from 25% and ICV buses to 30% from 15%.

* To strengthen its presence in North and East, AL will continue to expand its network in these regions as well as in key mining pockets. It added 79 outlets in FY23 (to 803) and plans to add 66 outlets in FY24, predominantly in North and East India.

* Similarly, it would be plugging gaps in its product portfolio with more product launches in FY24. It launched 23 products in FY23.

* Lastly, a strong recovery in buses and demand improvement in long-haul trucks augur well for AL as it has a strong presence in these segments.

LCVs: focusing on becoming a full-range player

* AL targets to increase its market share in the LCV segment by a) launching products in the <2-ton segment (not present) and 3.5-7.5-ton segment (5% market share), and b) increasing the market share in 2-3.5-ton segment to 25% from 20%.

* Its market share growth in the 2-3.5-ton segment would be driven by ramping up in North and East (6% share). It plans to launch many variants for these regions, along with the expansion of its distribution network by 83/80 in FY24/FY25 to 270/350.

* Currently, AL’s portfolio covers only ~50% of the industry and it plans to expand coverage to over 60% in FY25 through product launches. The launch of a <2-ton product will help AL expand its coverage to over 80% after FY25.

* It will also launch an e-LCV in 2HFY24.

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