Ashok Leyland charts plans to get future ready

It's exciting times for Ashok Leyland, India’s second largest medium and heavy truck maker. Having scaled a new peak in FY23, the company has defined a long term road map that envisages all round growth in volumes, market share, product portfolio, technology without compromising on the bottom line.

In an investor meet held in June, the company spelled out its target of attaining 35 percent market share in the intermediate, medium and heavy commercial vehicles ranging from 11 tonnes to 55 tonnes. This will put the company on path to its eventual goals of breaking into the top 10 global commercial vehicle makers. Expanding footprint globally is also a core pillar in this endeavour to be a top global player.

This growth in market share has to be achieved with mid-teen EBIDTA margins, the company told investors. It will aim to have a tight control over discounts so that structural discipline is maintained across business cycles.

To expand its volumes further, the company also announced its intention to participate in the sub-2.0 tonne segment, thereby opening up the possibility of participating in the 35 percent of the total Indian commercial vehicle market.

Along with the product portfolio expansion, a range of new energy vehicles right from CNG, LNG, Hydrogen-ICE, Hydrogen Fuel Cell, EVs are on the drawing board to help the company stay competitive as the economy accelerates its shift towards lower carbon emission technologies.

At the investor presentation, Shenu Agarwal, Managing Director and Chief Executive Officer of Ashok Leyland, outlined six future objectives.

• The first goal is to be ready with next-generation products with alternative fuels and propulsion systems within 24 months and this will be supported by private equity funding for its EV arm Switch Mobility and Ohm.
• Second, grow the market share of medium and heavy commercial vehicles from 30 percent to 35 percent.
• Third is to grow global operations and light commercial vehicle business to deliver an all-round growth for
• the company.
• Fourth is to drive expansion in the non-commercial vehicle business, including the aftermarket, defence, and power solutions to ride over cyclicality of the commercial vehicle business.
• Fifth, aim for better returns, such as an EBITDA of double digits in the short term and mid-teens in the medium term, while maintaining cost leadership.
• And lastly, come up with a goal of "net zero" and keep a high level of governance.

Even though these targets look ambitious, Ashok Leyland claims to be well-positioned to achieve them. Launch of a slew of new products, expansion of dealership footprint and introducing innovative technologies, among others are the key strategies.

The company says, the fast growing Indian commercial vehicle market is providing Ashok Leyland with a favourable environment to accelerate this growth.

Addressing investors, Agarwal pointed out that the growing GDP, increasing capital expenditure by the government on infrastructure, and steady increase in budgetary outlay by the Ministry of Road Transport and Highways offer a strong tailwind to the commercial vehicle market. He also believes that the plan to reduce logistic costs from 14 percent to 10 percent of GDP will also help the industry.

Furthermore, the company is of the opinion that the truck market will grow four times in India by 2050. The LCV market, too, is expected to grow three and a half times to 1.35 million by 2042, with the 2-3.5-tonne segment expanding its dominance.

India's small commercial vehicle space, including pick-up trucks, is sub-segmented into three major segments. A sub-one tonne market, which is dominated by Tata Ace, there is 1-2 tonne segment which has offerings from Mahindra pick up trucks and Tata Intra and the 2-3.5 tonne segment where Ashok Leyland has its own Dost.

The company wants to get into the sub-2.0 tonne segment, where it is so far absent and in the 2.0-5.0 tonne segment, it has set a target of 25 percent market share.

At the end of FY23, Ashok Leyland catered to only 50 percent of the addressable light commercial vehicle market which will increase to 60 percent by the end of FY25 and further increase to 80 percent post-2025.

The 5.5 lakh unit light commercial vehicle market is sub-segmented into three segments, namely the 0-2.0 tonne segment, which accounts for 35 percent of the LCV segment. The 2.0-3.5 tonne segment, which is 59 percent of the LCV segment commands annual volumes of 3.28 lakh units, and the 3.5-7.5 tonne segment, which is six percent of the LCV market, accounted for 34,000 units of sales in FY23.

Strong run-up towards goal
The optimistic commentary is delivered after a record performance by the company in FY23. The company posted a revenue growth of 67 percent year-on-year to Rs 36,144 crore, while EBITDA grew three times to Rs 2,931 crore, and operating profit shot up 119 times to Rs 2,026 crore. The highest-ever material cost savings at the company supported the strong margin. At the end of the year, the company had zero debt on its books and was sitting on a healthy Rs 273 crore cash surplus.

Reviewing FY23’s financial performance, Agarwal said, “It has been a truly wholesome performance. We have been able to achieve growth in market share, across geographies and across product segments, along with significant improvement in our profitability. While we shall continue to pursue better realisations even as we expand market share. Our resolute focus shall remain on bringing deeper efficiency and cost improvement."

Ashok Leyland's market share for medium and heavy commercial vehicles has grown by 1,000 basis points, or 10 percentage points, over the last six quarters, to 32 percent. At the end of the last financial year, the EBIDTA margin (earnings before interest, depreciation, taxes, and amortisation) was 11 percent. Furthermore, the company has defied industry trends by posting its highest-ever annual volumes at 67,000 units, despite strong competition in the light commercial vehicle space. Ashok Leyland also managed to grow its overseas volumes by 2 percent, while the overall commercial vehicle exports for the industry dropped by over 30 percent due to the global recessionary trend. The company's power solution business also performed well, posting a 9 percent growth in volume with revenues rising by 26 percent. The demand for renewable energy sources and electric vehicles was what drove this, the company added.

'New energy portfolio' in next two years
While, Ashok Leyland's growth in conventional fuel continues, it is gearing up to complete its new energy portfolio within the next couple of years. The company plans to offer a range of vehicles powered by clean fuels, including CNG, LNG, hydrogen ICE, hydrogen-powered fuel cell electric vehicles, and six battery electric vehicles.

The company claims to have been investing heavily in research and development (R&D) for new energy technologies for the past eight years. It has already made prototypes for vehicles that run on compressed natural gas (CNG), liquefied natural gas (LNG), hydrogen, and batteries.

Ashok Leyland management indicated that it is developing new energy vehicles for its M&HCV (medium and heavy commercial vehicles) and long-haul trucks. CNG (compressed natural gas), LNG (liquefied natural gas), H2-ICE (hydrogen internal combustion engine), and H2FC (hydrogen fuel cell) will all power these vehicles. For its ICV (intermediate commercial vehicles) trucks, which include the E-Comet and Boss, Ashok Leyland is focusing on developing H2-ICE and BEVs.

Likewise, for its  LCV (light commercial vehicles)  segment, which includes models such as Dost, Bada Dost, and Partner, Ashok Leyland is developing CNG (compressed natural gas) and BEV (battery electric vehicle)-run vehicles. In the MCV bus segment, the company will be introducing LNG (liquefied natural gas), H2-ICE (hydrogen internal combustion engine), and H2FC (hydrogen fuel cell) buses. The CNG and BEV models are already available, and the company is likely to bring out CNG, LNG, H2-ICE, and H2FC long-haul coaches in the future.

In the ICV bus segment, Ashok Leyland is looking to bring out H2-ICE, H2FC, and BEV buses. The CNG version is already available, and the company is also planning to expand it to BEV for LCV passengers. Similarly, regarding  electric vehicle (EV) category, the company has planned  six new models. The new EVs include a 12.0-metre, 7.0-metre, 5.0-metre, and new 9.0-metre e-bus, as well as two e-LCVs.

The Hinduja Group's flagship company's announcement comes even as it had, during the Auto Expo 2023 held in Delhi earlier this year, unveiled a slew of products, including a battery electric vehicle, a fuel cell electric vehicle, a hydrogen internal combustion engine (ICE), an LNG vehicle, an intercity CNG bus, and a mini passenger bus. FCEV, H2-ICE, and LNG are built on the AVTR Modular Vehicle Platform and incorporate the majority of the sub-aggregates from successfully running current diesel vehicles. In an earlier interaction with Autocar Professional, Dr N Saravanan, President and Chief Technology Officer, Ashok Leyland, suggested that hydrogen-internal combustion engine (ICE) vehicles, which appear to be low-hanging fruit for Indian OEMs, should be included in the production-linked incentive (PLI) scheme for the automobile industry. The automotive industry has already made a representation to the government in this regard. Speaking to this publication, Saravanan said, "We believe hydrogen-ICE is a viable technology for India, given that the entire ecosystem (for ICE) remains in place. At the most basic level, it is a proven technology."

Expanding global business
With the domestic expansion plans well on track, Ashok Leyland also wants to double its international business by progressively entering more sophisticated markets with a new range of products. With the expansion of its product range, the company can participate in 2.5 lakh units of addressable markets in SAARC, Africa, the GCC, ASEAN, the CIS, and the North African market. In the last couple of years, Ashok Leyland has added 10 more countries in West Africa and Southern Africa, offering its trucks and buses in 38 countries. The country wants to expand to 50 countries in the next few years, thereby doubling its addressable market. The company has nine international assembly locations — Morocco, Ghana, Kenya, Senegal, Nigeria, UAE, Ukraine, Sri Lanka, Bangladesh to offer competitive products with low import duty.

Growing non-CV businesses
To tide over the cyclicality of the commercial vehicle market, Ashok Leyland has been steadily building its non-commercial vehicle business by strategically participating in the defence mobility space, growing the aftermarket business and the power solution business.

Agarwal, in his presentation, stated that the company has built capability on the defence front and that there is significant top-line growth potential in the aftermarket business, which has doubled in the last five years to Rs 2,000 crore.  This could potentially double again in the future, as it will push the asset management business.

Electric truck terminals for port operations
In 2022, Ashok Leyland and Aidrivers, a specialist in AI-enabled autonomous solutions across industrial mobility, announced a partnership to produce autonomous electric terminal trucks to address the net-zero emissions needs of the port industry. The product will be based on an Ashok Leyland platform and equipped with Aidrivers’ autonomous eco-system. The inaugural fleet of vehicles is expected to be ready for ‘real time’ port terminal operations in 2024.

Ashok Leyland wants to get a bigger share of the market and do better in areas where it hasn't done as well so far. In the future, the company wants to get deeper into the markets of North India, increase its share in the central and western parts of India, and protect its 43 percent share in South India.