Fundamental Analysis of Ashok Leyland
Sector: Automobile - Trucks/LCVs
Listed on: BSE and NSE
CMP: 172.65Rs/piece at 15:30

Ashok Leyland at Glance

Ashok Leyland is the flagship of the Hinduja Group, headquartered in Chennai and founded by Raghunandan Saran in 1948. The company manufactures medium and heavy commercial vehicles, including buses, trucks for various applications, and light vehicles, and develops and manufactures specialized defence vehicles for the armed forces. It also offers complete power solutions by supplying engines for applications apart from vehicles, such as engines for running generator sets, marine applications, powering earth-moving equipment, compressors, cranes, and harvesters combined under the 'Leypower' brand.

On 7^th August 2023, Commercial Vehicle manufacturer Ashok Leland celebrated its 75^th anniversary. An exhibition was held at the Chennai Trade Centre to commemorate the occasion. Started in 1948 with a small factory at Ennore in North Chennai under the name Ashok Motors; 75 years later, the company is now the second-largest commercial vehicle in India.  Since its inspection, the company has been driven by some of the best brains in the global auto industry including R Seshasayee, V Sumantran, Vinod K Dasarai and Vipin Sondhi among others.

Global Market Statistics: According to reports, the global commercial vehicle market size was US$ 821.28 billion in 2021 and is projected to grow from US$ 955.57 billion in 2022 to US$ 1,712.44 billion in 2029, growing at a CAGR of 8.7% during the 2022-2029 forecast period.

Commercial Vehicle Market in India
 

The India Commercial Vehicles Market size is estimated at US$ 48.27 billion in 2024 and expects to reach US$ 62.95 billion by 2029, growing at a CAGR of 5.45% during the forecast period (2024-2029).
India is known for its diverse landscape and growing economy and has witnessed a significant rise in the demand for commercial vehicles in recent years. The transportation sector plays a vital role in driving the Indian economy, and the increase in demand for commercial vehicles is a testament to the country’s expanding business activities and infrastructure development. The key factors contributing to the rising demand in the Indian market are Infrastructure Development, E-commerce Boom, Industrial Growth, Government Policies, and Rural Development.

Commercial vehicles in India are segmented by the gross vehicle weight. There are two categories in this segment, light commercial vehicles and medium and heavy commercial vehicles. The former, has a gross vehicle weight of less than 7.5 metric tons, dominates the sector. More than half of the freight movement across the country is via road, thereby making commercial vehicles a vital pillar for freight movement. This segment is not limited to freight, but also for passenger transportation. State government, one of the largest users of passenger carrier commercial vehicles, provided public transportation across various cities.

Commercial Vehicle production in India from FY 2018-2023

 
Over one million commercial vehicles were produced in India in fiscal year 2023. This included commercially registered passenger and goods vehicles. In comparison to the preceding year, the production volume increased drastically. The decline in 2020 and 2021 was due to planned transition to BS-VI emission standards, excess freight capacity, revised axle load norms, and an overall slowdown of the economy were some of the reasons for this industry witnessing a sharp decline.
(Source: Statista 2024)

Financials of the Company

Key Metrics

Journey and Road Ahead of Ashok Leyland

Recent Developments of the Company

• Ashok Leyland bags order for 1225 buses from Karnataka State Transport Undertakings on January 18, 2024.
• Historic Performance by Ashok Leyland in CY2023. On 8^th January, 2024 the company announced another milestone by clocking its highest-ever sales volume in a calendar year in the history of the company during the year 2023. The company achieved a total commercial vehicle volume of 198,113 units, surpassing its previous record established in the year 2018.
•  The company wins order for 552 buses from Tamil Nadu State Transport Corporation on December 20, 2023.
   

Management Commentary

Mr. Shenu Agarwal, Managing Director & CEO, Ashok Leyland said, “We are thrilled to have achieved this milestone, and it’s a reflection of our dedication to providing top-quality products and exceptional service. We extend our gratitude to our loyal customers who have contributed to our ongoing growth and are thankful for the hard work and dedication of our team. Looking ahead, we are poised for even greater success as we continue to invest in cutting-edge technologies, sustainable operating practices, and customer-centric market initiatives to drive the next phase of growth for Ashok Leyland. The momentum generated in 2023 sets a solid foundation for a future where we will continue to lead the way in the commercial vehicle industry.”

Financial Performance from Concall Notes of November 2023

• The first half of the year has seen historic highs in terms of revenues, EBITDA, and profits.
• Q2 performance has been strong, with Medium and Heavy Commercial Vehicle volumes growing in line with the industry growth and market share stability.
• Total Industry Volume for buses has grown by 46% in the quarter, and bus market share has improved.
• Q2 Light Commercial Vehicle volumes are at the same level as last year, but overall volumes have grown up by 1% in H1.
• Aftermarket Sales and Power Solutions business have also shown growth.
• Truck Volumes for Total Industry Volume have grown by 15%

Technological Front: We Are Future Ready

• The company has pioneered technological innovations in the bus and truck segment. It is fully equipped with a range of buses powered by alternate fuels aimed at pollution reduction and promotion of eco-friendly transport system in India. The company has developed a range of mobility solutions to meet the future transportation needs of the ‘Envisaged Smart Cities’.
   
• Ashok Leyland has consistently stayed at the forefront with innovations. In the past, when emission norm were upgraded, it was the first to come up with indigenous and innovative technology that not only addressed the requirements, but also catered to the needs of customers.  

Future Outlook

• The company expects a strong outlook for buses in H2, with a significant improvement in volumes compared to H1.
• The listing of Hinduja Leyland Finance is expected to happen in Q4.
• Regulatory changes in the industry are expected but are seen as positive for raising standards and improving safety and comfort value.
• The Commercial Vehicle cycle is expected to continue into FY25 driven by economic growth and infrastructure spending.
• The government is likely to introduce a payment security mechanism for electric buses, which will benefit the business.
• Extraordinary bus demand in all categories has been strong, and the growth trajectory is expected to continue.
• The mining, infrastructure execution, and improving industrial outlook will drive demand for MHCV trucks.
• The company expects 8-10% industry growth in the MHCV segment for the full year.
• The LCV industry has seen a 3% growth in H1, but the situation is expected to improve going forward.
• The company has a strong belief in medium and long-term prospects of the LCV market, driven by growth in agriculture, consumer durables, dairy, and e-commerce.

Capex Plans

• The company celebrated its 75^th Anniversary and launched Swift Electric LCVs and hydrogen fuel cell buses.
• The company expects a strong outlook for buses in H2, with a significant improvement in volumes compared to H1.
• Defence Business has a strong order pipeline, and the company expects to achieve historic highs in revenue.

Aiding Prices

• The company’s new offerings like ‘Avatar’ and ‘Bada Dost’ contributed to enhanced pricing. Further, efforts are made to reduce costs, and the aim is to maintain double digit margins throughout FY24.
• Company would be able to hike price if necessary, given the positive reception of its products, especially the ‘third range’ and ‘Bada Dost’.

Market Share

• The focus of the management is to increase the market share. The target is to reach 35% market share in the truck segment in the medium-term, compared to 31.7%

Peer Comparison

Source:Screener
Please note that the above list is for education purposes and not a recommendation. Do your research before investing.

Conclusion

Factors such as rising commodity prices, fuel efficiency, BSVI regulations, affordability issues for customers, economic downturns, and pandemic should be considered before any kind of investment. The company shares crash 75% within two years during Covid-19 pandemic. However, the management is aiming to be among the top 10 global commercial vehicle manufacturers in the near future. With the new products and new technologies, the company looks forward to expand global footprint in aggressive manner.

Source: Screener, Moneycontrol, Ashok Leyland.com, Business Standard, Forbes, Trendlyne

Prepared by Manali S
30/01/2024

Ahmedabad

Disclaimer: Do not practice investment recommendations or strategies based on the above study. The information is compiled for study purposes; to give an insight into one of the companies from many. The report is made with due care and information is sourced from the liable websites and mediums.