Ashok Leyland reported Q1 earnings. Revenue beats estimate while margins were a miss. In an interview to CNBC-TV18, Gopal Mahadevan, CFO of the company spoke about the results and gave his outlook for the company.
Below is the verbatim transcript of the interview:
Sumaira: Could you give us an outlook on employees and other expenses in FY18?
A: One of the prime reasons for the reduction in margins was - one, the reduction in volumes and second, in Q1 of last year we had a very rich mix. We had some of the African exports getting done in Q1 last year which had high contribution which was not present in the current quarter. So we had a lot more of South Asian Association for Regional Cooperation (SAARC) export that happened and our export volume has grown by 56 percent. So mix had been an issue and third, with respect to HR manpower cost, our salary raise happen on July 1, so Q1 of current year has the full year impact of last year's raises. The Q1 of last year did not have the raises built-in whereas Q1 of current year has it. So you have seen a slight jump in employee cost and when you see it as a percentage of revenues, it appears high because our revenues are low when compared to last year. I think this situation will set itself right over the next three quarters. Also till March we have delivered nine continuous sequential quarters of double digit EBITDA, so we possibly will do that as we move forward but we will have to wait and watch.
Prashant: For FY18 could you talk about what is your view on market share that you have in mind at Ashok Leyland?
A: We have plans to ensure that we gain greater insight into the customer share of business and certainly we are not going to buy market share. We are not going to discount and get the market shares. We are offering complete solutions to customers which include technology, which include network, which include service, which includes other attendant facilities. We have invested quite a bit in technology as well where we can reach the customer and be closer with the customer. So what we look at is a total experience that a customer gets including the total cost of ownership. Five years back our network was about 315 numbers. Today we are upwards of 2,500. So that speaks volume of effort that the company is putting in terms of being closer to the customer. Today we are truly a pan India company. If you were to look at our market shares, the market shares have grown in all zones.
Sumaira: Your June numbers were quite encouraging but in your concall you mentioned that July volumes will be muted because of the goods and services tax (GST) disruption. What is the outlook then for the medium to heavy commercial vehicles (M&HCV) demand?
A: As far as total industry volume is concerned, I believe that that will start picking up definitely in H2 because there is a lot of clarity that would have been achieved on GST itself. We are already seeing that interstate movement of trucks is a lot easier. I think a lot of the uncertainty that the industry has been facing over the last three quarters will also die off. If that were to happen then there is no reason why M&HCV volumes will not grow in the second half. And this is also going to be riding on the back of the government investments into the infrastructure space. So we are reasonably positive that the second half is going to augur well for the M&HCV industry and if that happens then our plan is to stay ahead.
Prashant: Could you give us an outlook for specific segment - mining tippers in FY18?
A: I think tipper demand would start increasing as we move forward especially in mining as you rightly mentioned. So when that happens we are going to have certain product offerings in place which will keep us extremely competitive in that space.
Prashant: Could you give us some details on how you see the geographical mix changing, if at all in FY18 and also talk a bit about the export opportunity?
A: In all the four zones we are upwards of 30 percent and overall we have been 34.7 percent. Typically in the south we are at about 50 percent thereabouts. As far as exports are concerned, on a full year basis, our export volumes are about 10 percent of our revenues which we aspire to grow to about 1/3rd in the next three-five years. This quarter we have seen a huge jump in exports which has been 56 percent growth but I would say on a full year basis we are between 10 percent and 15 percent as our share of export that we are aspiring for.
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