Ashok Leyland's Shenu Agarwal: Will direct investments more on alternative fuel vehicles

The latest Union budget announced major increments in capex programmes. How is it going to impact the CV sector and how will Ashok Leyland leverage it?

It was a fantastic budget because it touched upon every macroeconomic factor that drives the CV industry in India. We are really looking forward to a positive 2-3 years, at least, if not more, because of these policy-level announcements.

The only thing that needs to be seen is how efficiently the government executes these projects. Going by their past record, we think the execution would also be quite fast.

We will put a lot more emphasis on improving our profitability now onwards. While we will set our eyes on market share, we will pick segments or markets where profitability is better. We are going to drive both the things, going forward.

Talking about profitability, you had earned profits during the recent quarter of this financial year. Are you confident of sustaining it? What will be the scenario next financial year?

We have continuously improved quarter on quarter (QoQ) in the current fiscal year on our profitability. In the first quarter, we were between four and five percent (EBITDA margins). Right now, in quarter three, we will be between eight and nine (EBIDTA margins). We would definitely like to continue that momentum.

On the one hand, the focus would be on neutralising the inflation impact we have had in the last couple of years through price increases. On the other hand, we are sharply focused on improving our mix as well as cost management. We would like to grow profitably and we are not going to run after market share. We will improve on market share and also profitability.

Your overall market share, while higher than the 11 percent of FY21, is still only around 16 percent. You must surely want to take this higher. What is your plan?

We normally don't look at overall market share, because the segments of M&HCV (medium & heavy commercial vehicle) and LCV (light commercial vehicle) are very different and even customers are different.

The product is, of course, different. So, let me just talk about the two independently, rather than talking about the overall market share. On the M&HCV side, last fiscal year, our market share was between 25 percent and 26 percent. We have already increased it to roughly between 30 percent and 31 percent, which is a very significant jump in market share in a short period of time.

Now, on the LCV side, which is, like I said, a very different industry, we are only present in about 60 percent of the market.

Even in the market where we are present, we are relatively speaking, a newer player. There also, we have a significant market share of roughly about 20 percent. We have been growing here over the last few years.

What are your product rollout plans for the electric CV market and what kind of numbers are you looking at?

Our plan is to accelerate product development and launches and bring them to the market within 2023. Bada Dost will come first, and Dost (Electric version), later. On volumes, we are going to develop a market for these products. As you know, there are no products in the two and three and a half tonne-segments (in the EV space). Hopefully, we would be the first to bring them.

So, it is not a volume game, at least in the immediate term like in the first year or so. It is more of a game of bringing the products out, maturing technology, developing the market and ecosystem. Initially, we would like to work with only a handful of customers, maybe institutional ones or some fleet owners etc., to bring this product to the market. Volume will start coming after a year or so.

How much has Ashok Leyland invested during the last financial year and what are your plans for the next FY? What was the capex requirement for new products in the alternative fuel segment?

I think the capacities that Ashok Leyland has already created in the last few years are enough to sustain our growth for the next couple of years, if not more. Most of the capex would be dedicated towards product development only for the future. This includes the products you saw at Auto Expo, which is a complete range of medium and heavy-duty vehicles that run on hydrogen, etc.

As far as the quantum is concerned, we are expecting roughly Rs 600-750  crore capex during the current fiscal. The ballpark number for the next year would be in the same range, unless, you know, we decide to enter into a sub two-segment, which we are thinking very seriously about, right now.

Once we decide to enter that segment, the capex might go up slightly but the capex amount would roughly be in the same range next year as well.

Could you share some more details on the sub two-tonne model? Will it be taking on Tata Ace and what will be the powertrain options?

As I just said, we have been contemplating about this segment for quite some time. The competitive products (Tata Ace, Mahindra Supro, etc.) were launched several years back and it is a very developed and mature market. To enter there in today's time is not so easy. Therefore, we are thinking, ‘Is there any way to really disrupt this market?. We will go for it, only if we can find a smarter way to enter that market.

As far as the powertrain for this model is concerned, we are looking at all the options, whether it is petrol, diesel, CNG (Compressed Natural Gas) or electric. Of course, hydrogen is not very feasible at this point of time in the smaller (commercial) vehicle segment.

So, that would not be considered, but we would consider everything else. It will cover all the applications in the market. So, basically, this segment of the market focuses on last-mile delivery. The final decision will take a few more months.

Will it be safe to assume that a larger deployment of your investments will be towards alternative fuel? What will be the segments?

Yes, definitely! Most of our capex has been directed towards alternative fuels and that has been the approach in the past few years.  When I say our larger focus is on alternative fuels, I also want to emphasise that since diesel is going to be there for many years, we are investing significantly in new products on the diesel side as well.

The only advantage Ashok Leyland has over some other players is that, a few years ago, we had created a modular platform of trucks and we were the first one to do that. Therefore, a lot of work now onwards that we do on diesel or on alternative fuels will actually help both the green and the conventional platforms.

What is the status of the plans to raise $200-250 million funding for your EV subsidiary Switch Mobility. Will your e-LCVs be branded Switch too? Also, tell us about the battery development plans, especially for LCVs. 

Like we said earlier, in our investor call and later while addressing the media, we are very actively pursuing fundraising for Switch (Mobility). This is one of our largest priorities. Having said that, we would not do it unless we find a very good strategic fit with the partner.  So, it is not just a question of getting funds, it's a bigger question of getting a right partner who can help us develop this business of electric vehicles into a much bigger and more efficient business. As soon as we are through with this, we will surely let you know.

The other point was on the brand. It is very clear from day one what Switch will do and what Ashok Leyland will do. Everything that is a medium and heavy-duty truck, basically, or ICV truck, is going to be part of Ashok Leyland, whether it is electric, hydrogen or diesel or any other fuel.

Switch (Mobility) is not doing battery development as of now and that is something for us to consider a few years later. We have tied up with some partners outside Switch for the same. Right now, we want to focus on creating a great electric bus.

Lastly, how was the previous year for Ashok Leyland? What is your outlook for the sector in 2023?

As I said earlier, the outlook is extremely positive for FY24. We think you know the momentum that has been created in the industry in the last 4-6 quarters. It will continue to be there. The budget has been a big booster to actuate that momentum. Therefore, I think we will all be surprised the way the industry will behave and I think it will be beyond our expectations.