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Business News/ Markets / Mark To Market/  It's a steep climb for Ashok Leyland

It's a steep climb for Ashok Leyland

The management expects better margins in Q4 with likely fall in commodity prices and the easing of chip shortages

Ashok Leyland Ltd’s December quarter (Q3FY22) results could not shield the stock, which fell about 7% on NSE.  (Photo: Pradeep Gaur/Mint)Premium
Ashok Leyland Ltd’s December quarter (Q3FY22) results could not shield the stock, which fell about 7% on NSE.  (Photo: Pradeep Gaur/Mint)

The benchmark Nifty50 index fell as much as 3% on Monday as geopolitical tensions intensified. Against this backdrop, Ashok Leyland Ltd’s December quarter (Q3FY22) results could not shield the stock, which fell about 7% on NSE.

As such, Ashok Leyland’s results weren’t very exciting. Rising commodity costs meant gross profit per vehicle in Q3 fell about 5% sequentially and 3% year-on-year (y-o-y). Earnings before interest, taxes, depreciation, and amortization (Ebitda) declined 12% y-o-y to 224 crore.

Difficult journey
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Difficult journey

Even so, there were some bright spots in the results. Growth in domestic sales of medium and heavy commercial vehicles (MHCV) in Q3 was strong at 39%. In comparison, total industry volume growth stood at 20%. Consequently, Ashok Leyland’s MHCV market share rose sequentially from 22.5% in Q2 to 26.1% in Q3, and further to 28.8% in January, the management said.

In Q3, revenues grew 15% y-o-y to 5,535 crore on the back of a 2% growth in sales volumes and 13% increase in net realization per vehicle. The management said transition from Bharat Stage IV (BS4) to BS6 involved higher technology. Besides, higher commodity costs and other constraints led to higher product pricing.

“The company is retaining price hikes more efficiently which will result in superior margins down the line," an analyst said on the condition of anonymity. As such, the management expects better margins in Q4FY22 owing to a potential fall in commodity prices and easing semiconductor chip shortage issues.

Meanwhile, Ashok Leyland’s EV unit, Switch UK, continues to grow. “It plans to launch CNG vehicles in Q4FY22, which will plug gaps in the fast-growing CNG ICV segment" analysts at Motilal Oswal Financial Services said in a report. ICV is intermediate commercial vehicle.

In the past year, the stock fell by 3% compared to a gain of 2% in Nifty Auto. “The key triggers for the stock include revival in demand and gaining 30% market share. Any decline on that front could be a key risk," said the analyst cited above. The management is hopeful of achieving 30% market share in the coming months as the economy opens up. There will be healthy truck demand with robust growth in e-commerce, pent-up replacement demand, and increased capital outlay in the recently announced budget.

To be sure, railways could emerge as a tough competitor for freight movement as it expands capacity and becomes more efficient.

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Vineetha Sampath
Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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Updated: 15 Feb 2022, 01:29 AM IST
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