NEW DELHI: Ashok Leyland Ltd, the country’s second largest commercial vehicle manufacturer, might witness severe contraction in sales of medium and heavy commercial vehicles in the first half of the current fiscal year due to the covid -19 induced economic slowdown. The company, though, is expected to report low single-digit increase in sales from the second half of the fiscal. Expansion of portfolio in the light commercial vehicle segment might help in volume recovery, said analysts.
In FY20, the Chennai-based manufacturer reported a 37% year-on-year decline in domestic commercial vehicle sales to 116,333 units, while wholesales of heavy and medium trucks and buses fell 46% to 71421 units.
Sales of heavy and medium commercial vehicles declined due to the change in the truck axle load norms and prevailing economic downturn in the aftermath of the IL&FS crisis. Overall, sales of heavy commercial vehicles declined by 28.7% to 717688 units during the last fiscal year, according to data released by Society of Indian Automobiles Manufacturers.
“We expect commercial vehicle demand to remain under pressure in first half of FY21. However, on a low base of FY20, we estimate domestic M&HCV volumes to grow at a CAGR of 4% over FY20–23E; although, FY22 estimates volumes would still be 38% lower than the peak of FY19," said Jinesh Gandhi and Vipul Agrawal of Motilal Oswal Financial Services on 26 June.
“Ashok Leyland is focused on expanding and creating new revenue and profit pools. The de-risking of the M&HCV business, coupled with expansion in the nascent business – such as spares (9% of FY20 sales), exports (9% of sales), light commercial vehicle (12% of sales), and defense (1% of sales) – is the key focus area," the analysts added.
In the March quarter, Ashok Leyland reported a loss of ₹57 crore as result of 57% year-on-year decline in net sales to ₹3838 crore. The company reported a net profit of ₹653 crore in the corresponding quarter a year ago.
“We believe FY21E is likely to witness another volume decline (25%-30%) albeit smaller vis-à-vis FY20 (42%). We cut our FY22 estimates by 49% while factoring in higher cost structures and delayed recovery," said Nishant Vyas and Pratit Vajani, analysts, ICICI Securities.
“We believe M&HCVs could witness steep volume drop in H1FY21, yet we remain sanguine on AL due to the cyclical nature of M&HCVs which leads us to believe that a volume rebound is likely in second half as excess fleet capacity concerns moderate post >65% volume drop (FY19-21E), focus on fixed costs reduction in FY21 to aid earnings and reduced capex intensity to aid free cash flow generation (Rs7bn in FY22E)" added the analysts.