Ladies and gentlemen, good day and welcome to the Ashok Leyland Limited Q2 FY26 earnings conference call hosted by BNP Paribas Securities India Private Limited. As a reminder, all the participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar Rakesh. Over to you, sir.
Thank you, Angelique, and apologies for the elite card . Good evening, everyone. On behalf of BNP Paribas Securities India, it is my pleasure to welcome all of you to the conference call to discuss the second quarter results of financial year 2026 of Ashok Leyland. To discuss the results, we are joined today by Mr. Shenu Agarwal, MD and CEO, Mr. K M Balaji, President and CFO, and the investor relations team. I will now hand over the call to Mr. Shenu Agarwal for his opening remarks. Mr. Agarwal, over to you.
Thank you for joining in and for your trust in Ashok Leyland, as always. Q2 proved to be an eventful quarter for us. MHCV trucks smoothly transitioned to the, signifying growing acceptance towards safety and comfort in the Indian trucking industry. GST 2.0 added cheer to the festive season on two accounts. Rate rationalization from 28% to 18% brought down the cost of owning new trucks and buses, while GST rate reduction in several other categories of goods is expected to increase the overall freight demand. In the second quarter, Ashok Leyland also took a milestone decision to foray into the battery manufacturing business, giving shape to its long-term strategic plans. The domestic MHCV industry grew 4% in Q2. The LCV industry offtake in the 2 to 4-ton category grew by 13%. We believe these are signs of better times for the CV industry.
The industry momentum has further built up in October, with MHCV and LCV 2-4 ton industry growing YOY by 7% and 15%, respectively. Ashok Leyland's domestic MHCV truck volume for Q2 was at 21,647 units, and MHCV bus volume at 4,660 units. In H1, Ashok Leyland's domestic MHCV market share was at 31%, with a gain of 50 basis points over H1 of last year. This is without defense and EVs. The LCV domestic volume for Q2 was at 17,697 units, higher by 6.4% on YOY basis. LCV market share at the end of H1 stood at 13.2%, higher by 0.9% on YOY basis. Our exports volume for Q2 at 4,784 units was higher by 45% YOY. For H1 FY26, export volume was higher by 38%.
It was Saathisfying to see growth across all our home markets outside India, with GCC, Africa, and SAARC corroborating Ashok Leyland's approach of developing strong local presence and building products suiting the local requirements. Our non-CV businesses also grew as per plan. The aftermarket revenues for Q2 were higher by 11% YOY. Revenue from power solutions business was higher by 14% YOY. Revenue from defense business was higher by 25% YOY. Defense order book and tender win pipeline remains quite strong. Material cost as a percentage of revenue for Q2 was at 71.2%, at the same level as the same quarter last year. This was a major achievement given the tariff volatilities and adoption of ACs in MHCV trucks. Our cost savings effort continues with the same rigor, while we are also pushing for better price realizations.
Coming to financials, the revenue for Q2 was at INR 9,588 crore, higher by 9.3% on YOY basis. EBITDA was at a Q2 record level at INR 1,162 crore, higher by 14.2% YOY. Q2 PBT was also at record levels at INR 1,043 crore. PAT for Q2 was at INR 771 crore. EBITDA margin for the quarter was at 12.1%, higher by 50 basis points against Q2 of last year. Capex for the quarter was INR 417 crore and cumulatively INR 658 crore for H1. There were no investments in subsidiaries in the first half of the year. Our cash position net of debt continues to be positive at the end of Q2 at roughly INR 1,000 crore, reflecting a positive swing of roughly INR 1,500 crore on YOY basis. We have been able to keep our operating capital very lean and have brought it down by almost 50% on YOY basis.
Due to continued improvement in the company's fiscal performance and better outlook for the ongoing years, the board of Ashok Leyland has recommended an interim dividend of INR 1 per share. Our product development pipeline is stronger than ever. Our non-diesel portfolio is continuously expanding, with two models of light electric trucks, three models of MHCV electric trucks, and several models and variants of electric buses already available commercially. We have also forayed into other greener technologies such as CNG, LNG, and even hydrogen. Within the diesel range, we are preparing to soon launch a completely new range of heavy-duty trucks with power ratings of 320 and 360 horsepower. These new trucks are built with next-level of heavy-duty aggregates, delivering unmatched reliability.
These products would be fitted with our most modern six-cylinder engines, delivering highest peak torque in the respective segments, enabling our customers' best-in-class turnaround time and therefore more earnings per month. We are also working on improving the throughput of our R&D resources, which will help us reduce the time to market and respond quickly to the changing market and regulatory requirements. We are continuously augmenting our fully built bus capacity to cater to the growing demand of fully built buses. Our newest and most modern bus plant at Lucknow shall be inaugurated soon. After complete ramp-up of our AP and Lucknow plants, we shall reach bus body building capacity of 20,000 numbers plus per year from that of roughly 12,000 numbers at present. We also continue to expand our domestic network.
We added 27 MHCV points and 26 LCV touch points during the quarter, with most of the additions happening in the Northeast and the Central areas. With these additions, total touch points are about to touch the milestone number of 2,000, that is 1,100 for MHCV and 876 for LCV. Internationally as well, we are expanding our network in all our four home markets with SAARC, Africa, GCC, and ASEAN. Coming to our subsidiaries, Switch India continues to do well. For H1 FY26, Switch India sold close to 600 buses and 600 ELCVs. I am very happy to share that for H1, Switch India was both EBITDA as well as PAT positive. Order book for the buses at the end of H1 FY26 stood at 1,650 units. Switch India is progressing well on its target of becoming free cash flow positive by FY27.
OHM, our EMAS subsidiary, is now operating more than 1,100 electric buses with fleet availability of 98% plus. During the quarter, OHM added more than 250 buses to the operating fleet and is progressing well on its target of operating 2,500 plus buses within the next 12 months. All the GCC projects under execution are at healthy double-digit IRR. OHM is working diligently on the 10,000 plus BM eDrive tender to further add to the growing fleet. Coming to our financing subsidiary, Hinduja Leyland Finance, standalone AUM was at INR 52,635 crore, higher by 26% on YOY basis, and Hinduja Housing Finance AUM was at INR 14,903 crore, higher 20% YOY. Total PAT for the finance subsidiaries for Q2 was at INR 196 crore, and the book value at the end of the quarter was at INR 7,418 crore. On a consolidated basis, the NNPA was at a healthy 1.59%.
Like we advised earlier, HLF has received the final clearance from RBI to initiate a merger process with Next Digital, paving the way for its listing. The listing process is progressing as per plan. We remain steadfastly focused on our ESG commitments. We have now signed four franchisee partners for AL Harith, our platform for RVSFs, or Registered Vehicle Scrapping Facilities. In our commitment towards RE 100, we have progressed really well. We have achieved 84% RE status against 69% at the end of FY25, with our Tamil Nadu plants operating now close to 98% RE. Our road to school and road to livelihood programs also continue to grow, extending their reach to about 570,000 students now. In summary, we believe we have had a reasonably good Q2 and H1, hopefully meeting or surpassing your expectations.
Incidentally, in this quarter, our share price also touched its ever-highest mark in the third week of September. We will continue to make our best efforts to progress on our strategic goal of delivering profitable growth and reach mid-teen EBITDA in the midterm. For the second half of the current fiscal, we remain optimistic about the growth prospects of the CV industry for both MHCV and LCV segments. The LCV segment has already picked up on the back of GST rate cuts. We believe the MHCV industry would also remain bio-intense too, led by growth in broad-based consumption and increase in infrastructure activity. On the back of these and basing our upcoming new and differentiated product launches across different segments, we remain confident of posting decent volumes and margin uptrend for Ashok Leyland in the second half of the year.
Thank you once again for your continued trust in Ashok Leyland. I now hand it over to the moderator for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Kapil Singh from Nomura. Please go ahead.
Yeah, good evening, sir, and congratulations on a very good performance. My first question is just on your full-year outlook for MHCVs and LCVs. What kind of growth are you expecting for the full year or second half?
If you can give a range, that would be helpful. At the time of GST cut, there were certain concerns that input credit may not be available to fleet operators who were organized. Is there a change in demand pattern you are observing between retail and fleet? If you could give some color over there as well.
Yeah, thank you, Kapil, for the question. You know, I mean, you and I both have looked at the uptick in the demand that has happened after GST 2.0 implementation. I would say it is very, very optimistic. September itself was good, but October kind of, we think, painted the indication for the future as well. The MHCV industry grew by about 7% in October, and LCV was 15%. This was in the lines of our expectation also. We did believe that LCV will grow more than MHCV.
We remain optimistic about H2. We definitely, I think we should wait for another month or so to really figure out how the whole year will pan out. We will say H2 will be much better than H1 in terms of absolute industry volume and also in terms of the growth rates that we have seen. On the GST side, Kapil, it is true that there was some kind of apprehension in the organized large fleet operators. That is, I think, a smaller part of the whole dynamics. I think there are three ways to look at it. One is that the price itself, the price of the trucks is going down by 10%, has gotten down by 10%. This will really help everyone to have a better TCO out of the truck.
The second is this GST 2.0 is, of course, across various categories of goods and has really resulted in a consumption boost. There is no reason that this consumption boost should not long for a longer time. Therefore, this should result in higher freight demand. To me personally, higher freight demand is a bigger factor than the price cut or the GST cut for the truck itself, because when there is demand, people would be coming out to replace their older fleets or buying new trucks. Therefore, that is really seen in the sentiment on the ground that people are now seriously considering replacing their older fleets because of the 10% reduction in the price and also the boost in the demand. I mean, the issue of the input credit, of course, is there. We cannot deny it, right?
I think if the freight demand overall continues to be better and if there is a price cut which is there already, 10%, I think those two factors would be larger than the input tax factor.
Sure, sir. Thanks. What would be the average age of the trucks? That also, if you could articulate. The second question was on the drivers for margin expansion from here on. If you could just talk about whether we should expect, will it be more gross margin-led or operating leverage-led? How to think about discounting? That would be the second question.
On the margin side, I would say that, I mean, we continue, Kapil, with all the initiatives which we have been doing earlier on the price recovery side as well as on the material cost, the commodity cost movement, as well as on all the cost reduction, the material cost reduction initiatives. All this will continue, and you can expect them to continue as they were continuing in the past. You can expect the same kind of savings to come in. One more important thing which you should look at will be the growth which is there in the non-truck segment. The revenue growth has been quite good. You would have seen the growth on the export side has been quite phenomenal. We have registered 45% growth for the Q2 and about 30% for the first half of the current financial year.
Similarly, the spare parts continue to grow for the third consecutive year after 25%+ growth in the last two financial years each year. Similarly, the defense, we have a very good scope for the improvement. The power solution business has also grown by about more than 12%. All these are actually auguring well for us. The overall revenue mix is good, and we hope that this continues. We also see that the truck demand is also, I mean, it is continuing. It is going up. From October, we see that there has been a good growth, as Shenu indicated. It is about 7% growth which has come. You can work out the math, Kapil. If we continue to get this 7% growth for the next five months, what would be the impact on the overall TIV as well as for Ashok Leyland?
You can do the math and see.
Sure, sir. Just the average age of the trucks, if you could give.
Average age of the fleets is around 10 years right now, between 9 and a half to 10 and a half years. Of course, that is one way to look at it. The other way to look at it is that there are a huge number of BS4, BS3 trucks still available in the fleets. The thing is that the BS6 trucks or the latest trucks are much more efficient. They have much better mileage. They have much better capability of power and torque, resulting in higher stat. It makes absolute sense for the customers to replace the older trucks, the BS2, BS3, BS4 trucks with the latest trucks.
We have all been wondering that while the age has exceeded almost 10 years, while it used to be seven and a half to eight years, why not this huge trend is coming, is seen in the industry that people are coming forward and replacing the trucks? Maybe that GST 2.0, as well as some other activities in H2, like infrastructure activities, better government CapEx, etc., may start opening up that demand. The sentiment is very positive on the ground. People are looking forward to these kinds of things. Let us just see how the rest of the year pans out.
Thank you, sir. Best wishes.
Thanks. Thanks, Kapil.
Thank you. The next question comes from the line of Gunjan Prithyani from Bank of America. Please go ahead. Yeah,
hi, team. Thanks for taking my questions. My first question is just clarifications on the prior questions.
Just you spoke about a lot of these non-truck revenues, right? Can you just give us a little bit of sense on how big they are as a percentage of revenues now, particularly looking at spares, defense, engine, exports, and separately LCV as well? A bit more color on the mix of the revenues, if you can share.
Yeah, now roughly 50% of the revenue comes from the non-truck businesses, with buses about 13%, light commercial vehicles about 12%, spares about 10%, and exports about 7%-8%.
Okay, got it. It's fair to assume that these are accretive to the margins in terms of mix?
Certainly. The margins from these businesses are higher than the truck margins, domestic truck margins.
Just to be clear, what was this percentage of revenue mix maybe, let's say, a year back? I mean, I'm just trying to understand the evolution.
How big has this become relative to last year or maybe over the last couple of years?
It was about 55%-58% about a couple of years ago. Now it has moved to 50%.
Like Gunjan, like Balaji said, these are margin accretive. Some of these businesses have much higher margins than what we earn on the trucks. Therefore, one thing I think which has happened with Ashok Leyland is that our break-even volume, we have been able to reduce drastically, right? I mean, break-even volume when considered in terms of the units we have to sell for MHCV trucks. It used to be about 6,000-7,000 units a month. Now it has dropped to, I would say, more or less closer to 1,000-1,200 units a month, right?
That's a big change that has happened within Ashok Leyland, obviously because of two or three different factors, because of the reduction in the fixed cost overall in line with the revenue, also promotion of these non-CV or non-heavy-duty truck businesses, etc. That puts us in a very, very good position. A lot of us worry about the cyclicity in the truck industry, especially the heavy-duty trucks. Now we have positioned the company in a way that even if there is a slight drop in the truck market, we should be quite fine with our profitability.
Got it.
Another question, Gunjan. FY 2022, the share of domestic truck business was 60%.
Okay. That's down to 50% now, right?
51% now.
Okay. My second question is on the LCV business. You did speak about a pretty significant change post-GST there.
Can you give us some color on what sort of growth are we looking at? There were a couple of product launches that we have been talking about. Also, can you cover a bit around the capacity? Do we have enough capacity to sort of ramp up volumes in this segment?
Yeah, Gunjan, as far as the capacity is concerned, our current capacity is close to 80,000 units on the light commercial vehicles. We have already laid out a plan to increase this capacity to 110,000-120,000 units without much of an investment, right? Mainly, these are process changes and some small investments here or there, but largely leading through process changes and efficiency changes. No more floor area expansion, no more new buildings, etc. Okay? I think in that way, we can achieve that in a matter of six to nine months.
That is also good. As soon as we think that we are getting closer to 80, we will trigger this expansion, and we will get 200 or 110, depending on what we are looking, what size of market and volumes we are looking at. Also, on the market side, I mean, it was expected that LCV will be the biggest gainer among all the segments of trucks and buses from this GST rationalization, largely because this is a market, this is a retail market with either single owner, operator, or smaller fleets, and they get directly benefited from this. They do not have even the issue of the input credits, etc. We are very hopeful that something like this should continue in the future as well.
This is largely a depiction of the boost in the consumption and therefore more demand for freight in the last mile. We are quite hopeful. As far as our volumes are concerned, we will definitely try to beat the market growth. Some of our products that we had launched recently, like Saathi, are doing really, really well. We think there is much more potential in those products, and we will be continuing to exploit that potential in the coming months.
Okay. Got it. I will join back with you. Thank you so much.
Thank you, Gunjan.
Thank you. The next question comes from the line of Chandra Mouli from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my questions. My first question is just around the post-GST trend of LCV potentially growing faster than MHCV.
Just want to understand what % of your LCV sales now is coming from the recently launched Saathi product. Also, in terms of pipeline, I think we have been working towards launching a sub-2-ton LCV. I just want to understand if you are able to share any color around potential timing of that launch, how you're looking at that.
Yeah, Chandra, thank you. Thank you for those questions. I mean, as far as Saathi is concerned, Saathi, like I said, is really doing well. Actually, it is doing beyond our expectations. We were hoping that it will reach 1,000 units a month within five or six months of launch, but it has crossed that number quite significantly. Our average LCV sales is roughly in the 2 to 4-ton categories, roughly 6,000 units. Already about 22%-25% sales is Saathi now, right?
Therefore, we are very hopeful that, yeah, I mean, another important point is that we were a little bit concerned that it may cannibalize some of those sales, which has not happened, right? I mean, cannibalization is there, but to a very, very low number, like a single-digit number or a low single-digit number. Basically, Saathi has been able to address a white space for us. That is what the data is telling us. I think we have very smartly positioned it, although we cannot call it theoretically a sub-2-ton product, but it is actually playing in that market. You know that a lot of sub-2-ton customers who had purchased their vehicles earlier, 5 years, 10 years ago, they are now looking to replace the vehicle. Since the market demand and other dynamics have changed, they want to upgrade that vehicle.
They want more loading capacity, loading space. They want better power and torque. They want more comfort, more safety, etc. That is what Saathi offers. That is how Saathi is positioned, to take care of not the entry-level sub-2-ton customers, but the customers who are replacing their vehicles now, providing them a very good spot at the premium end of the sub-2-ton. I think the strategy is working quite well. Now, whether we would like to expand Saathi range to bring it down to specific sub-2-ton, which means like a 1-ton payload or something like that, that is still under consideration. Saathi is doing its job. That is what we believe as far as the sub-2-ton market is concerned, because there is hardly any cannibalization with those 10 or others.
Got it. That's helpful. Second question is just around, I think, your accounting in the quarter.
It looks like other expenses control has been pretty strong. We've had pretty good QOQ revenue growth, but other expenses have actually come down. I just want to understand what the drivers were there. Also, on the other income, looks like there's a pickup in other income this quarter. I just want to understand if that's the new sustainable rate or if there's anyone else there.
Actually, Chandra Moli, you're right. I mean, my request will be I'll take this opportunity in this question to just communicate that my request will be for all of you, of course, you will look at that, to look at the profit before exceptional items and tax, not post the exceptional items and tax. If you look at before exceptional items and tax, it is about 23% higher.
Okay, last year, we had the benefit of this investment valuation done, and one of the companies where we have invested, and we got about INR 117 crore of gain there, which has got accounted. In the current year, we had to provide for one of the long-pending litigations towards which I'll not be able to name the details or give the details. We have provided. If you compare year on year, it will be a INR 157 crore of a drop. Do not compare the PAT, because PAT is at the same level, but you have this INR 157 crore of negative variance, which is there. You should factor that also in. Your observation on this other expenditure going up is quite correct. We have exercised control on all areas of expenses.
All the expenses, I would say that be it the production, sales, and administration overheads, we have been having a tighter control on that, which is visible now. Your observation and your question on this other income, why it is higher. In the current financial year, we have fair valued the investments of Switch India and one of the other subsidiary companies there, which has resulted in about INR 50 crore of an income. Other than that, there are no one-offs in this other income.
Got it. That's helpful. Just lastly, I think some of the CV financials have been suggesting that after the GST cuts, they have not seen as much impact on their ticket sizes of loans. I think they have suggested that maybe the discount rates in the CV industry might have come down, and that might be one of the reasons.
Could that mean that there might be some positive margin potential in the near term for the CV industry in general? Just as we are talking about pricing, I want to understand related to that, the AC cabin-related cost hikes, is there potential to pass some of those cost hikes on to customers now that demand looks to be slowly picking up versus the first half?
In fact, your question on this AC cost hike, in fact, we have passed it on to the customers. That is why the margins are holding out, Chandra. We have passed it on to the customers. I mean, otherwise, no, your margins will drop.
Maybe, Chandra, I will just point out one more thing that we are actually very hopeful of, I mean, both in terms of our ability to garner better market share and also look at better margins as well, which is all these new products that we have been working on for the last couple of years. They all are going to be in the market in Q3 and Q4 timeframe. Just to mention a couple of those, one on the truck side is this new product range that we have developed with our own in-house engine, which now brings our ability to up the power and torque from right now 250 horsepower to go up to 320 and 360 horsepower.
Now, these are very unique and differentiating products because the peak torque that this engine or this vehicle will be offering is going to be at least 20%-30% better than the average of the market or even the best of the market, I would say, right? Therefore, this will create a very unique proposition for us in the market, especially in the segments where customers are looking either for a higher pack or for some other difficult segments where the loads are higher or the terrain is tougher, like in mines, etc. Because there, the key factor is not necessarily mileage, but the key factor is all around time, which is based on the fact that how fast the truck can go with a particular load in a bad terrain.
I think we are very, very hopeful, and these products would definitely be positioned on a premium side. I would say these will command the best prices in the market. That is how we are positioning them. Therefore, that will also help us gain some margins, not maybe immediately, but I would say within the next two, three quarters, we will see some margin accretion happening from these new products also. Similarly, on the bus side, we are launching a new bus, 13.5 meter, with a 6-4 valve engine, which is in high demand right now. Also, we are launching a very unique product called a 15-meter bus, which has the highest beeper capacity.
I think the kind of products that we have lined up for Q3 and Q4 will not just help us in garnering better market share, but also help us on the margins also. It also goes in line with our premiumization theory that we have been trying to establish within Ashok Leyland for the last few months now.
Got it. Thank you very much, and all the best.
Thanks.
Thank you. The next question comes from the line of Pramod Kumar from USB Securities. Please go ahead.
Yeah. Thanks. This is Pramod from UBS. Congratulations on a strong operational performance. I could not notice the fact that your EBITDA for this quarter is higher than the whole of FY22 with just 40% of the volume. I think, indeed, a great job, especially on the cost side. I wanted some clarification on Chandru's question on discounting post-GST.
Was the response that we are using, discounting trends getting better post the GST cut, or the status quo remains on discounting?
Listen, I think, Pramod, it is too early to say. I mean, most of the orders that we had been fulfilling in October were actually frozen or dealt with prior to the GST effect, right? Those deals were in works from that time because, I mean, deals do take about a month to finalize, month or more to finalize, right? Theoretically, we are right, and we are also hoping that the discounting trend should be better because there is a 10% reduction in the price, and 10% is not huge. I mean, it's not small, right? Therefore, it should happen. Finally, it depends on various other factors. It's not just a price issue, right?
It's also the manner in which the deals are done in the market. There are limited players in every deal, right? It's very easy for customers to play one against the other, etc. Let us just see. Yeah, theoretically, it should help.
Can I get some understanding on your return ratios? The way you're keeping a lid on the cost control, cost side, and the way your margins are ramping up, and you talked about you've significantly improved your operational performance. If you can just talk about how are the financial metrics looking with the first half of this year in terms of ROC and ROE numbers, and where are we on the cash levels? Thanks.
Thank you, Pramod, for asking this question. ROC, I mean, return on capital employed, we are at about 34% last year, and return on equity is about 32.5%.
These are all published numbers. For the first half of the current financial year, we will be tied low because 40% happens in the first half, and 60% happens in the second half. On the cash side, the cash surplus situation, this, in fact, Shenu did mention it in his opening remarks. We continue with the INR 1,000 crore of the cash, favorable cash situation throughout the year. When you compare it to the same period last year, we were at about INR 500 crore of debt. Now, we are at INR 1,000 crore of cash. There is a INR 1,500 crore of advantageous situation. We continue to have this cash position. I think if we manage this quarter with the same kind of cash position, I think fourth quarter will anyhow be, we expect good demand and good cash addition to the existing cash situation.
Pramod, I think that has come from operating business also. You see our working capital, operating working capital. We have been able to reduce a lot of it in the last one-year timeframe. Look at the receivables in particular. I think there is a INR 500 crore reduction in receivables only in the last one year from September 2024 to September 2025. I mean, we are running several projects on better cash management, cost management. We believe there is still a lot of potential left, even in inventory ratios, inventory, I mean, turnover, receivables. There is a lot more juice that is left.
No, good to hear that. Continuing on the margin side, any thoughts on the commodity basket? We've seen some movement on the precious metal side, aluminum.
When you look at your commodity basket, how do you see that playing out in the near term? Yeah. I had one last question on the promoter pledge, but yeah, I'll come to that after this question's response.
On the commodity side, we think Q3 will be better than Q2. We are already having those indications that we will have some advantage in Q3 over Q2. How much we will see, I mean, because that gets determined during the third or the second week of December. We are seeing trends that Q3 will be better as far as commodity costs are concerned than Q2. We will have some margin uptake from there as well in Q3 at least.
Now, it's hard to say how Q4 will respond, will be in terms of commodity prices, but we don't see a major reason to get concerned even for Q4 right now.
Any update on the promoter pledge? Because we did talk about not letting it go higher even after the IndusInd Bank development. Any update there?
We don't have the exact numbers right now, but what we can tell you is what we have been telling you. I mean, whenever we talk to the promoters, we find them fully committed to Ashok Leyland, so that should not be a concern at all. I think they are trying to reduce the pledged shares. Some reduction has already happened, I think, in the recent past, but they are committed to reduce it further. That is what we know.
I mean, other than that, we do not have any further information about this.
No, it is just a thanks a lot, and this is all the best. Thank you.
Thanks. Yeah.
Thank you. The next question comes from the line of Amit Hiranandani from Phillip Capital. Please go ahead.
Yeah. Thanks for the opportunity. Sir, it has been noticed that since the last 15-16 quarters, the EBITDA margin on a year-over-year basis has been continuously, consistently improving. That is a commendable job to the management. My first question is basically, anything to read into the working capital which seems to have increased, resulted into negative OCF?
No, actually, the trend will be that working capital we have been working on consistently. As Shenu, actually, he did mention about the reduction which has happened in the previous while answering for the previous question.
We have been working on the three aspects on the working capital. Of course, two aspects, I would say. One is the receivables. The second one is on the inventory, and the third one is, of course, payables. Payables, we do not have much of option left. On the inventory and the receivables, we have worked, and on the receivable side, certainly we have worked and we have reduced about INR 500 crore on the receivables alone when you compare it to the same period last year. On the inventory, again, I mean, we will not be able to bring it down at the year opening levels because we would require to maintain a minimum level of inventory during the year to meet the increase in the demand. As this was also explained by Shenu earlier, that October month volume has been quite robust. There has been an increase, 7%.
To meet these kind of increases, we need to have the inventory levels at the required levels. We may have to maintain. All this, I mean, we are closely monitoring, and we are performing much better if you look at the same period last year.
Amit, just to add to this, since we are in a seasonal kind of a market, our numbers in the quarters, in different quarters, vary quite a bit. It is better to compare operating working capital with the same point in time last year rather than year beginning.
Noted, sir. Sir, second question is within small commercial vehicles. Ashok Leyland, how much presence we have, and do you see any product gaps, especially in the 2 to 5-ton segment, and any plans for the launches here?
No, actually, 2-4 ton is the major part of the segment, which is more than 50% of the overall market. Within this 2-4 ton, we do not think we have any gaps. I could think of only one gap, which is the absence of a bi-fuel product. So far, some of the parts of the country, especially the NCR region and some parts of Mumbai and even Gujarat, have shifted to bi-fuel. Bi-fuel is becoming very popular, which is a combination of either CNG and petrol or CNG and diesel, diesel as a backup. Now, we did not have that product in the portfolio, but I am happy to report that within the next one or two quarters, we will be launching that product as well.
Actually, the product is ready completely, but we are just testing it to make sure that all boxes are ticked before we launch the product. In 2 to 5-ton, we are sufficiently covered.
Right. Just a follow-up on this small commercial vehicle, what is the presence we have across the northeast and west-south region, and what are the plans for the network expansion here?
Listen, we have really expanded. We are very, very focused on expansion of network. We know that we have to do a much better job as far as network presence is concerned in northeast and central. We are very happy with the progress we have made. I mean, just giving you some ballpark numbers, like MHCV, our network presence two years ago, like end of FY2023, yeah, FY2024, end of FY2024, we were at 800 touch points.
We are roughly close to 1,100 touch points now. Similarly, in LCV, we are at roughly 900 touch points, and we used to be at 600 touch points. Also, on LCV, we have appointed 2,300-plus ALTTs, which we call Ashok Leyland Train Technician, which are third-party technicians but catering to our products with our branding and stuff like that. I think on network, we have really put a lot of effort and a lot of focus. It is not just in the quantity, but we are also improving the quality of the network in a lot many different ways. I mean, I have spoken to you about Project Dhruv, which is one of our flagship projects. What we are trying to do in that project is to benchmark our service processes with the global best.
Even the car industry, we are benchmarking that how we can improve our customer experience, how we can improve our turnaround time in workshops, how we can improve the first-time right repairs, how we can strengthen our mechanics with the right information using tools such as AI and analytics, how we can digitize the whole service operations in our 1,000 workshops. This project, I think, is going to, although it is going to take some more time, maybe 12-18 months to fully embrace all the improvements, but I think it is going to be a game changer for us in the future.
Right. Lastly, one last question. Basically, if you can throw some idea on the industry's truck utilization level and how do you see it trending in the H2.
Also, if you can throw some light on the present Ashok Leyland's inventory and price increases, if you have taken any in Q2.
Price increase in Q2 was not there, but, I mean, there was no specific price increase action. Of course, we have a theory of trying to gather better NSR either through mix or through reduction in discounts. That has happened to some extent, and that effort will continue in the future. At the right time, we will take a look whether we can increase the price also. That may not happen in Q3, but we will see if we can do it in Q4 or in Q1 of next year. Yes, we are very, very focused on improving the NSR through mix as well. Now, you know that we had lost some market share in tipper where our margins are really very high.
This is one of the segments where we command the highest margins in percentage and absolute sense. In tipper, we had lost some market share. Since we are launching these 320, 360 HP tippers, we do hope that we will make a big comeback in the tipper segment with improved market share. That would also help us in the margin mix.
Just on the industry's truck utilization level, if you have any idea.
I mean, the truck utilization is not bad. I mean, in the times of monsoon, you know that it dips about 10 percentage points or sometimes even more in some areas. Right now, we will say that it is very, very stable. If the demand continues like it has shown in October or the later half of September, then we think the utilization will continue to improve during the year.
Okay, sir. On the best. Thank you so much.
Thank you, Amit.
Thank you. The next question comes from the line of Raghunandhan from Nuvama Research. Please go ahead.
Congratulations, sir, on strong numbers. Firstly, on exports, you indicated growth in GCC, SAARC, Africa. How do you see the growth now on a full-year basis? And share of exports has come to 7-8% of revenue in Q2. How do you see this share increasing over the next two, three years?
Yeah. Raghu, on the export side, you remember, I mean, up to, I think, about three years ago, our volume used to be 8,000. And when we had the investor day, we said this is one of the focus areas, and our mid-term target is going to be 25,000 units. So I think we have progressed very well.
I think since FY 2022, I mean, last year, our volume was 15,000-plus in exports. This year, we are targeting about 18,000 units in the exports. This year, Balaji told you that we have grown more than 35% so far in H1. Therefore, to achieve 18,000 units over a base of 15,000-15,500 should be achievable. Now, of course, next couple of years or maybe three years, we would definitely like to touch that 25,000 mark as well. Exports, as you are aware, the margins are fantastic. Therefore, it also helps us in the margin equation.
Good to hear that, sir. On the CapEx side, first half was INR 658 crore, and there were no investments in first half. How do you see the full-year number for CapEx and investment? Also, a little bit color on the areas of utilization of CapEx?
CapEx, Raghu, thanks for your question. CapEx, as we have guided earlier, it could be between INR 800 crore and INR 1,000 crore. That could be the thing. You can expect around INR 1,000 crore of CapEx, which is getting incurred. This year, as we had already indicated, we are pursuing our CapEx expenditure plan relating to the center of excellence, which we have established, as well as Shenu spoke about the higher horsepower engine nodes development. We are incurring CapEx towards all these things. One more thing which I should register here is that we have also gone ahead and purchased a piece of land, which is next to our corporate office building. It is about a pint of grounds where we would construct a corporate office, another building of our own. All this put together got reflected in that INR 658 crore.
You can expect about INR 1,000 crore of CapEx getting incurred in the current financial year. On the investment side, I mean, it depends on the requirement of the associates and the group companies. We see some requirement coming in for our group company covering OHM and Hinduja Leyland Finance. They require capital. You would have seen the growth in the AUM of Hinduja Leyland Finance. There is plenty of business opportunity. Their business opportunities are restricted with the availability of the cash, availability of the money. The tier one capital is also pretty low, where RBI has been insisting on the requirement of more investment in Hinduja Leyland Finance. Depending on the requirement, we will invest. I do not foresee anything beyond INR 500 crore at this point of time, Raghu.
Thank you, sir.
Just on the Hinduja Finance, any timeline for listing? That is my last question.
Timeline, we said in the earlier conference call that it could take a minimum of the Q1 of the next financial year. That will be the minimum time limit it will be required.
Thank you, sir. Wishing you all the best.
Thank you.
Thank you.
Thank you. The next question comes from the line of Pramod from InCred Capital. Please go ahead.
Yeah. Thanks for the opportunity. I wanted to know for Hinduja Leyland Finance, what is the mix of small truck operators and the large truck operators in the disbursement area?
Actually, the commercial vehicle finance is only, I mean, I would say a decent portion in their overall finance portfolio. They finance other areas also. They have a housing arm also, Hinduja Housing Finance, which does the funding of about INR 16,000 crores.
They also do the funding on the other areas, heavy-earth equipment, two-wheelers, and to a certain extent on the three-wheelers also. I mean, their entire portfolio is not fully CV. They are into other businesses also.
The reason to ask you is also, how are you seeing the behavior in the small truck guys? Do you see their profitability improving? And hence, the loan servicing is much superior in the recent weeks, months? Any color on that?
Yeah. We do not see any kind of spurt in the delinquency or the provisioning in this Hinduja Leyland Finance as well as in Hinduja Housing Finance. Their GNPA and NNPA are, I would say, at very reasonable levels.
The second one is with regard to Switch.
What new products we need to look forward to in the second half or FY27 to sustain this momentum?
Yeah. On the Switch side, we are working on two or three, we have been working on two or three new products, which are very critical for us to expand the business. One was a 9-meter. 9-meter was coming in two different formats. One is standard floor. The other one is a low floor. We are very close to launching those products now in the market. There is a lot of quantity of 9-meter available through the PM E-Drive tender also, where we will be bidding on 14th of November. Hopefully, if we win some of those tenders, this 9-meter will really add up to our expansion plans in Switch. Also, we are working on one or two nodes in the trucks, in the light commercial vehicle trucks.
That should happen ideally in FY27. We are also working on a smaller bus, smaller than 9-meter, which should also happen in FY27 or early FY28. Also, we are now shifting the production of our EVEN bus, which is a European and U.K. electric bus, to RAK. I think we spoke about this last time also because the U.K. facility, the cost structure was very high, and it was very unviable to produce buses in U.K. Therefore, we have now decided to shift the production to RAK. I think these are the four or five new products that we are looking forward that should help us increase the sales volume in the top line at Switch.
Thanks a lot, Amit.
Thank you. The next question comes from the line of Basudeb Banerjee from CLSA. Please go ahead. Yeah. Thanks. Congrats for a decent set of numbers.
A few questions. One, sir, the exports moving from 12,000 to 18,000, and then in next two to three years, outlook towards 25,000. That is fabulous. You said the GCC and African markets driving, but what suddenly picked up this fiscal that growth was almost 35% in first half, which is humongous percentage terms? Those developments going ahead to reach 25,000 in next three years, then the growth will also taper down. If you can explain us the paths of what changed this year to drive such a growth and also higher margin business as such.
Yeah. Basudev, let me first clarify that while we have achieved 35% in H1, we are still saying that we will achieve our target is to achieve 20% CAGR for next three years, right? I mean, there would be some periods where we will do more than 20.
Maybe there are some periods we'll do slightly less than 20%. Our target is to grow 20% per year so that we can reach that 25,000 number from last year's 15,000. I think there are two things working in our favor here. One is that GCC, we are present there for the last 20 years as well as in SAARC. We have established these as our home markets. We have investments in local production. We have investments in local supply chain. We have local very strong partners for distribution and service. This is all playing to our advantage now. The other part is that we are developing products specifically tuned to these markets more and more. We are doing so.
I mean, the base product is still our Indian product, but we are making a lot of changes to make these products suitable for the local market. We even have a small R&D center, for example, in RAK, which is continuously in touch with the local people and the local customers to see what kind of requirements are forthcoming. I think it is, I would say it is the product suitability to the market, our long-time presence, the trust that customers impose on us. The third would be our acute focus on to grow exports.
Sure, sir. That's great. Second, sir, if you can quantify the initial speech you said, which was EBITDA and PAT positive in first half, if you can quantify that.
Basudev, we don't normally reveal those numbers.
I mean, let the company grow to a sizable volume on the top line, and then we'll start sharing those. The next level target is to make it free cash flow positive by FY2027
T hat's great. The third question is somewhat in continuation with the question asked earlier. Now with confidence of fleet owners, sentiment improving, freight rates moving in the right direction, and GST cut reducing capital cost, freight demand sentiment improving. Under that background, what is the discounting situation now, and what is the potential reduction further, which would give us some visibility of margin accretion quantification?
Yeah. I think Pramod from UBS also asked this question. What we had responded for that question was that it is too early. Theoretically speaking, discounting should come down because there is a huge reduction in the price related to GST.
We will have to see how the market behaves, how the customers are behaving. If the trends of demand continue to be what we have seen in October, which is much better growth than what we have seen in April-September, I think there would be opportunities to see how we can increase the prices also at some point in time or reduce the discounts.
That's great, sir. If I can chip in with the last question, one of the key market leaders is now acquiring a global CV maker, which will also give them access to manufacture higher gross vehicle weight commercial vehicles. In India, typically on the higher end of HCV, we are limited to 45-48 ton gross vehicle weight models, whereas as the tonnage moves up, fixed cost per ton for fleet owner reduces.
Do we see the need to go beyond 50 GVW ton trucks down the line, or do you see a market in India evolving in that segment?
Yeah. Basudev, unfortunately, the GVW is not our choice. It is limited by regulation. The maximum we can go to is 55, and that is for tractor-trailer only. For the rest of the segments, we can go only up to 48. Yeah. That is by regulation. We cannot improve. What we can do is definitely improve the turnaround time, improve the average speed since the highways are much better now. If a truck was running at 50 or 40 kilometers per hour average, we can see if it can run at 50 kilometers per hour average.
Therefore, the utilization of the truck or the revenues it generates on a monthly basis or a quarterly annual basis would be much better. That requires higher power and torque. Definitely, now we have in Ashok Leyland, I can tell you that we have our technology and product roadmaps very well laid out for the next 10 to 15 years as to what we are going to do for each segment in terms of not just performance or aggregates or chassis, but also in terms of safety, comfort, and a host of other things. We can, I think, tell you that with confidence that we have been a technology leader, and we would like to maintain that position of being a technology leader in the CV space.
That's great, sir. All the best. Thanks.
Thank you.
Thank you.
We take that as the last question for today's conference. I would now like to hand the conference over to management for closing comments.
No, I just wanted to thank you once again. Thank you for your trust in Ashok Leyland. I know you have huge expectations from us as we continue to deliver. Our management team is very, very focused. I think our mantra is, of course, profitable growth. Within that profitable growth, we are working on making sure that we are a very lean company. We stay a very lean company. There is acute focus on every penny of cost that we manage. Also, we are on a premiumization route, which means that we would continuously bring in products that are more differentiated, that are at the higher end of the value chain, and therefore, we can command better and better prices.
Definitely, on the third side, I would say that we will continue to be focused on cash as well. We really want to generate a lot of cash to be able to invest in the future. Thank you again for your time, and thank you for joining us today.
Thank you. This brings the conference to an end. On behalf of BNP Paribas Securities India, we thank you all for joining us. You may now disconnect your lines. Thank you.