Ashok Leyland Q3 profit zooms on low input costs, resurgent demand for trucks

India’s second-largest maker of commercial vehicles, Ashok Leyland, beat Street estimates to post its highest-ever profit for the October-December period on the back of lower input costs and a resurgence in demand for trucks during the quarter.

The company also turned net debt-free as of 31 December, with a net cash position of ₹958 crore compared to a net debt of ₹1,747 crore a year ago.

The truck and bus maker said it will invest ₹200 crore in its lending unit, Hinduja Leyland Finance, and ₹500 crore in its electric vehicle arm, Optare, which makes electric buses under the Switch brand.

Market position

Ashok Leyland maintained just over 30% share of India’s medium and heavy commercial vehicles (MHCV) market during the April-December period, lagging only its larger rival, Tata Motors, which makes nearly one in every two such vehicles sold in the country.

Dheeraj Hinduja, the company’s executive chairperson, said it has set a medium-term target of reaching a 35% market share in the MHCV space.

During the October-December quarter, Ashok Leyland sold 26,838 MHCVs, which was 1% less than a year ago but a sharp improvement over the preceding quarter, when its sales had contracted by over a tenth year-on-year.

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Shenu Agarwal, the company’s managing director, said that MHCV industry sales during January were 4-5% higher year-on-year, and the outlook for February and March was also positive, setting the stage for a robust fourth fiscal quarter.

Ashok Leyland’s exports during the December quarter grew by a third to 4,151 units, mostly buses. However, the company is betting on the Middle Eastern market, primarily the UAE and Saudi Arabia, to grow its exports of MHCVs. Hinduja said that it is working on trucks with potential export potential, which could help it diversify its exports beyond the present dependency on buses.

Ashok Leyland posted a standalone topline of ₹9,479 crore during the quarter, which was 2% more year-on-year despite a dip in sales volume.

It reported a profit of ₹762 crore, which was 31% more year-on-year and higher than the ₹665-crore consensus estimate of analysts polled by Bloomberg. The company booked a deferred tax gain of ₹123 crore during the quarter.

Earnings before interest, tax, depreciation and amortization (Ebitda) grew 9% year-on-year to ₹1,211 crore. Ebitda margin expanded 76 basis points to 12.8%.

What aided the truck and bus maker’s Ebitda margins was the sharp fall in steel prices, which were more than a tenth lower year-on-year during the quarter.

“That has really helped us to post a better margin,” said K.M. Balaji, Ashok Leyland’s chief financial officer.

The Ashok Leyland stock gained 7.9% on BSE to close at ₹219.60 on Wednesday. The benchmark Sensex lost 0.2% during the session. The earnings were reported during market hours.

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