«MR. MIHIR JHAVERI – DIRECTOR - RESEARCH ANALYST: ANALYST - RELIGARE CAPITAL MARKETS MANAGEMENT: MR. VINOD K. DASARI – MANAGING DIRECTOR - ASHOK ...»
“Ashok Leyland Q4 Financial Year 2015 Results
May 13, 2015
MR. MIHIR JHAVERI – DIRECTOR - RESEARCH
ANALYST - RELIGARE CAPITAL MARKETS
MANAGEMENT: MR. VINOD K. DASARI – MANAGING DIRECTOR -
MR. GOPAL MADHAVAN – CHIEF FINANCIAL
OFFICER – ASHOK LEYLANDPage 1 of 23 Ashok Leyland May 13, 2015 Moderator: Ladies and gentlemen, good day and welcome to the Ashok Leyland Q4 FY2015 Results Conference Call, hosted by Religare Capital Markets Limited. As a reminder, all participant 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 „*‟ then „0” on your touchtone phone.
Please note that this conference is being recorded. I now hand the conference over to Mr. Mihir Jhaveri from Religare Capital. Thank you and over to you Sir!
Mihir Jhaveri: Thank you, Margaret. On behalf of Religare Capital Markets, I welcome you all to the Q4 FY2015 conference call of Ashok Leyland. From the management we have Mr. Vinod K.
Dasari – MD and Mr. Gopal Madhavan – CFO. With this, I handover the conference to Mr.
Dasari for his opening remarks. Over to you Sir!
Vinod K. Dasari: Good afternoon, everybody. Thank you very much for taking the time to participate in the Ashok Leyland analyst call. To open, I will say that it has been a very satisfying year. We have gained market share in our domestic market. We have done very well in our international markets. I think the cost reduction and transformation efforts in terms of cutting our cost, cutting our working capital and making our company leaner are all starting to pay off. It is also very satisfying to see that the transformation was not just about cutting cost; it was also about making the company future ready. We invested a lot of time and effort in launching many new products that are doing extremely well. We put a lot of effort into expanding our network and at the same time we did a massive revamp of the way we sell our products. I think all of this is coming together quite nicely. When we had the slight uptick in volumes in Q4, operating leverage caught on and we were able to show a double- digit operating margin in Q4.
Moderator: We will now begin with the question and answer session. The first question is from the line of Trilok Agarwal from Birla Sunlife Insurance. Please go ahead.
Trilok Agarwal: Good afternoon. Congratulations on a good set of numbers. I have two questions: one is what is your outlook on the volume front given that we have already outgrown the industry meaningfully last year? Second, in terms of margin, do you foresee further operating leverage playing out in terms of margins going ahead?
Raghu Nandan: Congratulations Sir, on a great set of numbers, robust volumes, double-digit EBITDA margins, reducing debt, negative working capital, recommencement of dividend – all these were big positives. I had a question on the debt side. What would be the gross debt in the standalone business including current maturities? Also, when I go towards current investments, I think it is mainly Albonair – any update on the Albonair sales, Sir?
Raghu Nandan: Sir, have the discounts come off on a sequential basis? As far as I remember, they were about Rs 170,000 in the December quarter?
Gopal Madhavan: We do not look at discounts per se per vehicle which I have mentioned to you in earlier calls also. What we look at is net realization – our net realizations have been improving which is why the gross margins or the margins even over a material cost have improved.
We have actually been adding about a 100 basis points quarter-on-quarter typically, sometimes it is 50, but 50 to 100 basis points. We try to improve on realizations by having price increases at regular intervals and we move these levers between products and geographies to ensure that on a net basis, the company‟s net realizations improve.
Raghu Nandan: Sir, on the exceptional items, there was a write-off of over 200 Crores; are there more writeoffs likely in this JV going ahead?
Vinod K. Dasari: Yes, I think from Q3 last year to Q4, we went from gross margins of 25.5% to 27.2%. The other point I made is that we look at it segment-wise, not necessarily at discounts. We look
Raghu Nandan: Sir, what was your overall M&HCV or CV sales revenues as a percentage of the total net sales and if you could share with us the breakup of engines, spares and vehicle revenue?
Gopal Madhavan: For Q4 for trucks and buses it was 72%.
Raghu Nandan: Other segments, if you could share?
Shrinath Krishnan: In terms of the demand scenario for commercial vehicles, could you give us some more colour in terms of customer segments on the mining side – where are you seeing a good amount of traction coming through at this point in time?
Vinod K. Dasari: I think we are still far from full capacity utilization.
Shrinath Krishnan: No, in terms of maybe two to three years down the line, if you were to add capacity, would you be having space in Pantnagar or Hosur to add incremental capacity?
Shrinath Krishnan: Similar number to last year. Thank you.
Moderator: The next question is from the line of Nishit Jalan from Nomura Securities. Please go ahead.
Nishit Jalan: The main question was the employee cost. What I am trying to understand is, is there any cost which should have been spread over all the four quarters but has just come in, in the fourth quarter itself? Is there any such component in employee cost or other expenses?
Kaushal Maroo: Sir, in terms of the investments required in a subsidiary for FY 2016 and FY 2017 and whatever nominal capex we are going to do for the next two years?
Vinod K. Dasari: We have gained market share in all territories.
Kaushal Maroo: Possible to share the market share number, Sir?
Vinod K. Dasari: You want the region wise market share?
Kaushal Maroo: Yes.
Vinod K. Dasari: We will share that number later.
Kaushal Maroo: Thanks a lot and all the best.
Basudev Banerjee: So any chances of exiting the JV as such down the line?
Vinod K. Dasari: I would not like to comment on Joint venture without my partner being here; like I said, we will review the whole thing and take appropriate calls as necessary.
Basudev Banerjee: Thanks, that is all from my side.
Aditya Makharia: Sir, you did mention something about defense orders expected to go up. Now, can this be meaningful over the next one to two years or is this more of a medium-term initiative?
Gopal Mahadevan: No, defense is as of now about a $100 million business, but I think there is substantial upside to it over the next few years.
Aditya Makharia: Okay, fair point. Just one housekeeping question; what is Uttarakhand‟s contribution in terms of units to our production for this quarter?
Gopal Mahadevan: I will just share this number a little later.
Chirag Shah: Yes, later on. So, that gives a fair idea and in some presentation if you can actually just highlight this number so the question does not come to you.
Gopal Mahadevan: Hinduja Leyland Finance actually increased it by about 1800 Crores from the previous year and this is absolutely in line with their level of operation. They are a very healthy company
Chirag Shah: Sir, if I look at the difference between standalone and consolidated revenues, I presume a large part of that would be Hinduja Leyland Finance. For example, in FY 2015, something like 1700 Crores would be our revenue coming excluding the standalone. If I subtract standalone from consolidated, almost 1800 Crores is the revenue?
Gopal Mahadevan: 90% will be predominantly equally split between these two and then after that comes in the Hinduja Tech and AL JD and all that.
Moderator: The next question is from the line of Govind Chellappa from Jefferies. Please go ahead.
Govind Chellappa: I know you would not share exact numbers, but if you could just give a sense of what would be the cost increase from, say, III to IV, IV to V and V to VI, just approx numbers?
Govind Chellappa: The second question was on employees: what is your employee strength if you were to achieve 100% utilization; can you do it with the current employee strength?
Gopal Mahadevan: I would say that our executives and workers together must be somewhere around 11200 people and if at all we have to go to peak utilization, we will add temporary workers wherever necessary, probably another 500–600 people at best.
Govind Chellappa: So you can roughly double production with the same employee strength?
Monica Joshi: Are you sharing details about what products these pertain to and what led the joint venture to take this decision in the first place?
Gopal Mahadevan: Our market share growth has been across all regions, not just the south. We have gained a lot in the south, but in all regions we gained market share.
Sunil Gupta: Thanks for taking my question. Congrats on a good set of numbers. Sir, just wanted to get a sense on the freight rates. How are you seeing those really trending at this point in time?
Gopal Mahadevan: Freight rates are firming up. Now that there is freight availability, the freight rates are also firming up. Despite diesel prices coming down, I do not think any drop in freight rates should happen.
Sunil Gupta: Any price increases you have taken this quarter?
Gopal Mahadevan: We have taken it in last year Q4 and again in Q1 this year.
Sunil Gupta: What was the quantum in Q1 if you could quantify?
Gopal Mahadevan: It depends on each segment but it would not be unilaterally saying everything goes up by x%, but it was somewhere around 1%.
Amyn Pirani: Fair enough. But you are not seeing any deterioration in the sentiment because industrial activity does not seem to be picking up?
Gopal Mahadevan: What do you mean bought out? They are bought from a JV scaled as the marketing.
Amyn Pirani: So that is the same for the PARTNER and the MiTR as well, right?
Gopal Mahadevan: Exactly.
Amresh Mishra: Congrats on good numbers. Sir, can you just share some thoughts or some details on the captive financing and how it has moved in the last two to three quarters?
Gopal Mahadevan: Less than that, I would say it is about 13-14%.
Amresh Mishra: There is room to take it to 20% and which is the threshold you do not want to cross?
Jinesh Gandhi: Couple of questions, one is, what would be our gross debt at the end of the year?
Gopal Mahadevan: I had mentioned that 2600 Crores is the net debt standalone.
Jinesh Gandhi: Right, gross debt would be?
Gopal Mahadevan: Jinesh, what do you want? I had given the net debt, which is 2600 after setting off cash.
Jinesh Gandhi: Yes, what would be the cash number then?
Jinesh Gandhi: Sure. That is understandable and Sir, what was the capex and investment for FY15?
Gopal Mahadevan: The total capex and investment both put together was about 300 Crores, so we had capex of possibly about 200 Crores and overall investments about 100 Crores.
Vinod K. Dasari: I think it will be the same next year.
Gopal Mahadevan: Yes, we have actually been pretty much on line with the numbers that we have projected and as our Managing Director mentioned, it would be pretty much the same kind of numbers that we are looking at targeting for next year.
Jinesh Gandhi: Revenue contribution?
Gopal Mahadevan: For Q4.
Jinesh Gandhi: Yes. How would it be for 3Q FY 2015 and for 4Q FY 2014?
Gopal Mahadevan: Well it would be, if you look at, FY14 is it?
Jinesh Gandhi: 4Q FY, same quarter last year and previous quarter?
Gopal Mahadevan: FY 2014 Q4 was 64% and you wanted Q3 right.
Jinesh Gandhi: Q3 right.
Gopal Mahadevan: It is about the same at 64%.
Jinesh Gandhi: Okay, understood. So, Sir, effectively quarter-on-quarter there was an improvement in mix, which was visible because of higher contribution of trucks and buses. So the decline in realization as we calculated was just because of defence?
Gopal Mahadevan: Predominantly yes.
Jinesh Gandhi: Understood sir, thanks and all the best.
Moderator: Thank you. Ladies and gentlemen due to time constraints that was the last question. I would now like to hand the floor over to Mr. Mihir Jhaveri for closing comments.
Mihir Jhaveri: Thank you very much management for the call and also thank you very much to the participants for attending the call. Thanks.
Moderator: Thank you. On behalf of Religare Capital Markets Limited that concludes this conference.
Thank you for joining us. You may now disconnect your lines.
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