Ashok Leyland's Q4 earnings were lacklustre. Margins improved marginally but were slightly below street estimates. The management was disappointed as they were cautious on demand and warned of further weakness in the first quarter of FY20. Gopal Mahadevan, CFO of Ashok Leyland, shared his views and outlook.
“We forecasted last year at the beginning of April 2018 that 2018-2019 would possibly grow at about 15 percent and that is exactly what happened. In the current year, we believe that the growth should be about 10-15 percent but we will have to wait and watch how the demand picks up. The election outcome has been very positive. So we believe that the sentiments are good for further investment into infrastructure, roads and all of that which could augur well for the commercial vehicle (CV) industry. So if the non-banking financial companies (NBFCs) crisis also moves on then I think we could possibly see a 10-15 percent growth, but at the moment, it is a little too early to estimate,” Mahadevan said.
In terms of margins, he added, “For the full year, it has been a pretty good performance. We have finished the year with an EBITDA of 11.1 percent and that was a good performance. It was an astute mix of the markets that we were operating in, the mix of the products that we were selling and, most importantly, managing our cost very astutely. We will pursue this strategy even more aggressively as we move into the New Year.”
“One challenge that we have seen the industry having is the heavy discounting that has been happening despite raw material price increases. We must remember that whole of last year’s steel price was continuously increasing. So for us to have posted 11.1 percent EBITDA was pretty satisfying,” Mahadevan added.
Speaking about demand, he said, “April has been a mixed month for us in the sense that the industry continued to decline a bit. I think there was about 15 percent decline but we grew our market share quite handsomely. Having said that, I think there was also an uncertainty on the election and the outcome.
"The industry has weathered a lot of storms over the last 2-3 years. If you look at it right from BS-III to BS-IV overnight shift and then we had demonetisation coming in which sucked the cash out of the system then we had goods and services tax (GST), then we had the axle load norms then we had the NBFC crisis, so there is a lot of things that have happened in the industry but the industry continued to grow.
"So with the election especially around April and May, the demand was a little uncertain because people wanted to wait and watch and April, May, June are not great months. Typically they are very slow months. So we expect that the demand should start picking up in the month of June. Especially when we are looking at the BS-VI transition happening by March 31, we expect that Q2 and Q3 should be high demand, high growth quarters for this industry.”
- Industry growth should be 10-15 percent In FY20
- Delivered 11.1 percent margins for the full year
- Will pursue further cost cutting in FY20
- One challenge is the heavy discounting despite increase in material costs
- April has been a mixed month for the industry
- Election uncertainty has impacted the industry
- Expect demand to pick up in June
- There is no gap in the business post Vinod Dasari’s exit
- Have not found replacement for Dasari yet- Board is still in the process of selecting the next CEO