Shifting Gears: Ashok Leyland
The commercial vehicles (CV) segment is up to speed once again. After slowing down considerably as a result of pandemic-induced roadblocks during all of FY21 (2020-21) and a large part of FY22, the CV segment comprising trucks, buses and light commercial vehicles (LCV) picked up smartly clocking sales volume growth of 34 per cent y-o-y in FY23 and the second highest domestic sales ever, after the previous peak of 2018-19.
This revival in demand has augured very well for Ashok Leyland, one of India’s largest medium and heavy commercial vehicle (M&HCV) makers. The company registered cumulative sales (domestic as well as exports) of 1,92,205 units for the fiscal year ended 31 March 2023, which was 50 per cent higher compared to FY22. While trucks saw a 60 per cent growth in sales to 1,05,777 units, sales of buses grew 135 per cent to 18,332 units and light commercial vehicle sales jumped 25 per cent to 68,096 units during the period under consideration.
Explaining the pick-up in the CV industry as well as the substantial increase in Ashok Leyland's M&HCV market share, Shenu Agarwal, the recently appointed MD & CEO of Ashok Leyland says, "The macroeconomic climate has improved, and end-user industries are in high demand, therefore the CV industry is currently doing well." He adds: "Volumes in the M&HCV market have risen as a result of development initiatives in important sectors including mining and construction, higher capital expenditure for infrastructure projects, higher expenditure for road transport and highways, multimodal connectivity, and pent-up replacement demand."
At the micro level, Agarwal attributes the growth in market share to the measures taken by the company. "We have also achieved this market share on the strong back of introduction of contemporary new products and focused expansion of our network touch points," he says.
Experts cite additional reasons for this mega turnaround in the CV category. Says Tanvi Shah, Director of CareEdge Advisory & Research: "This growth is being driven by robust demand for heavy trucks in light of the strong infrastructure push by the government plus increased activity in ecommerce, construction, and mining segments. Higher replacement demand, advance buying in anticipation of price hikes, and year-end buying further buoyed the demand in the last quarter of FY23."
Himanshu Singh, Research Analyst at Prabhudas Lilladher says: "In the fourth quarter of FY23, the CV industry clocked a cumulative growth of 9 per cent YoY with M&HCV outperforming (29 per cent YoY) led by strong end-user industry demand and pre-buying ahead of emission norm change. Tractors industry grew by 19 per cent YoY in 4Q and ended the year with a cumulative growth of 12 per cent."
Ecommerce & LCV
The massive expansion of ecommerce, especially during the pandemic period, is a widely known fact. Ecommerce growth positively impacted the logistics sector leading to the creation and expansion of the warehouses, multi-modal parks, interconnectivity between metros and large cities. Another positive spin-off of the ecommerce boom has been the spike in the business of Light Commercial Vehicles or LCVs. And Ashok Leyland, among others, has largely benefitted from this.
Explains Agarwal: "The ecommerce boom post-pandemic, the changes in purchasing habits and demand from the agricultural sector have resulted in an increase in last-mile transport requirement which has led to a surge in demand for smaller trucks, and this demand will help in growth of electric LCVs."
He adds: "Ecommerce players are looking for reliable options since they need a rapid turnaround time and a greater uptime for the vehicle, and light commercial vehicles or compact trucks give them both. As a result, LCVs in India have benefited greatly from the ecommerce boom and will continue to do so."
The LCV vertical completes Ashok Leyland’s presence in the CV space as a full-fledged CV player, offering customer solutions from 2.5-ton to 55-ton in terms of size and from 13 seats to 79 seats in terms of capacity. The LCV business also helps the company de-risk itself from the business cycles associated with medium heavy commercial vehicles. The 'Dost' series of LCVs have been generating the big numbers for the company month after month.
Push to EV, Alternate Fuels
Ashok Leyland is also among the first to align itself with the government's decision to turn to cleaner fuel technology as well as electric vehicle (EV) fleet in CV category as well. In fact, the company is clear on spending around Rs 500 crore every year towards the development of alternate and clean solutions for the CV segment.
"We have lined up our EV-CV roadmap, setting a target of becoming one of the world’s top-10 CV brands. We will roll out electric LCVs very shortly. We remain very optimistic about the future of the CV industry in India," says Agarwal.
Ashok Leyland recently launched its Switch EiV12 electric bus platform for the Indian market. Currently, the company has firm orders for 600 electric buses and around 50 of these are in production for the Karnataka State Road Transport Corporation. "This will increase our market share upwards to double digits in the coming financial year. We were L2 in CESL and in the recent Mumbai BEST tenders. This clearly proves our competitiveness, and we have another 1,200 STU orders in the pipeline," he says.
Ashok Leyland is also working on other alternative fuels like CNG/LNG, hydrogen, blended fuel as electric won’t be the sole answer to net zero carbon emission goal, informs Agarwal.
In the case of LCV & SCV (small CVs), the primary focus of the company would be on electrification and CNG. In the ICV (fuel-based CVs), in addition to the CNG, the company is developing EVs and some H2-based options. "In the M&HCV segment we have a combination of EV (in buses and short haul trucks) and H2-based (fuel cell and ICE) for medium and long-haul applications," says Agarwal.
In January 2021, Ashok Leyland had signed a MoU with the Indian Institute of Technology Madras (IIT Madras) to carry out research and development activities in the field of clean energy. As part of this collaboration, Ashok Leyland and IIT Madras plan to jointly develop hydrogen fuel cell technology for use in commercial vehicles, with the goal of achieving a range of up to 1,000 kilometres on a single charge. Recently, Agarwal informs, the company collaborated with Reliance to launch India's first hydrogen-powered tech for heavy-duty trucks. It also collaborated with the Adani Group to develop Asia's first hydrogen-mining truck – the Fuel Cell Electric Truck (FCET).
'Alternative fuel is the future'
Ashok Leyland is buoyant on the growth cycle continuing for next few years. Shenu Agarwal, MD & CEO, Ashok Leyland tells Ashish Sinha about CV, EV and alternate fuels as the next big bet for the company. Excerpts:
What are your plans for improving Ashok Leyland's profitability?
At the operational level, we are in a good position. We have reported good numbers in terms of PAT and EBITDA in the last quarter. Our robust market share growth across all segments exemplifies the technological leadership of Ashok Leyland. The industry has seen strong volumes in so far in FY’23 and going forward in FY24 over the same period last year, and we remain confident and optimistic about the future.
How are you planning to increase exports and expand presence overseas?
Currently, Nepal, Bangladesh and the Middle East are the traditional markets for us, while we are also expanding in African and European countries. With LCVs, our new Phoenix platform (with LHD version) is a game-changer for us, helping us reach in markets which we were not able to penetrate before. This new platform has started yielding results. Our share in CV Exports from India has grown and we continually assess the market and will continue to grow our operations and manufacturing capabilities.
What are your plans for expanding the market share in India?
Ashok Leyland's MHCV market share has increased on a year-on-year basis. We have expanded our product line by releasing the first 8-wheel truck in the market, the AVTR 2620, and our Ecomet 1815 which provides consumers a transportation choice. We also launched H6 4V Engine in AVTR range with Premium N Cabin; AVTR 4825 Tippers; New AVTR 4220 and AVTR 4420. We also introduced variants of Bada Dost and bolstered our LCV portfolio.
How are you looking at EVs and Alternate Fuels in CV segment?
We as a company believe that alternative fuel is the future for the industry. The company has also put in place a strong and a capable team to focus exclusively on alternate fuel technology that uses low carbon. To facilitate this endeavour, we have dedicated our existing testing facility in Hosur to exclusively focus on alternate fuels.
