Hinduja Group flagship firm Ashok Leyland has reported a two-fold jump in net profit in Q1. Speaking to Bloomberg TV India, Ashok Leyland CFO Gopal Mahadevan said the company hopes to sustain or beat the 15-20 per cent growth forecast for the industry.

Can you take us through the highlights of the Q1 results? Is the stellar performance because of a one-off or will such growth continue?

I don’t think it was a one-off. If you look at it, this has been the ninth straight quarter in which we have been growing profitably and growing faster than the domestic market. While our overall volumes have grown 10 per cent, domestic volumes have grown 18.5 per cent against the industry average of about 14.5 per cent. There are three reasons I will attribute to the faster growth in Ebitda margins of the first quarter. One is that there has been a volume growth and revenue growth of 10 per cent. The second reason is the efforts we have been putting on operational efficiency over the past three years are actually paying off. We have the operational leverage kicking in. We have been working on material cost efficiency as well as optimising overheads and driving operational efficiency. That is the reason why you are seeing gross margins and profitability improving. The third thing is the mix of products. As we move forward, I believe that we should be able to maintain the margins. In fact, in Q2 and Q3, we should be able to catch up on exports.

There has been a bump up in the profitability in Q1 which has been aided by a forex gain. Will you able to maintain the margins going forward?

Just to clarify here, the Ebitda growth of 11.2 per cent that we have achieved is excluding the forex gain. That is why, as a measure of transparency, we have shown the forex gain, which is the resultant of the new accounting base (IND-AS), separately. There could be occupation where there will be forex gains, which one can’t help because these are based on how the forex markets move. But if you are to look at the operating leverage or profit, the Ebitda growth of 11.2 per cent is excluding the forex gain.

Coming to domestic sales, do you expect heavy commercial vehicle volumes to taper?

I think there are two parts to this question — one is growth and another is volume. I think volumes growth will continue to be robust. At the beginning of the year, we had forecast the industry would grow 15-20 per cent. We continue to maintain that outlook. In fact, we are positive about this. A lot of things are favourable for the economy. One is of course the monsoon. The second is that there seems to be a lot of traction on the infrastructure side. We are seeing the pace at which roads are being laid — it has been significantly stepped up.

The mining sector is being opened up. As we speak, Standard & Poor’s has upgraded the country’s growth outlook to about 8 per cent. So, as we move forward, we will see a reasonably healthy second half of FY17. And one more factor which is going to help the medium and heavy commercial vehicles (MHCV) segment is the implementation of Euro-IV on a pan-India basis from 2017. We will see quite a bit of pre-buying in Q4, which will again shore up the volumes for the industry.

The light commercial vehicles (LCV) segment has been a pressure point across categories. How do you expect that segment to pan out in FY17?

In the LCV business, we have been showing very stable growth even during the period when the industry was going through a rough patch — in the past 18 months. We were possible the only company that was maintaining a marginal growth. Even in Q1, we have seen volumes grow 7 per cent.

We are positive that growth in the LCV segment will start coming in because typically this segment lags the MHCV sector growth by six months to one year. So I think the good days will come for LCV as we move forward.

How has realisation been in Q1?

At Ashok Leyland, we monitor the net realisation more than the absolute discounts or the price hikes we do. So for every business and every product we manufacture, we keep monitoring what is the net realisation and keep improving quarter-on-quarter. That has been the strategy going forward. We not only want to grow, we want to grow profitably. That is important for us.

How has been the performance of the defence business and exports?

Defence has not been a significant part of our revenues. The export during Q1 has been up 7 per cent. As far as the overall outlook is concerned for FY17, the industry will grow about 15-20 per cent and we will certainly keep pace with the industry if not beat it.

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