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ashok leylands: Cost savings boosted Ashok Leyland’s margin, will help sustain momentum: Executive chairman Dheeraj Hinduja

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Ashok Leyland is confident of maintaining double-digit operating margins for the remaining quarters of the ongoing fiscal year, as the Hinduja Group flagship expects to continue to reap benefits from its cost-saving measures, softening of raw material prices and the pricing power for its newly launched modular AVTR range of trucks.

“We are expecting to continue our performance in terms of double-digit Ebitda margins, for this year. We have been able to get there due to a combination of cost-saving measures and a good performance of our AVTR range of trucks, which in turn has allowed us to price our products well,” executive chairman Dheeraj Hinduja told ET.

Amid a good demand for medium and heavy commercial vehicles (MHCVs), the Chennai-based truck and bus maker reported better-than-expected earnings for the June quarter. Boosted also by a lower tax expense, net profit rose more than eightfold to ₹576 crore from ₹68 crore a year earlier, while revenue increased to ₹8,188.9 crore from ₹7,223 crore.

Operating profit margin, or Ebitda margin, expanded by 559 basis points (5.59 percentage points) from a year earlier to 10%.

Raw material cost as a percentage of sales revenue dropped to 73.70% in the first quarter of FY24 from 79.28% a year earlier.

While sales volume grew 4.2%, net realisation per vehicle rose 8.8% to ₹19.81 lakh, helped by a better product mix and price hike.India’s second largest truck maker made an operating profit of ₹1.98 lakh per unit in the June quarter, which was one-and-a-half times higher than the reading in the same quarter last year.The company is targeting to reach mid-teen Ebitda margin in the medium term, supported by revenue enhancement by higher share in the MHCV segment coupled with better prices and a reduction in raw material cost by value engineering.

Jay Kale of Elara Capital said Ashok Leyland’s full-year margins for most years historically had been above the Q1 levels, as the April-June quarter is seasonally a lower volume quarter. So, he expects the full-year margin to be higher than 10%, if the current trend of lower discounting prevails.

The aggressive approach to cost saving across the board – at manufacturing plants, sourcing and other operations – helped the firm turn in a double-digit margin and will help maintain the growth trajectory in the months ahead, said Hinduja. “Cost is something within our control, even as pricing the products the way we would like to may not be in our control,” he said.

Ashok Leyland is the largest exporter of MHCVs from India. It plans to boost exports further by stepping up its presence in Africa. The company appointed several new distributors in Africa last month which will result in a substantial uptick in the volumes from the region, said Hinduja.

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