Ladies and gentlemen, good day and welcome to the Ashok Leyland Q3 FY 2023 conference call hosted by Axis Capital Limited. As a reminder, all participant lines will be in a listen-only mode, and there'll 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 star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Jalan. Thank you, and over to you. Thank you. Thank you. Good afternoon, everyone. Welcome to Q3 FY 2023 post-results conference call for Ashok Leyland. From the management team we have with us Mr. Dheeraj Hinduja, Executive Chairman, Mr. Shenu Agarwal, Managing Director and Chief Executive Officer, and Mr. Gopal Mahadevan, Director and Chief Financial Officer. I now hand over the call to Mr. Hinduja for his opening remarks, post which we can move to Q&A. Over to you, Mr. Hinduja. Thank you. Good afternoon, ladies and gentlemen. It gives me immense pleasure to be in touch with you, and I thank you very much for the interest shown in Ashok Leyland. I will quickly run you through the Q3 performance as well as some of the latest developments. I'm extremely happy to share that Q3 FY 2023 continued to be good, aided by strong performance in domestic truck sales with 32.6% market share. This is almost a 7.3% increase over our market share during the same period last year. This is the fourth consecutive quarter of 30% + market share for Ashok Leyland. In Q3, M&HCV truck volumes have grown more than 1.3 x than the industry growth, resulting in AL market share improving to 32.6% as compared to 25.3% in Q3 of last year. EBITDA for Q3 was at INR 797 crore, 8.8%, as against INR 224 crore, 4% in Q3 of last year. Our LCV volumes in Q3 are higher than last year by 15%. Q3 domestic after-sales at INR 507 crore grew at 28% over the same period of last year. Q3 operating profit was at INR 560 crore as against a loss of INR 15 crore in Q3 of last year. Working capital has reduced by about INR 135 crore during the quarter. Capital expenditure for the quarter was at around INR 100 crore. Our profits during the quarter have helped with the reduction of net debt by about INR 635 crore. Debt equity is at 0.3 x versus 0.4 x during the same period last year. During the quarter, we have launched Partner Super in nine-, 10- and 11- ton, Oyster Wide CNG, Oyster Wide Diesel Double Door, 13.5-m bus with drum brakes, Lynx Smart Staff Bus Chassis, and expanding our range further with new products. I'm extremely confident that with these launches and the continued expansion of the network, we will sustain the market share gains achieved in the last four quarters. The growth in M&HCV trucks CIV in Q3 and LCV trucks is backed by recovery in macroeconomic environment, replacement demand and pickup in infrastructure, mining and construction activities. Healthy growth in the end user industries like cement, steel and infrastructure, as well as increase in general manufacturing activity and consumption trends continue to support demand from fleet operators. Supported by these factors, the industry volumes are inching towards the previous peak registered in FY 2019. The viability of fleet operators is expected to continue to remain healthy, despite some moderation in freight rates post the festive season. For FY 2023, the industry volumes are expected to grow at a healthy rate, supported by steady freight demand and economic recovery. The government's focus on infrastructure spending and boom in e-commerce are further supporters of this growth. However, inflation concerns driven by hike in interest rates and continuous high fuel prices and its impact on viability of fleet operator would have to be monitored in the near future. We are very encouraged by the resumption in the M&HCV Passenger segment, which reported a year-on-year growth of 132%, supported by almost full resumption of offices and educational institutions. However, the volumes are yet to reach the pre-pandemic levels of 10,000-12,000 per quarter. LCV year-on-year growth of 5% is supported by healthy demand from agriculture and allied sectors. The increased last mile transportation requirements, especially from e-commerce and stable macroeconomic environment, while the pace of growth is slowing down as the base effect catches up, the volumes have already surpassed the quarterly levels reported in FY 2018 and FY 2020 levels and are close to industry high seen in FY 2019. The softening of commodity prices, in particular steel, has impacted on the margin positively. Ashok Leyland, even while growing market share sequentially, has been raising prices owing to higher input costs. What is good to see is that the retention of such increases is better. LCV, both DOST and Bada DOST are gaining inroads and have been growing stronger by the day. Both these products hold immense potential for exports and are a perfect fit in our addressable markets. Aftermarket also continues to perform very well. We are putting tremendous efforts in reducing costs, both product costs as well as overheads. I know there has been a lot of interest in Switch, which is an important initiative, and we are committed to developing Switch as a global electric vehicle company. We have established a name and a platform as a credible EV manufacturer. Our sales order pipeline is robust. We are chalking out our plans to utilize growth opportunities fully by chasing high quality, cost-effective products. After I have finished, I will ask Gopal to brief you further on the progress at Switch and the status with potential investors. Finally, before I open the floor to questions, let me share the financials in brief. Revenue for Q3 at INR 9,030 crore, which is 63% higher than Q3 of last year. Manpower cost in Q3 is higher than previous quarter by INR 30 crore due to variable performance pay and bonus provision restatements reflecting the current performance level. EBITDA is at INR 797 crore, 8.8% in Q3, up from INR 224 crore last year. Profit after tax after exceptionals for the quarter was at INR 361 crore versus INR 6 crore in Q3 of FY 2022. Operating working capital for Q3 was at INR 355 crore as against INR 490 crore as of September 2022. Net debt was at INR 2,043 crore in December 2022, as against INR 2,677 crore in September 2022. Net equity at the end of the quarter was at 0.3 x. Capital expenditure for the quarter was at INR 104 crore. Cumulative spend till 31st December 2022 was at INR 322 crore. CapEx spend for the full year is estimated to be at around INR 600 crore. Before we open the floor for questions, I would request Gopal to brief you a little more on Switch. Thank you. Thank you, Chairman. So good afternoon to all of you. Thank you very much for the interest in Ashok Leyland. Just to very quickly brief on Switch, you know, I think the company is doing very well. All of you must have read about it. The company recently has got a 2,100-bus order from CESL, you know, one of the largest orders which we have, the industry has witnessed. This has been followed through with another 500-bus order from the Delhi State Road Transport Corporation. Of course, all of this would be finally some, you know, some adjustments may happen in the volume when final rollout happens, but it's a very large order, which is very material for the company and also for the industry. We can really see that the potential of EV is growing very fast in India. We are also kind of poised, this company is poised to launch a spectrum of exciting products. I think, the double-decker, which was launched, you know, last year, the end of last year, has created a lot of excitement. It has raised the bar of the industry in terms of, quality, fit, finish and, you know, total cost of ownership and also the viability of double-decker as a transportation EV alternative. Switch UK is also poised actually to launch the E1 Bus sometime in the middle of the current, early part of next year or later part of this year. We are also waiting, the whole industry is waiting for the Bada DOST EV to be launched, which should happen somewhere in June or in the third quarter of the current year. So there's a lot of activity on the product development also. We have had order bookings coming in. We are waiting, the Switch UK is waiting for the European markets to recover. As you know, there has been a lot of challenge on the European and the U.K. side, because of not only the economic turmoil, but also the impact of the war, et cetera. But we believe that once, you know, this happens, we are going to see the potential of Switch UK also to kind of scale up very quickly. Hope you will be keen to understand where we are. Uh, as we had discussed earlier, it is taking a little bit longer than expected, not because there is, uh, you know, uh, lack of interest from investors into it, but we just want to ensure that we are getting the right strategic partners, uh, who will kind of partner Switch and its management team in growth. Uh, there are, uh, active discussions going on, uh, with several investors, both for Switch and for OHM, which is the e-Mobility- as- a- service, uh, company that, uh, has been structured, and we'll have more to update you maybe in the, you know, in the coming quarter. We will keep you posted, but, uh, business, uh, is continuing, and, uh, I think the leverage that, uh, the Switch team has been able to, uh, obtain in getting orders on product development is actually being, uh, very much on time." So back to you, Chairman. Yes. Thank you, Gopal. We'll be happy to take your questions now. Thank you. We will now begin the question-and- answer session. Participants who wish to ask a question may press star and one on your touchtone telephone. Participants who wish to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have the first question on the line of Jinesh Gandhi from Motilal Oswal. Please go ahead. Hi. Congrats on good set of numbers. Quickly, if you can talk about the drivers of margin expansion in this quarter, how much would have been contributed by commodity cost benefit, and is there any reduction in discounts which we are seeing? If you can talk more about that. Okay. Let me take a shot at this. You know, Jinesh, hi. Essentially we have seen a confluence of factors which drive margin expansion. I would say there are four reasons for it. Rightly observed, you mentioned two, which are the most important ones or the critical ones. One is there has been improvement in realization, and we have been consistently raising prices over the last few quarters. We have done that even in the month of January. We believe that with the growing demand, we also need to raise the prices because there has been a switch from BS-IV to BS-VI. While metal prices are coming up, which is extremely positive for the industry, we also know that there has been an increase in steel prices which has happened over the last two, three years. So we continue to kind of raise prices, you know, as efficiently as possible. The second one is, again, as you mentioned, steel prices have come off, you know, quite sharply. As Chairman had mentioned, our expectation is that they will continue to be at these levels or even a little softer in Q4, which will, you know, kind of help in improving margins as we move forward. The third thing which has also improved, as I mentioned four and now I, you know, kind of explained two. The other two are the mix of the products. We've been continuously working on the mix to ensure that, you know, the higher profitable SKUs are being sold, and this has helped. And finally is the absolute volume itself. You know, we have seen a significant improvement in market share. You know, just one year back in August 2021 or so, our market share was at about 16.5%. We have scaled above 30%, significantly above that, in the current quarter. And you know, we hope to kind of pursue growth as we move forward. This has been possible because of the exemplary performance of the AVTR range of vehicles. The modular range of vehicles has, you know, been accepted very well in the market, and there is quite a bit of pull in certain segments for AVTR vehicles. And I think, in terms of quality, cost, delivery, total cost of ownership, fit and finish, I think AVTR range has actually proved itself. The light commercial vehicles have also been doing reasonably well. They've faced some, you know, some headwinds occasionally. They are on a growth trajectory. And all of this volume growth has also helped in the operating leverage you can notice. Okay. Okay. And are we seeing a real moderation in discounts now? I mean, one of the largest player has talked about moving towards demand pull model. So are we seeing the benefit of that on the ground now? I hope that the industry will. You know, given the fact that this is a very unique industry where it is actually, you know, there's so much of demand, it should actually be a seller's market, so to speak. But we've seen that there have been deals where getting one based on price, which was absolutely not necessary. We are seeing that discount levels are coming off a bit. We are expecting that we'll see a little more consolidation on that in the fourth quarter. Finally, Jinesh, as you know, and to all the other investors also who have joined on the call, what we do at Ashok Leyland is we monitor the net price realization. You know, finally, what matters is what is the net delivered price to the company, and that has been improving month-on-month. Okay. Because it's not enough just to grow. It is very important for us. It is not growth or profitability. It is growth and profitability. Okay, that's good to know. Secondly, can you talk about transition toward BS-VI Phase 2? How do we plan to transit for that and the kind of price increase we would need to take to pass on the cost? Well, I think would, you know, the industry is expected to raise prices on OBD2. Different players have got different technologies. So we would continue to ensure that we are more than covering our costs and recover the same. The actual kind of numbers on the cost increase, we'll have to wait and watch. Like I mentioned, Jinesh, you know, each of the industry players have got slightly different technologies. But you can de risk. The only thing that I can say at this moment, and while one can't be 100% confident on this, but we are reasonably confident that we are not going to get impacted severely by OBD2. Got it. Last question is on the tax rate and do we plan to move to new tax regime in FY 2024, or we'll continue on the old tax regime? We'll have to study the finer points and details and then take a call because, you know, there has been, I think this has been a very good budget, really positive for the industry infrastructure and also some rationalization that has happened on the tax structure. We have more to share. You know, our guys, you know, our tax pundits in the company are pouring over the finer details. At this point, I'm not able to share anything yet. Okay, great. Thanks a lot for that. Thank you. Thank you. Participants are requested to kindly restrict their questions to two per participant. Participants are requested to kindly restrict your questions to two per participant. We have the next question on the line of Kapil Singh from Nomura. Please go ahead. Hi. Good afternoon, sir. Congrats on a great set of numbers. My first question is on demand. If you could share your outlook for 2024. You mentioned about some of the positive catalysts as well as the risks. On the balance, do you expect like a double-digit growth next year? And also for this OBD2 norms, is the last date 31st March for production or this is the last date for registration? And do you expect any element of pre-buy? Okay. Dheeraj, do you want to take the one on demand or? Sure, sure. Well, I think, you know, we've seen a very strong recovery during this current financial year. And based on all the initiatives that we heard in the budget yesterday and the special focus on the capital expenditure and transportation, we do expect that this strong momentum to continue. In terms of quantifying it, I would say that, you know, depending on finally how the GDP growth rate moves, you know, our industry is very closely correlated with that. But I think all indications are that it will continue to remain very strong year, next year as well. And you know. Just. Yeah, go ahead. Yeah. So Kapil, on OBD2, we'll have more to share possibly at closer to the end of the quarter, as I mentioned, you know, to Jinesh also because we need to get some clarity overall, but all I can tell you is that we are well positioned in terms of the technology that we are currently offering, you know, in OBD, that we would be able to kind of seamlessly move forward on that. Yeah. you know the question was also because, you know, we all know prices will go up. We don't know to what extent, but, you know, normally that leads to a pre-buy. So that, that's where the question was coming from. Yeah. So it's a good question. I mean, but the only point is, you know, my viewpoint is this, you know, while it's easy to say that, yeah, because there will be a pre-buy, I don't think that that will be a huge driver in terms of, you know, change. Like for example, if you notice in 2019-2020, right, which was pre-COVID, the entire industry was expected to have a heavy pre-buy because of the implementation of BS-VI on first of April. But we saw that quarter- on- quarter in 2019-2020, actually the demand was not going, even though the cost of the vehicles were supposed to go up quite significantly. Of course, unfortunately, after that we had an immediate outbreak. I think what we're going to see is that if the prices that's going to be raised by the industry is going to be quite, you know, material, you could see some amount of pre-buy, but I'm sure that the best part of, let me put it this way, the best part of this, you know, this current year's demand, I think that this has been quite a pull from the customers. There's genuine demand on the ground. All industries are, you know, are doing well. There's huge amount of interest spent. So I think even if that continues, that would, you know, be this trajectory sufficient for hosting a healthy growth in the current quarter. You know, on top of it, if there is an OBD2 pre-buy, well that's gonna be positive, but I don't think we are planning for a material demand increase on because of OBD2, but we'll have to wait and watch. And second question is on margins. I just wanted to understand how you think about evolution of margins from here. So you can probably throw light upon three areas. One is whether you expect further commodity benefit. Second is, you know, on pricing, and third is on operating leverage because, we are seeing that, your other expenditure is not rising as much as revenue growth now. So are most of the costs related to, say, travel or, P&P and all are already there, or you expect, R&D or other things, they are already there in the numbers, or are you expecting material increase there? So just how you think about these three buckets of costs as we head into next year. I'll possibly give a, you know, a general view and then possibly request Chairman or Shenu to add. You see, what we are doing in the company today is to drive operational efficiency across the company. We have been doing it over the last several years, of course. You know, we have had various programs in material cost reduction, overhead reduction and all that. But what we're now trying to do is slightly larger, and this is being kind of, you know, kind of disseminated to the operating teams itself. So there is a separate team that's looking at manufacturing planning and manufacturing cost, for instance. There's a separate team on VAVE and, you know, product cost. The third one that is there is on sales realization itself. We are actually doing a detailed heat mapping of what's happening on the market, what are the realizations across the various markets. How can we keep to tweaking the mix and the distribution to look at improving the net price realization? I talked about realization, I've talked about distribution costs, I've talked about margins. There are teams on overheads, but what we are trying to do is to use digital in a, you know, more wholesome way to drive productivity and reduce costs, which does not add value either to the customer or to the vendor or to any of the people in the chain. So there's a lot of substitution of effort that is happening. Finally, we are also looking at productivity of people, and there's a lot of engagement that is happening at the ground level. You know, there's a huge effort in actually ensuring that the whole team is working towards one goal. And I'm not giving any forward-looking statements, but our plan is to do three or four things. One, to get deeper penetration and grow the share of business in India. The second one is to ensure that the growth businesses, which is LCV, International, Defense, Power Solutions, Aftermarket, grow even at a faster rate so that, you know, this helps to depolitize the company and secondly, also improve the margins. As I told you, the growth businesses have significantly better margins than the main M&HCV business. And Exports is going to be something that we are looking forward to, because currently the international markets are very, very choppy, and they have not, you know, given us the opportunity for growth as we would like, even though we have been growing in the Middle Eastern markets. So this is going to be, for us, very important, and we would want to ensure that, we are also introducing very relevant and, you know, differentiated products as we move forward. These may not be very large offerings, but one thing that has happened to us, you know, has been that the AVTR range and the Bada DOST have done exceptionally well because these have been completely differentiated products that Ashok Leyland has offered. And you know, that has helped us. So we will continue to look at the benefits of better, deeper penetration, cost management, and more importantly, operating leverage, driving the profitability of the company as we move forward. Thank you very much. Thanks for the detailed answer. Thank you. We have the next question on the line of Pramod Kumar from UBS. Please go ahead. Thanks a lot for the opportunity and congratulations on an excellent set of operational numbers. Dheeraj, my question is on the demand side. You did mention about segments like cement, steel and infra, which are doing well. If you can just help us understand better, given that the data availability has got really good nowadays. If you can just help us understand there what is the state of demand for the first nine months for you in terms of broader end user applications where these trucks are going, and categories which are kind of performing better or categories which can still come back in a good way, like Tipper and other categories which you haven't spoken about. If you can just give us some more color about the demand, end user demand and what are the sectors which you are kind of optimistic and what sectors can do better? Yeah. As As I had mentioned to you, Pramod. Okay. I mean, that is, it's quite a bit of detail, but broadly, let me tell you what's happening is that one of the reasons why the industry profitability is also moving better is because we are seeing that there is, you know, the demand has increased quite significantly in comparison to the other sectors in multi-axle vehicle, in, you know, in, tractor-trailers and in tippers. These are the more profitable streams. The second one that is happening is the demand is also going for the larger tonnage. So that is why we are seeing that the vehicles that are getting sold are the 40 tonners and 49 tonners. That becomes, you know, that drives, that's why I mentioned earlier that this helps in, you know, this helps in the profitability of the industry getting better. ICVs are important for us as a company as well, and as a segment as well. We have been gaining, you know, growth and share in the ICV segment. But obviously, you know, the ICV segment is, you know, lesser contributing than the Heavy Commercial Vehicles. The other point is with respect to sectors, I think almost all significant, you know, all significant transport, I would say inducing sectors are doing well. Real estate has again continued even in the new budget, I think with the impetus that has been given, you're going to see real estate grow. Real estate is very, very important, for, you know, the transportation is very crucial for this. Infra, the government continues to kind of pursue on infrastructure, and investment as a growth trajectory for the economy itself. We are also seeing that almost all industries are posting good growth, you know. If you look at the core sectors, if you look at cement, steel, chemicals, all of these sectors are paper, all of these are doing very well. The other bit that is doing well, where, you know, we are seeing some, of course, bit of ICV growth is of course e-commerce. I think there has been a lot of change in demand patterns, especially after COVID. You're seeing that e-commerce is now, you know, become very crucial for the average consumer. Even, you know, what is happening is it is not only this, there is also optimization of logistics that is being looked at. So today the focus has become that we need trucks which will perform, which will deliver on time, which will reduce the total cost of ownership. So why I'm mentioning this is we could possibly see a trend where the replacement cycle of some of the BS- III trucks which are there, or even to a certain extent BS-IV, would actually start happening faster because today it is not about just having wheels on the road, it's about getting things on time, point to point, and all organizations are becoming very, very efficient in their inventory management. So we see a whole host of opportunities coming in. But at the end of all of this, what is most important is the economy has to grow. You know, that is where I think India scores, and possibly we will see industry growing over the next maybe two years at least, going by the global forecasts. Fair enough. Pramod, one point to add to that. Yes, please. Equally on the passenger side, as you will see, there is growth coming in in all areas, right from staff transportation to school. And also huge growth in the electric vehicle buses as well, as you heard from Switch. So across the board, all the segments are showing, very strong recovery. That's right, Chairman. Actually, I missed on the passenger side completely. I think that's going to show, as you mentioned, a faster growth because the, you know, we're quite far from the peak volumes that we have had. That's a very good point. Yeah. And just a follow-up on that, on the utilization side, Gopal, because the factors which were headwinds for the sector, like rising interest rates, moderating growth rate, but despite that, the industry has really surprised everyone on the monthly velocity in terms of the volumes, what are getting added. And one cannot forget the fact that the tonnage addition is significantly higher than the previous cycle because the average size of trucks have gone larger. So given all that, what is the feedback you're getting from the end users? Like, if you have to get confidence on next year being a good growth year, utilization of the fleet will also be very important and hence the replacement cycle of whatever contractual or regulatory new purchase of new trucks. How are you looking at utilization level, let's say, different categories? And haulage is something which I think you did not mention in a positive light. So is that category still not doing that great, haulage? No, no, I mentioned haulage also. I said that what is happening, I did mention haulage also. That's also another sector that's growing. I said all the large trucks are doing well and so is the ICV. The pull from the, from the larger trucks, especially in tippers, haulage, and I had mentioned tractor- trailers, all three. You know, that has actually also improved the profitability. As far as next year is concerned, as we had mentioned, at the moment, we see the overall, all of you and all of us are confident that next year is also going to be a growth year. And given the forecast of the GDP, which we recently got, not only for the current year, for the next year as well, we don't see any logical reason why the demand for trucks should come up, you know, because there is nothing unusual that has happened. In the past, we must remember that, you know, we have had a lot of shocks, or I would say certain developments like an axle load norm coming in or, you know, suddenly GST getting introduced or, you know, other factors, NBFC crisis coming in, which had actually resulted temporary contraction, but axle load had a much larger impact. Yeah. Today, what we are seeing is, as Chairman had mentioned, one is, you know, we have not yet fully seen the demand of buses coming back because the impact of COVID is just waning and we are actually seeing people having, getting pulled back up into offices, schools, intercity transport is going to become crucial. And also SKUs would want to place orders. And now, again, as Chairman had mentioned, we are not only going to see demand possibly in internal combustion, but also EV. That is why for us Switch is very, very important. Switch is not a portfolio. It is for, you know, ensuring that Ashok Leyland is future ready. The third bit is, if the economy is going to grow and we're going to see growth happening in all the major sectors, including the sectors that impacted, there is no reason for us not to plan for growth because, you know, it's not just about hoping for growth here. This is a very complex industry. We need to plan for it also. Thanks a lot, and wish you guys all the best. Thank you. Thank you. Participants, I request you to kindly restrict your questions to two per participant. We have the next question in the line of Raghunandhan from Emkay Global. Please go ahead. Thank you, sir, for the opportunity. Congratulations team on very strong numbers and welcoming Shenu, sir, on the platform. My first question, Ashok has been doing very well on market share, favorable mix, network expansion, new products, have been supporting factors. Can you share your thoughts on how you see the sustenance of market share ahead? Dheeraj, do you want to take it? Yes, sir. You know the last few quarters we have gradually been increasing our market share, and it's been a long round effort right from the product itself, which are performing very well, as Gopal was just explaining. At the same time, the network expansion. Geographically, you would see the growth is happening across the board, across the country, and we've been able to increase our market share in every zone that we are operating in and every segment as well. Going forward, I would say that our aspiration is very much to continue this growth. As I think something I said earlier as well, to continue this growth on a profitable basis, we are not looking to buy market share. We want to do this through our better product performance and our customer care and service. So we are looking forward to continuing our growth in market share. Got it, sir. Good luck with that. And specifically coming to Q3 revenue performance, can you also indicate how was the performance in the non-vehicle side of business? In press release, you have alluded to Aftermarket and Power Solutions business doing well. Yeah. The Aftermarket has done well. I mean, you know, while we don't give specific breakdowns on this, it has been growing at about 20%-25% as well. And Power Solutions in absolute terms for Q3 has been flattish. But on a YTD basis, if my memory serves me right, they have posted nearly about 18% or 19% growth. So you know, it's, I think these are very important business for us, like we said. Defense business has, you know, seen some bit of, I would say challenge now because of the ordering. It's got nothing to do with the business, but I think what's, you know, we're waiting for the government orders to happen, especially on the kits side. So we'll have more to share with you in the later part, I mean, later part of this year. But otherwise, Exports is also in YTD terms has grown. Last year itself it had grown from, you know, it had grown by about 30%, 40% to 11,000 units from the previous year of 8,000. We are certainly expecting the growth in the current year as well. We're waiting for the markets to kind of open up, international markets to open up, because there is a lot of, you know, uncertainty in the international waters currently. But having said that, the international team is also, you know, kind of, topped off its plan pretty clearly. There are teams now specifically looking at project orders, and there are teams which are looking at retail distribution. So you know, in countries like Africa, while it's a little too early to share those developments, what we have been looking at is how do we get a network in place? How do we get the financing in place, which is going to be important not only for the dealer but for the end customer as well? Of course, you possibly would see that, you know, the export volumes, if things start to return to normalcy, in the international markets, you possibly see that our export volumes will start to gain momentum. Thank you for that, sir. Just lastly, can you indicate what is the kind of investments you expect for 2023 and 2024? Again, I, we will have to, you know, we, it's, you know, we are having our budgeting season now, so it's a little too early to share what next year's CapEx will be. All that I can give you as an indicator is, you know, on the regular CapEx, we do not see any major chunk of investments. You know, every year we give a forecast that, you know, we would do about INR 750 crore including CapEx plus investments. We'll come back with you know, come back to you possibly in the fourth quarter earnings call. You know, that would be more appropriate. Thank you, sir. Wishing you all the best. Thank you. We have the next question on the line of Gunjan Prithyani from Bank of America. Please go ahead. Hi. Thanks for taking my questions. Most of my questions have been answered. I have very few, very quick follow-ups. On the, on the margin side, would it be possible to give us some sense as to, you know, the, the 170, 180 basis point gross margin improvement that we've seen? Is it fair to assume that this is bulk of this is coming because of commodity easing? And do we expect that, you know, we can, you know, similar sort of improvement kicking in in quarter four as well, or bulk of the commodity correction is reflected in this Q3? See, Gunjan, you know, we do have the numbers per se, because we do slice and dice it internally. But you know what I would say is that there has been a constant. You have seen price increases happening in June quarter, September quarter. We did a price increase, I think in the third quarter, we have announced the price increase. So obviously, you know, we have got about 4%-4.5% of price increase happening, right? Now, that's in net price increase. I'm giving some broad numbers. These are not absolute on the dot. The second bit is, of course, steel prices have come off, that has also kind of helped in the overall, you know, margin improvement. So these are the two large things that have actually helped in the margin improvement. And finally, of course, we have also seen, since you're talking about contribution over material cost, so I will not talk about operating leverage. The third bit that has happened has been the mix of the products, you know, which I've mentioned, that the industry is moving towards, you know, slightly larger tonnage, which is good for the industry. Okay. And this commodity tailwind will still sustain going into quarter four, is what I'm, like, just trying to understand? We are hoping that that will happen because it's good for the industry. We've had, you know, I think 2020- 2021 and 2021- 2022 partially were very tough years for the industry, not only because of COVID, but also the soaring steel prices that were there. And you know, it's good to see that prices have softened. So it's very difficult. It's a conjecture at this moment in time whether the reduction has happened in Q3. Will we see the same amount of reduction happening in Q4? Further, we don't know. Like I mentioned earlier, we are expecting that prices will continue at least at that, you know, the exit rate of Q3, which is lower than the entry rate of Q3. So to that extent. Okay. There should be some benefit. Okay. Got it. The other one was. I may be wrong on this Leyland Finance. I mean, I do see some press allotments there. Is, I mean, is that something, you know, which, you know, AL has also participated? Some color on, you know, incremental investments which have gone into the finance business. Actually, just to kind of give a, you know, brief update on Leyland Finance, there was a, you know, they had a qualified institute, QIB placement happening for about INR 910 crore, which was announced. They are adequate on capital. And you know, that is, in a way for folks who are looking at the Ashok Leyland balance sheet will be positive because there is no demand that is coming from Ashok Leyland for funding. Mm-hmm. Leyland Finance growth plans. They are adequately funded. I also wanted to share that they have also announced that there will be, you know, a merger with NXTDigital, which is, you know, in, a court- approved process. And that is also on the way. So you know. Okay. With the regulatory approvals and all the necessary shareholder approvals, they come through, then the outcome would be that Hinduja Leyland Finance will become a listed company. Got it. And lastly, on scrappage, if you can share thoughts, anything that we should read into the budget incremental impetus or, you know, any progress on that scheme. Do we see that as an industry growth catalyst for the next, you know, one or two years? Okay. I'll just quickly give a high... See, we are also waiting for the detail of, you know, the budget notification to come in. What the government has said is that, you know, all vehicles, you know, above 15 years would be scrapped, and there's a lot of focus mentioned. It includes private cars, et cetera. I think, if I'm not mistaken, the government representative or the Honorable Minister, I'm not too sure, had mentioned the potential is nearly about INR 9 lakh units. But that's spread across vehicles. Okay. It's not. Mm-hmm. We believe that this is definitely a positive. Like we have been mentioning earlier, any sort of a policy announcement like scrappage means the government is signaling towards exiting the older vehicles, right? We believe that this acceleration will happen even faster because there is two changes in technology. You know, we can't have a situation where you have BS-II, BS-III, BS-IV, BS-VI vehicles all plying together when the government is also committed on the environment side. So like our Chairman mentioned, we see two opportunities. One, the replacement cycle should, we could see that because of the scrappage there'll be some addition to the replacement cycle. The second one is we are also seeing that because of the thrust from the government, including PLI, we're going to see maybe faster adoption of EVs, which is again good for Ashok Leyland. And Chairman, do you want to add something? No. I think Gopal, you've covered it. We need to see the final details and I think since a while the government has been talking about this scrappage policy, and if there is some form of support that comes in from the center to the state government, I think that will expedite it. But if more firmer or more clear directions come on this, it will definitely have a good impact for our industry. Okay. Got it. Thank you so much. Thank you. We have the next question on the line of Hitesh from CLSA. Please go ahead. Yeah, thanks. My most of the questions are answered. Just wanted to, you know, touch base more on the scrappage policy. Do you guys are also setting up scrappage centers, or you're looking at doing that in anticipation of this policy? Because I think this, like you said, there's a lot of focus from the government on this, and maybe post-elections we could see something on this front. So has the government, you know, started talking to industry on scrappage centers? Chairman, would you want to take that? Sure. We have of course been considering this since a while. We've explored the contours of what this could involve, but we have not gone into any CapEx mode at this point of time. Just waiting for the final details to be announced. And then once we know exactly what this would entail, we would be able to fine-tune our investments accordingly. Okay. Okay, so I just wonder, second question. Gopal, you said that, you know, the freight rates have kind of softened. I think Mr. Hinduja said that after the festive season. So why has that happened? Because when I see the, there's some slowdown in consumption for sure, but when I see the e-Way bill data, that is growing pretty rapidly. So truck utilization should not have come off. Can you shed some more light on this? Is it more seasonal or you're seeing softness in freight rates going ahead as well? I don't think, I think what he mentioned was more an overall overarching, you know, kind of view of what is happening in the industry. That is certainly not a trend. And I think we should see that, we don't see any major impacts on freight rates. We have no data to state that, you know, freight rates will soften further. Chairman, would you want to add something? I think you're right. I mean, you know, what I said is, the viability of fleet operations remains healthy, although there have been some moderation in this, freight rates during this festive season. But I think going forward is, the way the market is moving, I do not see softening within ongoing freight rates to happen. Yeah. Great. Thank you. Thank you, Mr. Hinduja. Thank you, Gopal. Yeah. Thank you. We have the next question on the line with Chirag Shah from Nuvama. Please go ahead. Mr. Shah, can you hear us? Yeah. Hello. Thanks for the opportunity. I have two questions. First question on market share. If you can elaborate a bit, is it coming from because bounced back in a traditional strong markets or the gain is largely coming from non-South markets where we have been making more inroads? Well, Chirag. I've- Go ahead, Chairman. Please go ahead. Please go ahead. No, I was just gonna say that, as I mentioned, our market share growth has come across the country. In fact, we've had a stronger growth in the North and East in terms of the overall percentage. And we see, I mean, it has been due to the increase in the expansion of our network, but also, as Gopal has been explaining as well, there's been a strong product pull, which has also helped us. It is not only a Southern market growth, but it is an all-India growth that we've seen. The Western markets, North, East, Central, across the board. This is helpful. The second question was on the nature of demand again. I'm getting some conflicting reports which indicate that small truck operators, large first-time operators are still not coming to buy. They are still trying to use the replaced vehicle and older vehicle, and the demand is coming largely from medium and large fleet operators. Is this information correct, or you are already seeing some interest coming from small truck operators also? Well, I think it is, fleets today, if I'm not wrong, comprise anywhere between 60% - 70% of the overall industry volume. And what we're also seeing is that, the smaller operators in some way are getting tied up with the fleets as well. We are seeing, a lot of purchases from the first-time users as well. Of course, from a quantum perspective, fleets buy in, you know, 50s or 100s of units. But I would say that we actually see that the demand coming from all segments. It's not only restricted to the, fleet operators. Yeah. And just for clarification, you indicated that, at least for Q4, the commodity benefit is gonna be similar or maybe little bit soft, right? Is it a large part of the benefits has come through and then how Q1 would play out would depend upon how the prices behave from here on. Is this the right way to understand on the commodity offsets? Gopal, will you want to respond to that? Yeah. You're, you are asking a very tough question and asking us to peer into the crystal ball. We'll have to really wait and watch how the commodity plays out, right? I mean, even after we... You know, initially for a day or two or three, it was actually when the export duty was removed on steel, for example, there was a perception that steel prices will harden, but they haven't because the point is that the Indian prices still continue to be higher than the global prices. At the moment, all we can see is visibility till fourth quarter. And if in the fourth quarter, the commodity prices continue to be at the third quarter level or at the exit level, as we, you know, kind of believe it will be, then it could, it could have a, you know, a positive impact. Of course, if it falls even further, then it has a greater impact. But these are all imponderables at this moment, you know. But we haven't seen, all we can say at the moment is, you know, sitting on the second of February, we haven't seen a further decrease happening in commodity, but neither has there been any increase. So at the moment, it looks like it is at, you know, the third quarter levels. The first of April, I mean, in Q1 of next year, we'll have to really wait and watch to see what happens in, you know, the global commodity markets because it's not just about Indian commodity, right? A lot of things is going to depend on the global demand supply condition also. We'll have to take, you know, cross the bridge when it comes then. And we have kind of a quarter lag, right, for the impact to flow through for us? Yeah. In a way, yes, because of two reasons. That is, inventory as well, right? I mean. Yeah. We are seeing that benefit. There is FG inventory, there is RM and WIP which is there. Then, so when, you know, that needs to get used in. And then typically the industry also doesn't settle on a month-on-month. You know, the steel pricing, you know, the steel industry, these are done on a quarterly basis, so we have to really kind of have actively engaged with them to actually settle these prices. Great. Thank you. Thank you very much for this. Thank you. We have the next question on the line of Arvind Sharma from Citi. Please go ahead. Hello. Good afternoon, sir, and thank you for taking my question. So just one question on the net debt. If you could just explain how it has progressed from last year end. Essentially the free cash flow generation, CapEx, and how the net debt has progressed over last three quarters. Thank you, sir. Yeah. Our, you know, our net debt now is about INR 2,000 crore. Just give me a moment, I have a number. So our net debt is INR 2,043 crore. And I think in Q3 of FY 2022 last year it was INR 2,697 crore. I think the number was almost the same, INR 2,677 crore in Q2 of FY 2023 also. The CapEx is roughly about INR 346 crore, INR 350 crore. You know, we are, I think we are well on track. You know that we are pretty conservative on the CapEx. I I mean, we are tight, not conservative. We are pretty tight on the CapEx, and there is multiple levels of discussions before we spend money on that. Overall, if you look at it, you know, the net debt levels have been, you know, kind of, improving, and we don't see an issue on that. I mean, I don't know whether you have a specific question on that. No, sir. And would you have any, you know, since you have some idea about the CapEx in the fourth quarter, anything, any idea about where we could end up fiscal 2023 at? Because, I mean, the EBITDA margin is expected to be better given the volume. So do you think that this could improve significantly over the next quarter? So you see, as I mentioned, I stand corrected on that. It is not INR 343 crore, it is INR 321 crore, right? So the CapEx was INR 321 crore. We had, at the beginning of the year, if my memory serves me right, we had said that it'll be around INR 750 crore, maybe we'll end up with INR 600 crore. All I can tell you at this moment is, you know, we have two months more left. You know, it should be lower than INR 600 crore, definitely. Maybe we will even take it a little lower than that, but we'll share that. All I can tell you that it's not a material amount of CapEx that we have today. Sure. Thank you so much, sir. Thanks. That's all from my side. Thank you. We have the next question from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead, Jinesh. Hi. My question pertains to the CapEx itself. I mean, given that we are expecting a strong growth to continue in FY 2024 and given our other investment programs, should we look at increasing pace of investment going forward for the future growth, both on product and capacity side? Chairman, would you want to take that? I would. Yes, sure. I think, you know, on the capacity side, we are, as Gopal was saying, we are looking at all the internal efficiencies that we can bring in, debottlenecking within the plants wherever there are possibilities. So based on the current volume that we're foreseeing, I think we should be able to manage with the capacity that's on ground. We do not want to get into creating more overheads at this point of time. With regard to the product, as you recall, the introduction of AVTR as a modular platform, the benefit of it is that there's very minor modifications. We are able to meet whatever the customer requirements are and in alternate fuels as well. So even moving to whether it's CNG, hydrogen, LNG. And I think that's the benefit of the AVTR platform. That was the high CapEx that we went through. There are certain product categories that we are not currently present in, and we would be looking into, you know, setting up any gaps that we have in the portfolio. At this point of time, I think we are not seeing anything substantial to hit our CapEx requirements. Okay. Okay. Just to clarify, the investment on the electric vehicle products, particularly on the LCV side, will be done through Ashok Leyland, and not through Switch. Is that correct? No. Like, all the products coming out of Switch, the CapEx will be borne by Switch directly. And so of course, there is agreement between Ashok Leyland and Switch based on which the products would be utilized, but all the CapEx required for the electrification will be borne by Switch directly. Product investment would be at Switch level, not at Leyland level. That's right. Got it. Got it. Great. Thanks, and all the best. Thank you. Thank you. We have the next question from the line of Mukesh Saraf from Avendus Spark. Please go ahead. Good afternoon. Thank you for the opportunity. Just the one question from my side on the fleet operators. So what we are hearing from large ones, such as VRL, is that the smaller and more unorganized fleet operators are losing out. The question here is, what does this mean for us? And do we see the product mix may shift towards larger trucks or maybe even fully loaded trucks? And on the other side, does it also mean that the pricing gets a lot more competitive, given that the large operators might bargain harder? So how does this play out for us? I think, you know, from a product segment perspective, irrespective of the buyers, whether it's first-time users or whether it's fleet operator, what we see is that there is a clear segmentation on the delivery models that people require to buy from an LCV. ICV is still remaining the larger segment of the market. We are looking at a fleet between nine- to 18- ton or a product range between nine- to 18- ton. Still it's a very large segment. So while we're looking at the whole distribution cycle, the last mile delivery to the long distance that's needed, across the country, I think we will continuously see all the different product categories are growing based on the market demand. And yeah. Sorry, what was the second part of your question? It is basically, when you deal with, say, larger operators, would it also mean that, you don't get that much of a pricing power with them? Well, I think a lot of it also depends on the demand itself, and today the demand remains very strong. And the competitiveness of our, of the other OEMs as well, how they are pricing. But as we are seeing currently, the prices would be, we are improving realization based on the current demand requirements. So I'm not seeing any decline or reduction in terms of our ability to price our products. All right. Sure. Sure. Thank you. That's about it from my side. Hello? Hello. That was the last question. I would now like to hand you over to the management for closing comments. Thank you, and thank you for your interest in Ashok Leyland. And I think as we mentioned, we've had a good quarter. We're seeing this trend to continue, the government's commitment towards their CapEx and possibly the scrappage scheme introduction as well, all hold good promise for our sector. We have grown our market share in the last few quarters, and we continue to do so. And this is across the country market share growth and across the various product segments as well, including the passenger vehicle side. All in all, we remain very upbeat in terms of the prospect for this industry and for Ashok Leyland as a whole. Gopal, would you like to add anything further? I think you kind of wrapped it up, Chairman. So, you know, I think we hope that, you know, we are able to continue with the performance and the macroeconomic factors continue to support the growth of the industry. You know, we'll have more to share in the fourth quarter. Thank you very much. Thank you.