Ashok Leyland bets big on modular platform, says it will reduce the cost of ownership for customers

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Excerpts from an interview with Mr Anuj Kathuria, Chief Operating Officer (COO) – Ashok Leyland aired on CNBC18 TV on 22^nd February 2020:

• After unveiling tractor-trailer in 46-tonne category range, Hinduja Group flagship Ashok Leyland COO said modular platform range will reduce the cost of ownership for customers and the company is offering few vehicles to select customers.
• Mr Kathuria said that the modular platform is going to have an entire range of vehicles starting from the 16-tonne right up to the 55-tonne. The platform allows the customers to configure the vehicles as per their applications and business requirements. It naturally would help them get a superior total cost of ownership and total cost of operations. It reduces the number of parts that are required to build vehicles. It inherently ensures better aftermarket support.
• He added that the modular platform vehicles are BS-VI compliant. The technology used on BS-VI is mid-NOx technology that ensures the operating cost or the fuel efficiency or the fluid efficiency is best-in-class.
• About the transition from BS-IV to BS-VI, he said that the offerings that Ashok Leyland can make to the customer are many more. They increase multi-fold but definitely there will be certain sweet spots in the configurations. However, if tomorrow a customer comes up with a new application and new requirement, it can be configured very quickly, most of the configurations are being homologated, so the time to market would be significantly different on this platform.
• According to him, the Medium and Heavy Commercial Vehicle (M&HCV) growth is linked to the economic growth of the country.
• The decline in demand for M&HCVs has been up to 45%. From his point of view, this decline is a combination of the cyclicality as well as certain structural changes that happened. Thus, the CV (Commercial Vehicle) industry will have to wait and watch the axle load norms that brought in excess capacity overnight of almost 20-25%. This would take some more time to be absorbed by the industry.

Consensus Estimate: (Source: market screener website)

The closing price of Ashok Leyland Ltd. was ₹ 81/- as of 25-February-2020.  It traded at 43x/27x/17x the consensus earnings estimate of ₹ 2.0/ 3.2/ 5.0 for FY20E/ FY21E/ FY22E respectively.