As part of our  Walk the Talk series started last quarter, we look at the quarterly results and conference calls of companies in the selected industry and provide our insights. In this post we look at the Q3 results and conference calls of Auto Majors.

This post covers the Auto Majors – Ashok Leyland, Eicher Motors, Hero Moto Corp and Maruti Suzuki.

Auto industry has been seeing a lot of change in recent times. The major change started with BS IV implementation last year and since then the industry has seen further changes in regulatory framework such as five year mandatory third-party insurance coupled with at least one year 15 lakh personal accidental cover. The recent NBFC crisis and increased raw materials cost have put pressure on Auto industries sales and margins. To understand the Industry better, lets take a dive into the discussions and opinions put out by the management in Conference Calls.

Ashok Leyland

Ashok Leyland has been the market leader in Heavy duty trucks and has lately moved into light commercial vehicles. NBFC crisis, deep discounting by peers, higher commodity prices, lower festive offtake has pushed the sales down. Uncertainty in axle load norms was another thing which has dampened the growth in commercial vehicles. Ashok Leyland has been treading cautiously and is not getting into price war.


Total industry Volume (TIV) has been down by 7% in last quarter, owing to high base effect last year. Cumulative growth till Dec-18 is at 25% for TIV. Ashok Leyland volume was down by 11% in the Q3FY19. Same quarter last year volume was up by 40%. Cumulative growth till Dec-18 for Ashok Leyland was at 20%.

  • Revenue was down by 12% and volumes by 11% YoY for the quarter. Management its mainly due to high base effect in last year.
  • Market share declined by 1.5% in the quarter and stands at 31.9%. For nine months ended Dec-18 market share at 32.5%.
  • January has been more of flattish in nature. Recorded MHCV market share of 36.5% for the quarter.


Ashok Leyland is constantly trying to maintain its EBITDA margins in double digits. It doesn’t want to get back into single digit margin mode again. Ashok Leyland has resorted to cost cutting measures to enhance the margins. Neverthelessm LCV business is low margin, high volume business. Its MHCV is high margin business.

  • Margins have come down by 130 bps for the quarter. Still at double digit of 10.3%.
  • Will be doing modularity to reduce costs. The margin expansion due to that will be at least 150 bps. Ashok Leyland will also be redrawing operational cost
  • Furthermore margin expansion will be done by cutting down on logistics costs, improving aftermarket sales (high margin business) and no heavy discounting.

LCV Merger and LCV Business

Ashok Leyland has recently merged its LCV business with its MHCV. Ashok Leyland plans to offer entire segment of LCVs by 2020. This will help Ashok Leyland to cater to all sub-segments of commercial vehicles starting from ICVs to MHCVs. These are also left hand drive compliant and are fit for exports as well.

  • LCV business is currently contributing Rs 500 crs of revenue, which is higher than revenue from bus segment, which stands at Rs 439 Crs.
  • LCV market share of 18% in Dec-18. Increased to 19% in Jan-2019.
  • Has created tax benefit 84 Crs for the quarters. Full year is pegged at Rs 250 Crs.
  • LCV merger will create synergies and controlling fixed costs and will also help in greater flexibility in decision making.
  • Adding more vehicles in LCV segment to enhance market share.
  • Partner and Dost are doing extremely well in LCV segment. These are very much crucial for export strategy. The new launch Partner is roughly selling 500 units per month.
  • Dost has been the growth engine in LCV segment due to its low maintenance, higher warranty and higher operability with lower cost.


Ashok Leyland has set aside Rs 1000 Cr each for FY19 and FY20. The capex will be spent on technology development and capacity expansion.

  • 9MFY19 Capex at 600 Crs till date. Will be doing another 200-300 Cr for the year.
  • Capacity augmentation at Hosur will also be undertaken this year.
  • Next year capex will be mainly spent on building Electric Vehicle portfolio and new manufacturing facilities.
  • Due to out of the box thinking Ashok Leyland was able to double its paint booth capacity by spending just Rs 35 Cr, which otherwise would have costed them Rs 300 Cr. They will be using double dip technology in paint booth.

Financing Division

Financing parts an important vertical in commercial vehicles. Without financing selling CVs becomes very much difficult. Companies like SRTransfin do solely commercial vehicle finance. Ashok Leyland also has a subsidiary Hinduja Leyland Finance, which takes care of commercial vehicle financing needs of Ashok Leyland customers.

  • Has a loan book of Rs 20,000 Cr.
  • No major NPAs and NPAs are well within the range..
  • The book consists of 50% of MHCV loans and the rest 50% is split between LAP, Construction Equipment, Two Wheeler etc.


Exports though is not a major front for Ashok Leyland. Still it is the path were more growth can be achieved. The overall export market has been pretty much dull for Ashok Leyland. Will be making LCV segment export ready followed ICV segment.

  • The safest market for Ashok Leyland is Middle East. Middle east has shown a slower offtake.
  • Sri Lanka was also having degrowth due to political instability.
  • Bangladesh market has been good for Ashok Leyland as they have won some tenders over there.

Price Increase and Discounting

Due to increased costs Ashok Leyland took a price increase in November. Excessive competition with increased inventory has pushed for price discounts.

  • Net price realization was flattish as price increase was done in April followed by November. Where as commodity prices have been going up all along.
  • Price increase has not been done across all segments. Price increase has been done for vehicles which have higher demand and the customers have elasticity to absorb price increase.
  • The average discounting was at 4-4.5 lakh per vehicle. Which is significantly lower compared to peers.
  • To not getting into pricing war fare, Ashok Leyland took a hit on its sales and didn’t go after deep discounting. Thus its market share reduced to 1.5% for the quarter.
  • Have done 2% price increase in January 2019, despite that market share of LCV increased by 1% in the month and the inventory level came down by 3,000 units. It was at 13,000 units at the end of Dec-18.


Ashok Leyland stated that their entire portfolio is ready for BSVI compliance. Management said they are trying to outperform the BS VI norms and get the vehicles future ready. Due to implementation of BS VI pre buying will start happening in second half of FY20.

Other Notable Points

  • Ashok Leyland is trying to bring up an entire portfolio from 1.5 ton to 12 ton. This will give them more head room for growth. Currently their ICV market share at 22%.
  • If old vehicle scrappage policy (money is given to scrap your old vehicles) is implemented, then most of medium fleet owners will try to cash in. This will increase the demand to the tune of 1,75,000 – 2,50,000 vehicles.
  • Aftermarket revenue at Rs 1,000 Cr in last 9 months. Prior to that 12 months revenue was at Rs 1,100 Cr. Aftermarket business is the area to grow and is a high margin business.

Future Guidance

Ashok Leyland has stated the core demand of heavy vehicles will tend to continue post elections. Till then growth will be more of flattish in nature. Margin expansion is one thing Ashok Leyland is running after. FY20 will see growth due to pre-buying before BSVI. Post that FY21 might again end up flat. Only margin expansion will aide bottom-line growth. Its LCV business, exports and aftermarket are the growth engines going forward.

Eicher Motors

Eicher Motors which sells both Royal Enfield motorcycles and VECV trucks has seen lot of turbulence in last quarter. The quarter started of with strike at its Oragadam by employees, then Kerala floods, NBFC crisis and launch of its competitor Jawa. Apart from this the general problems in industry like NBFC crisis, increased price due to insurance and increased raw material cost has impacted the top line and bottom-line of Eicher motors.


Eicher Motors sales have increased despite volume being down. Higher price realization is one of the reasons. Overall motorcycle industry was down by 14% QoQ, whereas Royal Enfield was down by 6%. Total sales volume at 1.94 lakh units and inventory level of 5 weeks.

  • Revenue was up by 4.4% YoY despite volume being down by 6%.
  • EBITDA margins have been at 29%. Slightly down owing to additional expenses due to launch of Twins in Indian and international markets.

Price Increase

Increase in raw material prices, implementation of ABS and CBS and new insurance norms have all pushed up the retail prices of Royal Enfield bikes. Some of the price increase has been taken up by Eciher motors and other is due to Insurance. In all Royal Enfield retail price increased by Rs 21,000-25,000 on individual models.

  • The 25,000 hike in prices will impact the salesin shorter term according to management as Royal Enfield is bought because of its intrinsic strength in brand rather than just pricing.
  • Due to problems in NBFC space the impact has been more than expected as a retail customer would have mentally prepared to shell out 1,30,000, but now will go back and saying it will be costing 20,000 more without financing option.
  • Royal Enfield further increased price by Rs 1,400 across all models starting from Feb 2019.
  • Price realization has jumped by 5%.
  • 85% of the portfolio has been shifted to ABS technology.


Royal Enfield always had a waiting period since the start, and they had somehow manged to do that till now. But things are looking bleak at this moment. Royal Enfield always had increased capacity in line with future demand. This time it had been caught on wrong foot.

  • Earlier guided production number was at 9.5 lakh for 2018-19 and now the numbers are looking close to 8.7 lakh to 8.8 lakhs.
  • Cushion of booking has come down in last quarter. Also the walk ins have declined.
  • Strike at Oragadam, which lasted for 50 days has resulted in production loss of 30,000 units for the quarter.
  • Capacity will go up to 1.25 million units by the end of calendar year 2019.
  • Phase-II of Vallam Plant underway. Will get consolidated in new facility by middle of this year.

New Launches

Royal Enfield has launched two new bikes in 650cc segment called as “Twins”. Twins has seen lot of demand lately and management is bullish on the product. According to the management Twins is the upgrade for existing Royal Enfield users. Apart from that Eicher has launched two new trucks in Eicher Pro 6000 series (48 tons and 55 tons)

  • January saw Twin production of 2,000 units and slowly it will be ramped upto 4,500-5000 units by April- May.
  • Twins are also launched in various markets in of course US was earlier, UK, Europe, Thailand, Indonesia, Brazil, Columbia, Australia and shipments have commenced.
  • Waiting period for Twins is at 6 months.
  • Eicher Pro 6000 series will expand the range of Heavy-duty trucks.

Dealer Network

Dealer Network of Royal Enfield is the one thing to boast about. It currently has 878 stores pan India and exclusive store count outside India at 42 and an additional 500 plus multi brand stores. Even with this kind of network, Royal Enfield has been setting up new dealers after careful calibration

  • 20 new dealers added in last one quarter in India. Also added new stores in Columbia.
  • New dealers are coming in smaller towns. The new dealer is added if the distance from nearest dealer is greater than 50 kms and the current location has higher potential and existing customers are unwilling to travel more than 50 kms for servicing.
  • Typically big dealers in cities are selling 200+ per month whereas smaller dealers sell roughly 20+ units in a month.

Competition from Java.

  • 10 years of excellent growth of nearly 20x and margin expansion from 10% to 30% is obviously attracting a lot of people to enter our market
  • The Royal Enfield brand and the pan India dealer network is something which new entrants don’t have. Their will be much hype on the new entrants but eventually will die down.
  • If the new entrant is very good, then we will see market expanding as has been the case.

Volvo-Eicher Commercial Vehicles

Volvo and Eicher has a JV for manufacturing of commercial vehicles. VECV is strong in light commercial vehicles, but lately has been trying to gain market share in heavy duty trucks. The salient points of the business for the quarters are as below.

  • Revenue of Rs 2,800 Cr, a 9% increase YoY.
  • Total volume for the quarter was at 17,000 units, which is a 4% increase YoY.
  • Light and Medium duty truck volume grew by 9% (in line with industry) and Heavy duty grew by 4% (industry degrowth at 13%). This has resulted in gain in market share of 5.2%.
  • EBITDA margin down from 8.7% to 6.6% due to increase in raw material costs and heavy discounting in heavy duty trucks.
  • NBFC crisis has hit the sales and causing reversal of growth which otherwise was string in first half of the financial year. The impact can still be even after 4 months and might continue till Q4FY19.

Other Notable Points

  • Royal Enfield has market share of 34% in Kerala, whereas its national average market share stands at 6%. Due to floods, the market has seen a degrowth and is not come back yet. UP is the second biggest market after Kerala.

Hero Moto Corp

Hero MotoCorp has been dominating the two-wheeler space. Its wide array of portfolio gives it a added advantage to its peers. This quarter was bit difficult for them as well, the growth was not as expected. Revenue growth for the quarter was at 7.5% and Net profit declined by 4.9% YoY. Revenue from parts business stood at Rs 730 Crs. A growth of 5.5% YoY.

Raw Material Prices

Raw material prices have been comparatively high for Hero Motors. Headwinds of commodity prices has been impacting margins for last 7-8 quarters. In last one-month commodity prices are softening and will provide some relief.

  • To absorb commodity price increase, Hero has raised prices of vehicles by Rs 500-600 across all models at ex showroom level.
  • Softening commodity prices will help to absorb other impacts like price hike due to regulatory changes.

Inventory Levels

Inventory levels have shot up due to muted demand in festive season. Also, the insurance thing has added more to the problem. In line with that dealer inventory has also increased.

  • Extension of credit lines to dealers to keep off pressure from inventory build-up. Hence increase in trade receivables by 10 days for Hero.
  • Inventory levels used to be at 4 to 6 weeks. Currently at 6 to 8 weeks.

Cannibalisation In Portfolio

Scooters has been the growth trigger for two-wheeler automakers. The 125-cc segment is the one everyone was eyeing. With increased fuel prices customers are moving more towards 100 cc Splendor or a 125-cc bike rather than scooter. Technically scooters are less fuel efficient compared to motorcycles.

  • 100 cc scooters there is decline by 4% YTD.
  • Even with new launches like Destini 125 cc, Hero’s market shares for 125cc segment (scooters + motorcycles) sits at 58%. Out of this Splendor itself is 25-30%.
  • Duet sales have fallen from peak of 20 odd thousand to 5,500 units.


Financing is a lucrative deal, especially in two-wheeler business. Hero also has a finance wing of itself, which caters all the financing needs of two wheeler customers. The recent NBFC crisis has hit the sales.

  • Two-wheeler financing is at 37-40% with 3.96 lakh vehicles financed in last 9 months (2.48 lakhs earlier).
  • Hardening of interest rates had a small impact on sales as the ticket size is very small.


Bangladesh and Colombia are doing well, where as Sri Lanka has slowed down. African market is doing good but require little tweaking. For instance, Nigeria market is more of bike taxis rather than retail. So, Hero needs to tweak its model slightly to cater the emerging needs.

Other Notable Points

  • Setting up a Tech centre in Germany for R&D. This will help in delivering technically superior products in future.
  • Other income is returns from investment in debt funds. Other income is generally mark to market gains or losses.

New Launches

In Q3FY19, Hero launched two new vehicles Destini 125 (Scooter) and Xtreme 200R (Premium Bike). Hero didn’t have powerful product in 125-cc scooter segments, with Destini 125 the void has been covered. 125 cc scooter is the fastest growing segment. Xtreme 200R is the refreshed model in premium motorcycle business, which are high margin business.

  • Destini 125 has already picked up 10% market share in 125 cc scooter in last three months. Xtreme 200R has been bit slower, management anticipates the sales will increases gradually.
  • Destini 125 at the end of Jan 2019, is close to hitting 14% market share with 17,000 units. Xtreme 200R needs to be supported by other launches to make it a better portfolio in that segment
  • Maestro Edge 125cc and XPulse are the other two new premium segment launches coming up in months ahead.

BS VI Transition

According to Supreme Court order by April 2020, all new vehicles to be BSVI compliant. In line with that Hero Motors has been changing its portfolio to adhere BSVI norms. Hero has said the work for migration is in process but has not given any specific numbers. The priorities in BS VI implementation will be as below

  • Make the complete portfolio to BSVI compliant
  • To Make the new system cost effective
  • To decide on the pricing of individual products depending upon peer competition.

Due to BS VI implementation their will be a lot of pre buying happening in second half of FY20. Hero expects a high growth in that period.

Apart from BSVI, Hero also needs to adhere to CBS and ABS norms by April 2019.. As part of that Hero has migrated all its models to ABS and CBS. Currently 50% of its production is already compliant with ABS and CBS.

Future Guidance

Hero stated that rural demand continues to be muted due to lower sowing in Rabi season. Also the price increase due to insurance, NBFC crisis and increased fuel prices have pushed the sales down. Hero hopes Q4 to be comparatively better due to more festive and marriage dates. And also traditionally Q4 always has been stronger.

Apart from that Hero is hoping government will bring down the GST rate on two wheelers from 28% to 18% as these are not part of sin goods or luxury. These are more of mass mobility and generate significant amount of employment.

Maruti Suzuki

Maruti Suzuki has been leader in its space. It has followed the industry trend line. According to SIAM, the guidance of industry was at 8-10% for the year, but for 9 months ended the industry could grow only 4.4%. Maruti grew by 7.2% in same time declined by 0.6% in the Q3FY19.


Maruti Suzuki has seen lack lustre sales in last quarter. Demand was weak in festive season owing to various factors like increase in oil prices, hardening of interest rates due to NBFC crisis, increase in insurance costs etc. Increase in insurance cost itself was to the tune of Rs 14,000 – 15,000 per vehicle.

Most of the demand is coming from rural segment. Sales growth in Urban area was almost flat, and it was nearly 13% in the rural markets. Currently rural markets contribute nearly 39% of the revenue.


  • Net sales of Maruti Suzuki was down flat at 18,926 Cr YoY and Net profit was down by down 17.2% YoY. Sales volume was at 4,28,643 vehicle which is down by 0.6% YoY.
  • Out of the total revenues export revenues are pegged at 1158 Crs.
  • Exports in Indonesia has almost stopped

Margins have taken a hit by almost 500 bps for Q3FY19. Various factors have contributed to margin decline. Maruti Suzuki has on standard basis maintained a margin of 15-16%. Increased in raw material cost, Forex impact, Sales promotion expense, higher depreciation and inventory adjustments have impacted the margin decline.

Raw Material Prices

  • Commodity prices have impacted margins by almost 1%. Commodity prices have slowly started to soften down and this will have a lag effect of one quarter for the Maruti.
  • Typically contracts for Steel are for 6 months and Aluminium contracts is on monthly basis. Maruti renegotiates the prices if the divergences is very large. Change in commodity prices will have a lag effect of one quarter.
  • Have increased prices to mitigate commodity costs going ahead.

Forex Impact

  • Forex impact for Maruti has been 0.7% on margins. Which is significant as traditionally it used to be a smaller amount.
  • The negative forex impact comes due to rupee depreciation in terms of Yen.
  • Maruti pays a royalty of 5.5%, which is mainly Yen dominated.
  • Recently their has been change in strategy to pay royalty in terms of Ruppe. In line with that new models like Ignis, Dzire, Swift, Brezza, Ertiga and Wagon R royalty has been paid in rupee terms. By 2022 all the royalty will be paid in terms of ruppe.

Due to lack lustre festive sales and increased inventory levels at dealer levels, Maruti has done price discounts on individual models. This has helped to offtake 90,000 vehicle from the dealer shelves (retail). The inventory days to average monthly sales has come down to 15 days as a result. Normally the inventory level will be to the tune of 28-35 days.


Discounting was at all time high for the quarter. Spending on advertisement and marketing coupled with discounts have impacted the margins by 1%. Another 0.3% impact on margins was on account of inventory adjustments.

  • Discounts for this quarter were at Rs 24,300 per vehicle. For last nine month the discounting rate stands at Rs 19,200.
  • Market competition in discounting was still higher. Peer automakers offered 50% more discounts than what Maruti has offered.


Depreciation was higher for the quarter owing to installation of some new plant and machinery. Fixed costs impact will be their till full capacity ramp up is achieved in the new Gujarat Plant.

To keep the growth engine going, Maruti Suzuki always comes with new models/variants. This year was no different as they launched a refreshed version of Ertiga and an all new Wagon R.

New Variants

  • Ertiga has more than 55,000 bookings with an waiting period of 28 days. Wagon-R has 14,000 bookings post 10 days of launch
  • Maruti Suzuki has done a good amount of branding exercise on the above two models. Sequentially the spending on marketing has gone up by 78 Crs.
  • The waiting period will reduce as the capacity is ramped up. Ramp up will be in ine with demand.

Future Guidance

Maruti Suzuki admitted demand is going to subdued in coming quarters. But assured macro factors like good monsoon coupled with higher MSP and lower oil prices will help improve their sales. Also the two new launches will provide the much needed impetus. Maruti has said it will grow more than the industry in FY20 and didn’t give any specific numbers.

Maruti also stated the margins might improve compared to last quarter, owing to no new discounting, softening raw material price, stable rupee etc.

NOTE: As a disclosure some Capitalmind authors may own the above company in their stock portfolios. There is no other relationship between Capitalmind and the above company. Please do not consider this article as a recommendation, It is purely for informative purpose only.

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