Ashok Leyland Limited (NSE:ASHOKLEY) Q2 FY23 Earnings Concall dated Nov. 11, 2022
Corporate Participants:
Dheeraj Hinduja — Chairman
Gopal Mahadevan — Chief Financial Officer
KM Balaji — Deputy Chief Financial Officer
Analysts:
Annamalai Jayaraj — Batlivala and Karani Securities — Analyst
Pramod Kumar — UBS — Analyst
Jinesh Gandhi — Motilal Oswal — Analyst
Kapil Singh — Nomura — Analyst
Amyn Pirani — JP Morgan — Analyst
Chirag Shah — Nomura — Analyst
Pramod Amte — InCred Capital — Analyst
Vipul Kumar Shah — Sumangal Investments — Analyst
Raghunandhan NL — Emkay Global — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Ashok Leyland Limited 2Q FY ’23 post-results conference call hosted by Batlivala and Karani Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr Annamalai Jayaraj from Batlivala and Karani Securities. Thank you and over to you sir.
Annamalai Jayaraj — Batlivala and Karani Securities — Analyst
Thanks, Vivien. Good afternoon, everyone. On behalf of B&K Securities welcome to 2Q FY ’23 post-results conference call of Ashok Leyland Limited. I also take this opportunity to welcome the senior management team of Ashok Leyland Limited. We have with us today Mr. Dheeraj G. Hinduja, our Executive Chairman; Mr. Gopal Mahadevan, Wholetime Director and Chief Financial Officer, and Mr KM Balaji. Deputy Chief Financial Officer.
I will now invite our [senior] management for the opening remarks to be followed by question and answer session. Over to you sir.
Dheeraj Hinduja — Chairman
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-through Q2 performance as well as some of the latest development. I’m extremely happy to share that Q2 FY’23 continue to be good aided by strong performance in domestic truck sales with a 32% market-share. This is almost a 10% increase over our market-share during the same-period last year.
This is the third consecutive quarter of 30 plus market-share for Ashok Leyland. In Q2, MHCV truck volumes have grown more than 1.5 times of the industry growth. AR growth at 102% versus TIV growth at 39% resulting in Ashok Leyland market-share improving to 32.3% as compared to 22.2% in Q2 of last year. Sequentially also in Q2 as AL MSV truck market-share has grown by 1.2%. Our market-share has grown to 32.3% in Q2 from 31.1% in Q1. EBITDA for Q2 was at INR537 crores 6.5% as against INR135 crores which is 3% in Q2 last year. LTV which was on a growth rate has been marginally impacted both semiconductor shortages. But for Q2, volumes were still higher than last year by 28%. International operational sales have registered a 25% year-on year growth in Q2.
Q2 domestic aftermarket sales grew at 26% over same-period last year. The Q2 operating profit was at INR303 crores as against the loss of INR116 crores in Q2 of last year. Working capital has increased by about INR650 crores during the quarter primarily due to increase in activity levels. Consequently, our net-debt has increased by about INR400 crores in this quarter. Debt-equity is at 0.4 times versus 0.5 times during the same-period last year. During the quarter, we have launched [48 25] tractor with eight, six, four valve engine, Avtar 4220 and 4420 tractor, 4120, 30 foot and 32 foot box 1920 cargo six by four readimix concrete. !920 with G45 CS expanding our range. I am extremely confident that with these launches and the continued expansion of network, we will sustain the market-share gains achieved in last four-quarter. The growth in MHCV trucks TIV in Q2 and LCV trucks is supported by the improved freight availability and growth in end-user industry in addition to pent-up replacement demand.
Freight rates have held up coupled with healthy freight availability supporting the fleet operator viability. Domestic commercial vehicle industry volumes to witness growth in FY’23 in-line with economic recovery, post volume recovery in FY’22. FY’23 is set to register 22% to 24% year-on year growth as per CRISL. Though volumes will still be lower than the peak — previous peak of FY’19. MHCV trucks are expected to grow by 21% to 23%, buses by 103%1to 05% and LCV trucks by 18% to 20% as per CRISIL. On a longer-term CRISIL expects commercial vehicle demand to grow at a robust 10% to 12% CAGR for a Five-Year period between FY ’22 and FY ’27. Historical data shows a high pace of revival in commercial vehicle demand in the past.
Demand for CVs to remain robust in the long-run. CRISIL expects bus segment to outperform in the long-run over a low-base. This will add to our volumes and market-share as Ashok Leyland is a leader in buses historically. With further demand growth, we are expecting pricing to become more rationale. The softening of commodity prices in particular for steel should impact the margins positively in the coming quarter. Ashok Leyland, even while growing market-share sequentially have been raising prices owing to higher input costs. What is good to see is that retention of such price increases is better. LCV both Dost and Bada Dost are gaming in-roads and had been growing stronger by the day and volumes are limited by the availability of semiconductor. Both these products hold immense potential for export and a perfect fit-in our addressable market.
Aftermarket and international businesses continue to perform well. We are also putting efforts in reducing costs both product costs as well as overhead. Switch which is an important initiative for us. I would like to reiterate our commitment to developing Switch as a global electric vehicle company. So-far we have been successful in establishing a name and a platform as a credible EV manufacturer in the industry. You are already aware that in India, we are growing our sales pipeline quickly and delivering a competitive product range. In the UK and Europe there is headroom for growth. Amidst challenging economic environment, we are chalking out our plans to utilize these growth opportunities fully by placing higher-quality cost-effective products. Regarding funding for Switch, we are in active discussions with investors and it is taking longer-than-expected as we would like to choose the right partner.
Finally, before I open the floor for questions, let me share the financials in brief. Revenue for Q2 at INR8,266 crores which is 85% higher than Q2 last year. Manpower cost in Q2 is higher than previous quarter by INR82 crores due to increment, bonus settlements and performance bonus provision restatement. EBITDA is at INR537 crores which is 6.5% in Q2, up from a INR135 crores. Profit-after-tax, after exceptional for the quarter was at INR199 crores versus a loss of INR83 crores in Q2 of FY ’22. Operating working capital for Q2 was at INR490 crores as against the negative of INR167 crore as of June ’22. Increased activity levels have necessitated increased working capital during the quarter. Net-debt was at INR2,677 crores in September ’22 as against INR2,281 crores in June ’22. Debt equity at the end-of-the quarter was at 0.4 times. Capital expenditure for the quarter was at INR103 crores. Cumulative spend for first-half was at INR618 crore, sorry INR218 crores.
CapEx spend for the full-year is estimated to be INR600 crore. I now open the floor for questions. Thank you.
Questions and Answers:
Operator
Thank you [Operator Instructions] The first question is from the line of Pramod Kumar from UBS. Kindly proceed.
Pramod Kumar — UBS — Analyst
Yeah, thanks a lot for the opportunity. So my question is regarding some ICDs which have cropped up again. Can you please help us understand why we are doing those? And the rationale for continuing to lend within the Group and we also have debt on the balance sheet, so if you can just explain that bit please?
Gopal Mahadevan — Chief Financial Officer
Hi Pramod [Technical Issues] we have to mention it that way. This is actually a short-term loan that has been given to our own subsidiary Switch and nothing more than that, so the entire amount of INR200 crores has been given at — for kind of helping them execute some of the orders that they’re getting. Switch has got some great orders in place. The BMTC, the BEST double-decker plus the existing orders, so that’s what it has been given for. It has not been given for any other group coverage to our own subsidiary.
Pramod Kumar — UBS — Analyst
And but Gopal, I’m just trying to understand the funding bits here because they’ve been talking about raising money at such — for almost a year now. So what is the way out if you’re not able to find any private-equity investor at your term. I believe it’s more about the terms and the restrictions which come with those funding right. So, is there a plan that you may think of eventually funding this yourself by raising equity at Leyland’s level?
Dheeraj Hinduja — Chairman
Pramod, hi, no, I think like you rightly said, there is interest in electric vehicles from many private equities and sovereign wealth funds as well. We have been delayed as you point out but we do feel that this delay, one should not affect the long-term potential in this sector and secondly, I think it is only right that we should get the right terms, conditions, valuations et-cetera. The EV sector globally as you would have seen has taken somewhat of a beating because many companies have raised capital at substantial valuation. We have taken a very cautious approach. I think our business plan is very credible and I would say that we do have opportunities of closing the funding. But I think, it would be in the interest of all investors, stakeholders to ensure that we do tie-up with the right partners.
Pramod Kumar — UBS — Analyst
And related to it and the last question, given the expected price inflation on the diesel vehicles because of RDE and the fact that CNG demand is now tapering off because of runaway CNG prices, so is there any timeline or thought process on accelerated rollout of EV especially in the light tonnage categories because that’s where the electrification is kind of picking-up very rapidly, so Dheeraj, it would be great if you can just share your strategy here as to by, if any timelines on number of product launches or categories which you’d like to address using the EV format? Thank you.
Dheeraj Hinduja — Chairman
Yeah actually, this is something we had spoken out last-time as well. We will be launching the electric versions of the Dost and Bada Dost in the middle of ’23 — 2023. And you’re right, we see increased requirements from many courier companies, logistics companies within cities for last mile delivery. They are asking for electric vehicles. But I don’t feel that when you look at the overall volume between where diesel is today, let’s say, between 400,000 to 500,000 LCVs while the electric vehicles are making a headway, I still believe, it’s a long way till you really look at affecting the diesel market, so, yes there is growth, there is potential. But I do feel that it will be a slow rise and it will be more a B2B business to begin with rather than retail.
Gopal Mahadevan — Chief Financial Officer
Just to add to what Chairman said, Pramod. We will be definitely there in a multiplay approach, so our investments in EV, which is why we are very-very careful about the investor that we want because this is long-term play. Whatever we see in the business with today is what we’re going to have in the future, so we have decided like Chairman said that we would want to get the right kind of investors and rest assured that just as we have got on to the EV bus — business and have been doing well, we have very clear plans for LCV as well.
Pramod Kumar — UBS — Analyst
Yeah thanks a lot, thanks a lot both of you, best of luck thank you.
Operator
Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal, kindly proceed.
Jinesh Gandhi — Motilal Oswal — Analyst
Hi. My first question pertains to the pricing trend in the market, so you alluded to the fact that prices have been increased and retention has been better, so can you quantify that in terms of what kind of price increases we took in 2Q and 3Q till-date? And how the trends on discount?
Gopal Mahadevan — Chief Financial Officer
In Q1, I think, Dinesh we have been actually raising prices, that’s why I mean just wanted to give, if you look at our EBITDAs in relation to the market, you would see improvement even though we are playing in the same field right and this has been because of a conscious effort of two-three things. One is price increase where in Q1, we did about 1.8% 1.9%. In Q2, we did another 1% and very recently, we have announced almost another 1.9% price increase, 1.5%, so we have been consistently raising prices and we will continue to do that. But at the same time, if you notice, we were the only large player to have gained market-share in Q2.
We were the only players in MHCV to have gained market-share, so this has come very-very astutely and why this has come is also because we have been asset — as you know Chairman and I had mentioned in our previous calls, we have been refreshing the network very intelligently bringing in partners who are confident of actually scaling up in some of the regions up in North, East Central and West and I don’t know whether you folks have noticed that, again, not only have we grown significantly, not only have we raised prices, we have increased market-share and more importantly, we have increased market-share in all geographies. Northeast, West, Central South we have actually increased market-share all through, so this has been a very — what should we say, a very planned and systematic approach of growth instead of just looking at either market-share or profitability. Like Chairman repeatedly says, we want to grow, certainly we will grow but we will grow profitably.
Jinesh Gandhi — Motilal Oswal — Analyst
Got it. And are you seeing discounts coming down or at least stabilizing given the demand environment in which we are in?
Gopal Mahadevan — Chief Financial Officer
See it has almost stable between Q1 and Q2, marginal differences have been there but we are trying, see what we are trying to do is to not participate in increasing it any further. Because you see one of the other points that I wanted to also share with you which is another kind of force multiplier for us in the excellent performance of the Avatar range of products. So when we are meeting customers, the feedback on the product is not neutral, it is positive. People are extremely happy with the robustness of the performance of Avatar range of products. The mileage that some of the skews are offering and which is why we are also able to get a slightly better realization. We had mentioned in 2020 that we will slowly start seeing the benefit of modularity and the technology that we are offering and, we’re seeing that on-the-ground happening today. Hopefully discounts will start coming off if — as the industry realizes that this has been a industry which has seen good cost increases, it took from BSIV to BSVI and then the steel price increases which happened which are now slowly coming off, so hopefully, we are expecting that discounts should kind of square off now.
Jinesh Gandhi — Motilal Oswal — Analyst
Sure, and there is a sharp increase in our staff cost on Y-o-Y in Q2 basis, is there any one-off or just it’s in-line with the level of activity which we had?
Gopal Mahadevan — Chief Financial Officer
Staff cost is what we did and we have decided that we have internal plans for bonus which are performance-linked, so we have actually kind of increased those provisions as well in the current quarter. And the second one, so we — that has stepped-up. We had been very — not conservative, we had taken a view in Q1 but we believe that things are getting better and we wanted to ensure that we start providing for it in Q2 itself, instead of waiting for Q4. We’ll make any adjustments that are required in Q4, depending on the achievement of the internal targets.
The second bit that has happened is obviously, we have — our teams have been supporting, working hard over the last two years, even three years without any raises, so we — the leadership team felt strongly that we needed to give salary raises to employees this year because it has been nearly three years of hardship. The third one which Chairman had mentioned in his opening comment was also on the settlement of workers that we needed to do, so that has also got accrued. Otherwise, we have — one thing that we are very careful about which we are investing heavily in technology as well is improving manpower productivity and ensuring that we are not adding to manpower.
Jinesh Gandhi — Motilal Oswal — Analyst
Sure and, lastly, any indication of RM cost, influence in 2Q and what you expect in 3Q?
Gopal Mahadevan — Chief Financial Officer
Yeah I’ll just give you a quick thing and Chairman, you may want to add also about the initiatives that we’re doing on the procurement side from the strategic side of it. Steel prices approximately had risen by about INR5 KG in Q1 and we actually saw almost a INR10 decrease in Q2, INR5 vis a vis what existed on 1st of April and then it came down by INR10 in Q2. Let’s — it looks like prices are softening further, which is good for us and we will continue to monitor this but we are expecting that steel prices should continue to soften as we move into the second-half as well, so now, Chairman would you also want to add about what we’re doing on the — on the sourcing the manufacturing product cost front.
Dheeraj Hinduja — Chairman
I think the key thing is that margins need to keep improving and as Gopal mentioned, products are performing very well and that is what’s leading to the market-share gain as well. But there is a lot of initiatives internally where we are looking at-cost reductions, again as Gopal mentioned, improving productivity. Naturally, material cost, we are with the volumes increasing, the economies will start kicking-in as well hopefully with some of our larger supplier, so we do feel going-forward with the softening of some of the commodity prices this should help us well. And of course with be LCV volumes, we do have an initiative, I mean on the value engineering of the product itself, so all I can say is that many-many initiatives going on internally by the senior team to ensure that margins on the product would be much healthier.
Jinesh Gandhi — Motilal Oswal — Analyst
Got it, thanks, I will fall back in queue.
Operator
Thank you. The next question is from the line of Kapil Singh from Nomura. Kindly proceed. Mr Kapil Singh, you are unmuted, kindly proceed.
Kapil Singh — Nomura — Analyst
Thanks. Can you hear me now?
Operator
Yes we can.
Dheeraj Hinduja — Chairman
Hi Kapil.
Kapil Singh — Nomura — Analyst
Hi sir. So, I had two follow-ups, small ones. On the employee cost, are you saying that the Q2 level is what will sustain going ahead? Or is it the H1 level?
Gopal Mahadevan — Chief Financial Officer
Well, we’ll figure it out because I think what will happen is as we see, it will be somewhere but the truth is somewhere between Q1 and Q2. The reason is we did a catch-up in Q2 right so Q2 has taken possibly the full impact of the catch-up that needed to be done, so we will see some softening in Q3, so the numbers will be somewhere in-between Q1 and Q2.
Kapil Singh — Nomura — Analyst
Yeah and second on the commodity costs because the RM to sales have seen an improvement of about [Speech Overlap] Hello?
Gopal Mahadevan — Chief Financial Officer
Sorry, Kapil, just wanted to say that the manpower cost absolute while you look at it. The other thing is we are also expecting the growth in the industry right so, we’re going to — we possibly will see growth in the top-line as we move forward into Q3 and Q4, so when you look at a percentage to revenue, we believe that that will actually come off. I thought I should clarify that otherwise you know absolute manpower cost is one part, yeah. Okay, back to you.
Kapil Singh — Nomura — Analyst
Yeah thanks, thanks. So when I look at the raw-material to sales, it has seen some drop nearly 100 bps but you took up prices by 100 bps and you also mentioned that the steel price during the quarter came down by INR10 rupees, so I’d imagine the benefit should have been larger or were you carrying inventory and therefore you have not got the full benefit of that drop in steel price [speech overlap].
Gopal Mahadevan — Chief Financial Officer
I would have been disappointed if an intelligent person like you did not ask that question but the point is you also has the answer for it. We have inventory of raw-material and WIP and FG, so that needs to be sold-out and that’s one of the reasons why, you know this we have not seen. And see, we must also remember another thing. While the team is pushing to a favorable mix, which is the — this business, the larger the vehicle we sell, the more is the margins right. But as an industry, you will also see that ICV is catching-up quite a bit. So we need to ensure two-three things, we need to ensure that we are serving our customers for the entire suite of products they want. We have to ensure we are gaining market-share in the — equitably in all the regions.
The third one is we also have to ensure improved profitability, so what has happened is the opening stock which was there obviously had to be sold-out and we need to — our guys in procurement side have to continuously peer into the future to see whether we need to buy more, should we defer purchases etc. But at the end of it, in this quarter, you have not seen the full benefit of it because of the opening stock, possibly things will look better in Q3 and Q4 definitely.
Kapil Singh — Nomura — Analyst
Great. And sir, one question I had on the debt as well and capex actually has along with that, so earlier we used to talk about capex being somewhere around INR1,500 crores and some investments of INR300 crores, INR400 crores as well, so when we look at the business going-forward, you know what is the steady-state of capex and investment that we should look at say next one or two years. And also from a debt level perspective, there is some increase in working capital as well, how much of it do you think you could realize by — revert by end-of-the year? And by when do you see yourself turning debt-free?
Dheeraj Hinduja — Chairman
We had never — had capex levels of INR1,500 crores and I think, going-forward as well as I mentioned, INR600 crores is what we foresee for this year. Majority of the capex that we had envisaged happened already with the Avatar, the BS 6 and so going-forward, I would expect our capex to be in that range of INR500 crores to INR700 crores because the product range is already in position and the incremental capex that we move forward with will hold as well for the future product ranges as well. On the working capital, Gopal would you like to say.
Gopal Mahadevan — Chief Financial Officer
See, I would only mention one thing. While we will continue to endeavor to improve our working capital, the — and the debt level positions, I think our working capital situation is not at all bad. Our working capital situation is actually pretty decent for the industry that we are in. We are having a — what happens is we are also having — when the market is growing like this, we need to keep some ammo ready. So we keep our inventory levels slightly higher because if there is an upside in sale, we need to be able to kind of provide those volumes to the sales and marketing team if there is a quick upside that comes in.
The second is as we mentioned, as the revenue numbers actually start going up, you will see that the receivables start to go up a bit because we are not getting back into cash-and-carry immediately. At the same time, I just want to kind of assure you, at the senior leadership level one, I mean among the various matrices that we keep almost looking at on a daily basis, receivables and inventory is one of them. And we are ensuring that receivables are monitored efficiently. We had — we have no concerns on that. But we need to ensure that we are seeing out the rope to our dealer partners to actually make the sales in the market and, that has also helped, it has been a positive effect. The working capital that you’re seeing has also been one of the reasons that has helped us in actually enhancing our market-share. Having said that, we keep a close watch on cash, our debt as Chairman had mentioned and Balaji had mentioned, our debt-to-equity is just 0.4 and possibly by the end-of-the year if things go as planned, we would see a significant reduction in the debt levels. All of it by the way is only short-term. We don’t have any long and short-term mismatches. We keep our long-term funding separate and the short-term funding separate but you would see possibly that our debt levels will come off quite sharply by the end-of-the year if things go as planned.
Kapil Singh — Nomura — Analyst
So sir the INR600 crores includes the electrification capex also? And what is the investment plan for next one or two years?
Gopal Mahadevan — Chief Financial Officer
Yeah I’ll just quickly share it and hand it over to the Chairman. As far as electrification capex is concerned on the buses and the light commercial vehicles, all of that is housed under Switch, so this INR600 crores does not include that. We are — as Chairman had mentioned, we are actively pursuing capital raise and possibly will share some news but we are not factoring in any further support to Switch and the current [government] in the INR600 crores and all of that will be short-term by the way. But as far as other capex is concerned, we are now actually [paired down] If you remember, we had started the year with INR750 crores.
I think the team has come back and said that possibly, it’s more a realistic number of INR600 crores but as on-date in the mid point of the year, we are hardly at INR214 crores, Chairman, yes.
Dheeraj Hinduja — Chairman
Yeah just to add-on. As we have said for Switch, the requirements over the next two-three years is close to $200 million to $250 million and this would be for a range of buses and LCVs and within the overall capex since you asked about electric vehicles, Ashok Leyland would be looking at electrification of its truck range over the LCV range, so the ICV and upward products that would fall within Ashok Leyland.
Kapil Singh — Nomura — Analyst
Okay thank you so much.
Operator
Thank you. The next question is from the line of Amyn Pirani from JP Morgan. Kindly proceed.
Amyn Pirani — JP Morgan — Analyst
Yes, hi sir thanks for the opportunity. My first question was — is largely a clarification on the upcoming BS-VI Phase-II norm. So a, what is the kind of cost inflation you’re anticipating? And b, is the implementation similar to what happened during BS-IV to BS-VI in the sense that will you have to clear all the inventory at the dealer end and which could lead to a few months of destocking and wholesales coming down? So if you can clarify that first.
Gopal Mahadevan — Chief Financial Officer
I mean let me clarify the latter part of it first. [Technical Issues] one thing, yeah, this is not stuffing the pipeline. And we have said that in the past, so we never stuffed the pipeline. Stuffing the pipeline happens when your wholesale inventories more — I mean where the retail sales are lower than the wholesale sales, right. In our case, the retail sales will be equal to wholesale sales in some, actually the retail sales are more than the wholesale sales which causes a concern for us because then what happens is there is no sufficient inventory in the pipe. And you see, the other thing that has happened while we are looking at this, the working capital has also gone up way. Because earlier, we used to have regional centers for distribution.
So suppose a dealer wants a vehicle, all he had to do was to ask the regional center and then the vehicle will be shipped almost overnight to him for him to make the sale. We used to carry the inventory not on their behalf but that is — we had a distribution which was different pre-GST. Post GST what has happened is if look at the overall cost-benefit analysis, we at some point in time had said that no we will actually kind of close most of the regional centers and actually start selling to the dealers from the factory which means there is almost at any point in time, there is an eight to 10 days WIP work-in transit to the dealers which is to the [account] because you’re cutting an invoice.
That adds to the inventory which is shown as receivable, actually it goes to receivable part. The second part of it is the dealer also stocks up a bit because he is not sure about the immediate serving of the requirement given the distance that is there. What we are doing now is having seen the efficiencies that GST has brought in, we are really looking at whether we should have central distribution point so that that will kind of help to keep, the working capital more in inventory than receivable because once you cut a — you cut an invoice then it goes into the dealer receivable.
To answer your question, there is nothing that we have to worry about destuffing at the moment because our retail sales are same if not higher than wholesale. And your first question was on the OBD II requirement that is there. Yes we are working on this. But I think, we’ll have to come back to you a little later on exactly what the cost impact is because we are working on options on this.
Amyn Pirani — JP Morgan — Analyst
Yeah. Sure sir thanks for that. And my second question is at — the feedback that we’re getting from the ground regarding one of the reasons why our market-share has improved over the last two to three quarters is that as your BS-VI offering has ramped-up and I think partly you answered it in the Avatar question also, it seems that you are able to offer a lower-cost solution on the BS-VI side, so first of all just wanted to get your sense is that correct? And b, how have you been able to achieve that and how sustainable that is? Thank you.
Dheeraj Hinduja — Chairman
You’re right. As customers are increasing the use of the Avatar product, they recognizing that the total cost of ownership and fuel, the mileage that they’re getting is much better than competitive products. And I think, this is a result of the overall development that happened during the BSVI process itself. And you look at the consumption of not only the diesel but the AdBlue as well, so combined together, we are seeing a much better economies fluid — of fluid consumption than the competitive products.
Amyn Pirani — JP Morgan — Analyst
Okay sir, okay thanks — thanks for that, I’ll come back-in the queue.
Operator
Thank you. The next question is from the line of Chirag Shah from Nomura, kindly proceed. Hello, I hope I’m audible? Yes sir.
Chirag Shah — Nomura — Analyst
Yeah, sir I have joined slightly late, so apologies in case I’m repeating the question. Sir, any anything on the defense revenue plus engine revenue in the quarter? And how it has moved sequentially Q2 versus — Q1 versus Q2?
Dheeraj Hinduja — Chairman
Yeah Balaji, do you want to give the answer?
KM Balaji — Deputy Chief Financial Officer
It’s not [technical issues] Chirag, it is around INR50 crores per quarter.
Gopal Mahadevan — Chief Financial Officer
But just wanted to share with you Chirag. The reason why it’s happening is not because of any concern. This is a very Government — Ministry of Defense offtake-driven business. So you know, we are expecting that the offtake will start in the second — third and fourth quarter. So this is — what we will do from the defense side, no, we are far, far well-positioned — more well-positioned than we were two or three years ago because you know three-four years ago, we had only the — VF jackets, the Stallion kits which were there. Now today, we have multiple products available including medium bullet proof vehicles, light bullet proof vehicles.
We are transporting — we have got vehicles which will transport missiles. We have got vehicles where two of the large infrastructure providers, I can’t name them had chosen Ashok Leyland as the vehicle which will carry the transportable bridges, the retractable bridges. So there is a lot of technology that has come in and both in armored and non armored. So once the government starts to make these orders, we believe that we are going to be pretty well-positioned to serve it and you will see our defensive revenues actually getting better. Chairman would you?
Dheeraj Hinduja — Chairman
Yeah, I would just add. As Gopal said, we do have a good order book and the indications are that effective Q3 onwards, we should be able to start delivering, so you will see by the year end, the defense volumes and revenues would be much, much higher.
Chirag Shah — Nomura — Analyst
Yeah actually you answered second part of my question. Sir my question also was that for this futuristic products, now as an industry, everybody has been waiting. Any update or clarity that is emerging that now the defense — those — these revenues will start flowing in because earlier expectation was somewhere in ’22 or ’23 the revenue from defense wherever you have seen technical approvals and trails runs have been done will start flowing in, so is it on course? Or there is any delay, any update if you can tell would be helpful.
Gopal Mahadevan — Chief Financial Officer
See what has happened, Chirag, we’ve as a country. Of course there is a — for a defense business, security across the perimeter of the country is actually pretty needed. The second bit of it is that the government has been tackling COVID and its aftermath over the last two years, so while, they have been actually looking at defense, the procurement has not really started.
Now what we have seen the recent announcements also is that the government has been talking about the defense preparedness of the country but. I mean as a normal strategic initiatives. I’m not saying that there is anything to get worried about. But we believe that the procurement will start as Chairman had mentioned, we are expecting that this — the procurement will start happening. But these things are not something that we can predict so accurately, we can only predict a trend and we can continue to invest in the business which investments are not very high by the way. So what we’re doing is we’re offering various vehicles for applications and we are keeping it ready, we are getting it certified by the Ministry of Defense and we’re keeping the offerings ready. We have won the tenders also. But now we will have to wait for the offers to come in.
Obviously, the government will place these orders because otherwise, they would not have been floating these tenders and specs.
Chirag Shah — Nomura — Analyst
Yeah yeah perfect, that’s what we are trying to understand, when can we expect that? Because I understand that it’s up to government and beyond the point even you can’t ride on that. I agree with that. Second question, just for the commodities, I can just squeeze in. So if you look at our gross margin and we saw [synthetic sales] minus raw-materials if I use that, we are back to where we were in Q3. Now is commodity basket similar to Q3 levels for us? Q3 FY’22 I’m referring to or it is more driven by mix if you could help us understand that?
Gopal Mahadevan — Chief Financial Officer
So what do you mean by commodity baskets?
Chirag Shah — Nomura — Analyst
The entire commerce, steel, plus aluminum, plus some precious metals — whatever goes, some engineered plastics, whatever goes into your — in making the vehicle.
Gopal Mahadevan — Chief Financial Officer
Yeah.
Chirag Shah — Nomura — Analyst
Because our gross margin as a percentage, Q3 was around 22% and we are again at around 22% in Q2. So what is driving this? Or is it because commodity basket has gone back to that level or it is more of revenue mix which is driving it?
Gopal Mahadevan — Chief Financial Officer
So it is a mix of — see there are three factors which have actually — which will determine our margins or maybe four factors. The first factor is commodity prices, if we are coming off sharply then you will see the benefit of it coming in. But then the second thing is what is the level of inventory we carry not only in raw-material but also in WIP and FG so nearly about — see if you — in this industry you will carry at least a month, month and a half of inventory not in absolute inventory, not in finished goods but in various forms, including potential orders that have placed with vendors, right. I mean, we can’t [drainage] on them, right. So that will happen and in good — in times of inflation, this also helps right we have seen that there is a lag in our commodity price increase, so this is the second factor.
The third is the — as Chairman had mentioned the various initiatives that we’re taking on VAVE across products to ensure that we are taking cost-out of alternative material or design etc which again is a medium — with a continued improvement initiative that happens. Right.
The fourth one, which you rightly said is mix. So there is a confluence of factors that determine the commodity cost. As I had mentioned earlier, we are looking at it on a vehicle wise basis, are we improving the raw-material cost?. We are looking on a vehicle wise basis, are we improving the net realization after discount? So while discount is one factor, we are saying, are we raising prices higher than the discount to ensure that the net realization improves. While we’re doing that so on a vehicle platform basis, we are actually improving. What happens if there is a mix change?
Suppose we sell a little more ICV in a particular quarter, obviously the mix will have an effect, so it’s a confluence of all four factors.
Chirag Shah — Nomura — Analyst
Okay. And sir, lastly on this industry volume growth, according to you when does the base effect starts kicking-in? And what is the normalized trend of volume for industry you would be happy with 2024.
Dheeraj Hinduja — Chairman
Sorry, can you repeat. What did you say, what kicks in?
Chirag Shah — Nomura — Analyst
The base effect because as of now, we also had a favorable base for volumes. Hence we are seeing a very accelerated volume growth. So from when the base effect of volume starts kicking, especially for medium and heavy vehicles? And F ’24 what is the kind of volume growth that you would be happy with as of date? I know that number could change from year-on. But as of date, what kind of volume growth is what you would be looking at for ’24 for industry.
KM Balaji — Deputy Chief Financial Officer
Chirag, if you look at — if I may take on that question, if you look at the last year, only Q1 was affected by the COVID. And Q2 there was a gradual increase in the total industry volume. Q1 if I recall was around 30,000 vehicles and Q2 it was around 53,000. And Q3 was 64,000 and currently at the — in the first two quarters we have been doing at around 75,000 to 80,000 vehicles per quarter. This is the situation then you can judge where we are with reference to the numbers which we have talked in the last year. So the base effect going-forward may not be impacting in a bigger way.
So — but last year volumes especially in Q4 was 94,000 and Q3 it was 64,000, so you will not see the base impact going-forward in a big way. Over to you [technical issues].
Gopal Mahadevan — Chief Financial Officer
The only thing that we’re saying on the same reports you have, where I think that by the end of this year as per forecasts, the industry would be close to the previous peak, which was about INR390 crores or INR395,000 crores. Right. And it won’t be at INR395,000 crores. That’s not what I’m saying but somewhere maybe close to that. What it actually means is the demand maturity curve is actually catching-up quite fast. The second one we must remember is that the size of vehicles have also gone up in comparison to what it was in the past. We have a lot more 49 tonner, 40 plus tonner etc which are actually make — having a — which is coming into the overall industry. I think we must also remember this is happening, you are right and so is Balaji, there is a base effect in Q1 because last year Q1 was very low, so we’ve seen that happening.
You are also seeing that this year, I mean this quarter again, the growth has been there but not at the same high-level as Q1 of the — the Q1 period, so we should also be kind of clear that in the medium-term this industry is set to grow if the Indian economy is going to grow because there is a multiplier effect vis a vis the GDP growth that we’re expecting in the country to happen. And that’s how we should actually plan or model.
Chirag Shah — Nomura — Analyst
Thanks a lot sir and all the best.
Operator
Thank you. The next question is from the line of Pramod Amte from InCred Capital, kindly proceed.
Pramod Amte — InCred Capital — Analyst
Yeah hi, this is with regard to working capital, sorry to repeat this considering that interest costs are going up, so it seems like almost like you added INR2000 crores into the working capital side, how much of that is towards the raw-material inventory and how much is towards finished goods?
Gopal Mahadevan — Chief Financial Officer
It is reasonably spread-out between raw-material, FG and receivables. The point is we don’t provide that level of granular details. All we can tell you is that our working capital situation is very much under control. It is not — it it is not in a scene where we have given you two data points. One is we are ensuring and we have always ensured that in Leyland, is that our retail must be equal to wholesale or retail should be higher than wholesale, maybe a one-off month may happen where we kind of wholesale a bit in the last day and the retail has not happened but we keep track that we are not pushing stuff into the dealership, right, that’s very important. Right. And the second thing is we also are ensuring that our receivables position is strong, we review the receivable position.
We ensure that the collectability of receivables is fine and the aging is fine and of course as we mentioned, we do have — we are keeping a little bit of inventory to ensure that we are ready-to-serve the market and the EBIT because there can also be mis-sales which is awful to have just because we didn’t have the inventory. But I don’t think, there is any concern on the inventory side that you should get worried about. Balaji, how many days of sale is net working capital?
KM Balaji — Deputy Chief Financial Officer
Roughly five days of
Gopal Mahadevan — Chief Financial Officer
It’s not significant at all, it’s just five days yeah. The net working capital.
Pramod Amte — InCred Capital — Analyst
Yeah Gopal, I appreciate especially you have been managing and year end you can get back to literally a cash situation. The reason to ask is once you launch the Avatar platform, so there was supposed to be a lot of commonality of components and hence mix-and-match can be much easily done and cater to the marketplace. That was supposed to be one of the key reason to go for modular and hence the expectation that your working capital intensity should go down and whatever INR300 crores, INR400 crores you pay-off in a year should also come in as handy for you to fight out in a marketplace. So has it been achieved or you feel there is still a long way to go?
Gopal Mahadevan — Chief Financial Officer
No-no it is being achieved. See it’s got a long way to go. See we think state times. You must remember, Avatar was launched, it’s a good question. Avatar was launched on April 2020. April 2021 was nothing, it was a complete washout. ’21, ’22 first-half was a total washout. So only now, ’22, ’23 second-half are we — see this also takes a little bit of trail, it’s hard, so if you really look at the launch of Avatar and the fantastic performance that this range of products are having in the market, the real play on-the-ground has been less than a year. If you really look at it, that has been the thing when the — the volumes have started to be kind of flow down into the market.
The second thing is you see Avatar brings in not only the raw-material, you are right, we will have fewer number of vendors which is happening. We will have fewer number of parts which is definitely happening and let me tell you this while you have not asked it, the modularity will be a strategic advantage for us when we are actually looking at even alternative-fuels like hydrogen. Because what happens is the basic structure of the vehicle is it is adaptable without a cost or a significant cost, so you will see those benefits coming on the RM side or on the WIP side but you cannot say that Avatar will result in lower SG or lower dealer stock because that has got — that is a sales strategy, okay, it’s not a manufacturing strategy, so modularity is more a manufacturing, quality and serving the customer with various options that are available and which is why again Avatar is doing well because today, we are able to offer vehicles that the customer needs more than what he wants.
We tell him his needs on a hub application segment basis and they are very happy with the solution that we are able to provide. Balaji, you want to say something.
KM Balaji — Deputy Chief Financial Officer
Yeah on the working capital side, Pramod, we’ll also have to take a look at the falling metal cost scenario, if we — we cannot stock high but at the same time we cannot also run on a depleted stock level. Depleted stock level will lead to loss of sales. At the same time now if we do a high stocking, then it becomes an issue especially in the falling raw-material price scenario, so we’ll have to be extremely careful and it is being managed very well Pramod.
Pramod Amte — InCred Capital — Analyst
Sure. Thanks for the detailed answer. Second one is with regard to the demand front, considering that you are a very strong player in the tractor trailer segment which caters specifically to the export-import segment. There seems to be some weakness on the export front-end, is that things are changing much faster on the weakness there. So how are you seeing the demand specifically to that segment and you — do have implication for your product mix and profitability?
Dheeraj Hinduja — Chairman
In the export market, as you correctly point out, there are certain challenges the result of the global theme but we are seeing in fact many of the Middle Eastern market [technical issues] exceptionally well and we — that is a segment that we are stronger. And we are also introducing new products into those markets, and we’ve extended the network throughout the African continent as well over the last six, nine months, 15 new distributors have been appointed, so overall, we feel that we will end the year much better on the exports front than last year and volumes will continue to grow as a result of enhanced network and new distributors. And many more products getting introduced for the export market as well.
Pramod Amte — InCred Capital — Analyst
Yes thanks but I was also looking for your tractor trailer segment, which has exposure to more of exports goods or import goods to that extent.
Gopal Mahadevan — Chief Financial Officer
Tractor trailer, you mean the demand for the tractor trailer in India?
Pramod Amte — InCred Capital — Analyst
Yes exactly because it caters to a lot of port traffic and hence the export-import traffic.
Gopal Mahadevan — Chief Financial Officer
It has been growing well. I mean, that’s why I said, we have been looking at it geographically and product-wise also. So if you look at our tractor-trailer segment, we have actually looked at our market-share there in that segment approximately I’m giving you some numbers has been about 10 basis-points, I mean, 10 percentage points more. We’ve moved from somewhere around 18% to about 26%. So we have been doing well. I mean across geography.
KM Balaji — Deputy Chief Financial Officer
And in fact the overall share of tractor trailers in the overall MHCV segment that has also gone up. That has also gone up from 9% in 2021 to 13% now.
Pramod Amte — InCred Capital — Analyst
Thank you.
Operator
Thank you. The next question is from the line of Vipul Kumar Shah from Sumangal Investments, kindly proceed.
Vipul Kumar Shah — Sumangal Investments — Analyst
Hi sir, what is the share of spares business in our revenue?
KM Balaji — Deputy Chief Financial Officer
Spare business will be around 7% to 8%.
Vipul Kumar Shah — Sumangal Investments — Analyst
7% to 8%?
KM Balaji — Deputy Chief Financial Officer
Yeah 8% of the overall revenue pie.
Vipul Kumar Shah — Sumangal Investments — Analyst
Okay sir, thank you.
Operator
Thank you. Due to time constraints, we’ll be taking the last question. It is from the line of Raghunandhan from Emkay Global, kindly proceed.
Raghunandhan NL — Emkay Global — Analyst
Thank you sir for the opportunity. Sir my first question was on tractor-trailers. As you indicated that company has been successful in gaining market-share and slowly inching towards the 30% mark. Dealers indicate that Ashok’s four cylinder vehicle has done well versus competitor’s six-cylinder vehicle, so just wanted to understand, how do you see this market-share gain trajectory because we used to have more than 40% share in FY’19, do you see the recovery towards dose levels?
Gopal Mahadevan — Chief Financial Officer
Yeah, we’ll see. I mean, I’m not too sure about the four cylinder, six-cylinder that you mentioned. But certainly you will see the — all I can tell you is this, predominantly across the spectrum of products but certainly across all zones, we have been gaining market-share in the current quarter and we will continue to pursue that growth as we move forward. It’s very difficult to say, one segment, one particular thing whether we will continue to get a particular target like 40%. But certainly, we want to ensure that we are getting into a higher — higher presence in the market which means we have to enhance our — our broad strategy is this, instead of just talking about purely MHCV market-share our broad strategy is to pursue our domestic growth and share of business but profitability, the second one is to grow our LCV business because the LCV is a very-very important vehicle across across the world.
The third — across, I mean for export numbers as well because globally for every MHCV sold, we have about 3.5 to 4 light commercial vehicle sold, so it’s a very important thing for us. The third one is also to ensure that we grow our international business that’s going to be very-very important. So we will pursue all three strategies yeah.
Raghunandhan NL — Emkay Global — Analyst
Thank you sir. On Hinduja Leyland Finance, so basically the segmental results have been improving quarter-on-quarter and year-on year, can you talk about the trend in collection NPA also the timeline for listing?
Gopal Mahadevan — Chief Financial Officer
Yeah you see, as far as the lifting bit is concerned maybe I’ll ask–
Dheeraj Hinduja — Chairman
The listing is expected of course based on all the regulatory accept approvals probably around June of 2023.
Gopal Mahadevan — Chief Financial Officer
Right and as far as Hinduja Leyland Finance is concerned, it is continuing to perform well. Its total AUM is around, INR31,700 crores. It posted an income of INR1,620 crores and a PAT of 300 — INR215 crores, approximately about 13% and its GNPA is at about 6.3 and an NNPA of about 4.4, numbers are pretty good. And just as what Chairman had mentioned about the IPO that we are looking at both the merger with the next deal which the company is looking at, the company has also already raised capital of nearly INR910 crores from qualified institutional buyers, so there is no capital request now that will come up from HLFL to us. And secondly, they have sufficient capital for their growth. And we must remember there is another subsidiary called as Hinduja Housing Finance, which is a HFC which is doing exceedingly well. Growing very fast and we also have a rather, you know joint-venture between both Ashok Leyland and Hinduja Leyland Finance which is called as Grow, where which is looking at solutions both digital and financial which we believe will be a multiplier effect for both our businesses both for Hinduja Leyland Finance as a finance company and Ashok Leyland as an OE.
So the erstwhile solutions business of Ashok Leyland has been transferred to Grow and we’ve actually added some of the financial solutions including freight financing etc into that and you’re going to hear a little more about that in the future.
Raghunandhan NL — Emkay Global — Analyst
Thank you sir, thanks for the detailed answer. That’s all from my side.
Operator
Thank you. Ladies and gentlemen that was the last question. I now hand the conference over to the management for closing comments.
Dheeraj Hinduja — Chairman
I would like to thank everyone once again for your interest. As we said, we are very much on an upward trend in this industry. Our products continue to perform well across all segments, market-share has grown in each and every zone and new products will be introduced on a quarterly basis. And we do feel that the growth that we have seen in the first two quarters will continue going-forward as well.
Thank you very much.
Gopal Mahadevan — Chief Financial Officer
Thank you
Operator
Thank you. On behalf of Batlivala and Karani Securities that conclude this conference. Thank you for joining us, you may now disconnect your lines.