Ashok Leyland Limited (NSE: ASHOKLEY) Q3 2025 Earnings Call dated Feb. 12, 2025
Corporate Participants:
Shenu Agarwal — Managing Director and Chief Executive Officer
Balaji K M — President Finance and Chief Financial Officer
Analysts:
Chirag Jain — Analyst
Chandramouli Muthiah — Analyst
Binay Singh — Analyst
Pramod Kumar — Analyst
Kumar Rakesh — Analyst
Kapil Singh — Analyst
Amit Hiranandani — Analyst
Mukesh Saraf — Analyst
Joseph George — Analyst
Analyst
Jay Kale — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to 3Q FY ’25 Earnings Conference Call of Ashok Leyland Limited hosted by Emkay Global Financial Services. [Operator Instructions]
I now hand the conference over to Mr. Chirag Jain, from Emkay Global Financial Services. Thank you, and over to you, sir.
Chirag Jain — Analyst
Thank you, Steve. Good evening, everyone. On behalf of Emkay Global, I would like to welcome you all to the 3Q FY ’25 Post Earnings Conference Call of Ashok Leyland Limited. Today, from the management team, we have with us Mr. Shenu Agarwal, Managing Director and CEO; and Mr. K.M. Balaji, Chief Financial Officer.
I’ll now hand over the call to Mr. Shenu Agarwal for his opening remarks, post which we will open the floor for Q&A. Over to you, sir.
Shenu Agarwal — Managing Director and Chief Executive Officer
Good afternoon, ladies and gentlemen. Thank you for your continued trust in Ashok Leyland. I’m pleased to report our company’s performance for the quarter ended December ’24. Our focus has been on profitable and sustainable growth through levers of product premiumization, cost leadership and expansion of service reach. In Q3, we have continued to consolidate our position in that direction.
Our net profit in Q3 FY ’25 jumped 31% on a Y-o-Y basis. Our EBITDA margin improved to 12.8% from 11.6% in Q2 of the current fiscal and from 12.0% in the same period last year. The MHCV industry which has slowed down in Q2 gained strength in Q3, led by a pickup in consumption demand during festive season and better flow of government capex in the second half of the quarter. As a result, Q3 FY ’25 domestic MHCV TIV was sequentially up by 10%, while on Y-o-Y basis the industry was still down 1%. But compared to Q2 Y-o-Y degrowth of 12%, this is a major comeback.
Q4 industry momentum is good with January already recording positive industry growth. Ashok Leyland’s Q3 FY ’25 domestic MHCV volume at 26,838 numbers was lower 1% Y-o-Y, in line with the industry. Domestic MHCV trucks volume was at 22,796 numbers, lower by 2% Y-o-Y. And MHCV bus volume was at 4,042 numbers, higher 5% Y-o-Y. Ashok Leyland continues to retain 30% plus market share in domestic MHCV market. Our 9 months ended December ’24 market share stood at 30.4%. We remain committed to achieving our MHCV market share goal of 35% in the medium term.
Ashok Leyland LCV domestic volume in Q3 FY ’26 was at 15,415 numbers, lower by 9% Y-o-Y. In the addressable 2 to 4-turn market, AL market share was 18.5%. With the launch of SAATHI, we are committed to improve our market share to 20% in the short term and 25% in the medium term. Our latest LCV product, SAATHI, which was recently launched at the Global Mobility Expo at New Delhi and is our first offering in the entry-level mini truck market. Q3 also proved to be a milestone quarter for us as we crossed 1,000 MHCV touch points and 800 LCV touch points.
The export volumes registered a growth of 33% in Q3 on Y-o-Y basis. Our export business is driven by our continued focus on export-specific products and our strong local presence in GCC, SARC and African markets. For the 9-month period ended December ’24, export volume was 19% higher on a Y-o-Y basis. Our export order book for Q4 is also very robust. Our non-CV businesses also witnessed good growth momentum. Engine volume was higher by 3.5% and spare parts revenue was higher by 14% on a Y-o-Y basis.
Ashok Leyland recorded all-time high Q3 revenues of INR9,479 crores, vis-a-vis INR9,273 crores in Q3 FY ’24. EBITDA again was a record for Q3 at INR1,211 crores. EBITDA margin at 12.8% was better than 11.6% in Q2 of current year and also better than 12.0% in Q3 of last year. Operating PBT at INR994 crores was higher by 10% Y-o-Y. Reported PAT at INR762 crores was higher by 31% Y-o-Y. Material cost as a percentage of revenue was at 71.5%, lower than 72.2% in Q3 last year. This was achieved by our continued focus on material cost savings.
Our balance sheet and cash position have grown stronger. At the end of last quarter, we were cash positive at INR958 crores. As compared to a net debt of INR1,747 crores at the end of Q3 last year, this is a major positive swing in our cash position. Capex for the quarter was INR179 crores and cumulative for the year is at INR486 crores.
The reverse merger of Hinduja Leyland Finance with NDL Ventures is on track. As mentioned earlier, this is likely to be concluded by the end of Q1 FY ’26. Both in the Hinduja Leyland Finance and Hinduja Housing Finance are going well with assets under management at end of December quarter at INR44.400 crores and INR13,400 crores, respectively, recording year-on-year growth of 26% and 43%.
Switch and OHM, our EV subsidiaries, are progressing as per plan. Switch Mobility unveiled Switch 12, a cutting-edge low-floor electric bus tailored for the Indian market. At the end of Q3 FY ’25, Switch India had an order book of more than 1,800 buses, including exports order of 100 buses from Mauritius. Switch LCVs are also gaining momentum with monthly run rate now at over 100 numbers.
OHM, our E-MaaS subsidiary, is operating more than 600 buses with fleet availability of 98% plus. Ashok Leyland Board of Directors has approved further investments of INR200 crores in Hinduja Leyland Finance and of INR500 crores in Optare, the holding company of Switch. This is to support capital adequacy needs of Hinduja Leyland Finance and capex requirements of Switch.
With the electrical bus market in India expected to grow, Switch India has seen rightly positioned to benefit from the opportunity. However, the outlook for the electrical bus market in UK continues to be uncertain. In view of these trends, we are providing new focus to the India market and concurrently evaluating available options for the UK Europe, however, continues to offer good potential. We are happy that the first few units of the latest buses from Switch designed specifically for the European market have been delivered to Spain. We also hope the new bus will capture the GCC market in the future.
At the Auto Expo in January 2025, we had displayed country’s first concept of an electric port terminal tractor. Also, we displayed country’s first meter bus with air suspension and front engine with industry first capacity of 42. At the show, Switch displayed a concept electric truck in the 7.5 tonne GVW range. again, first of its kind in the Indian market. All these products would go in commercial production within the next 9 to 12 months. Ashok Leyland will continue to focus on product and process innovation to meet dynamic customer and market needs and to maintain its technology leadership positions in both ICE and the alternative fuel space.
On the customer service side, where we are now working on a mission mode to set up world-class infrastructure and processes, we further launched multiple initiatives to enhance our customer experience, transforming our service workshop operations and enhancing our breakdown and at-site support. Many of these improved processes are backed by analytics and AI-led solutions.
Ashok Leyland made significant progress on its ESG commitments as well. I am proud to share that Ashok Leyland has been ranked number 1 globally in the heavy machinery and trucks category by Sustainalytics. Our Road to School and Road to Livelihood programs continue to grow, extending their reach to about 5 lakh students now, with 92,000 students being added this year and targeting to add another 100,000 students in FY ’26. We made significant progress towards RE100, improving from the level of 61% at end of FY ’24 to 68% now.
Ashok Leyland is making good progress towards all its medium-term goals, which are as follows: achieve mid-teen EBITDA, achieve MHCV market share of 35%, substantial growth in our non-MHCV businesses, leadership in alternate fuel vehicles, value unlocking from subsidiaries and leadership in ESG. The union budget for FY ’26 has been encouraging.
The focus of the Union Budget on boosting consumption demand while continuing to push infrastructure buildup is favorable for the growth of core industries. Pickup in consumption demand would be positive for segments of HCV, LCV, ICV and haulage and healthy growth in core industries would drive the momentum for MHCV. We believe that FY ’26 would witness growth in all the CV segments LCV, ICV and MHCV.
Thank you for your very — thank you very much for your patient hearing. I now hand it over to moderator for Q&A.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.
Chandramouli Muthiah
My first question is just around industry growth. So I think previous quarter, I think the expectation was that on a full year basis, FY ’25 might be closed to sort of flat volume growth for the CV industry. And for that to happen, I think the fourth quarter potentially will be 4% or 5% volume growth. I think January has started off, as you said, slightly better than that. So I just want to understand how you’re thinking about is there any update optionality or downside risk to this flat volume growth for FY ’25, the way you’re seeing it? And how that leads your view into what potential magnitude of growth you would expect in FY ’26 as things stand.
Shenu Agarwal
Yes. Chandramouli, thank you for the question. Actually, the way we look at it is Q1, the industry had grown 4% to 5%; and then Q2, it was down roughly 12%; and then Q3, while it is still slightly negative, but it is a major comeback from where we were at Q2, right? Because at the end of Q2, there were a lot of pessimism whether this is a start of a new down cycle. While we maintained our outlook that it was temporary, the Q2 phenomena was mainly because of the slowdown in capex and also because of some erratic rains that we had experienced in some parts of the country. So we were very hopeful that it should come back.
And I think Q3 kind of proved that. Like I said, while it was still slightly negative, but then January is already behind us. January, we have seen a positive growth. And February and March are looking better. So Y-o-Y, we are still minus 1% on MHCV for the 9-month period, but we think Q4 would be positive. And yes, and if this continues into Q1 and Q2, then even next year could look strong.
Chandramouli Muthiah
Got it. That’s helpful. My second question is just around the margin upside that we’ve seen this quarter from CV companies operating in the Indian market. I think the last 2 quarters, we had Y-o-Y ASP declines. But our ASP at sort of a control level, this is up 4% Y-o-Y this quarter. We’ve had similar volumes quarter-on-quarter but margin has been much better quarter-on-quarter. So just trying to understand what the factors were in delivering some of this margin upside this quarter.
Balaji K M
Chandramouli, it’s Balaji. Thanks for your question. See, this quarter has witnessed a quite good mix both in the truck side as well as on the bus side. That has only resulted in a higher ASP, as you are observing. The mix has been quite good, especially with good pickup on the multi-axle vehicles and segment volumes. So both these are much better sequentially. That is what is getting reflected. Of course, there has also been an increase in the ASP of the buses side also. Buses side, we have got good revenue. That has also got reflected in the overall revenue. That is why you are seeing the ASP in this month, I mean, quite good.
On the margin side, actually, margins are more driven by the cost reduction measures which we have been doing for quite some time now. Last 2 years — we have also shared this in the previous calls, last few years has been quite good. Now we have — we ended up with a good INR650 plus crores of cost reduction each year. And this year also, we are continuing the cost reduction measures. And on top of all these things, the steel price — the commodity price have been quite good in this quarter. That has also added to a significant portion to the bottom line. So you are seeing a mix of — a confluence of all these benefits getting reflected in the margin.
Shenu Agarwal
Just to add to that, Chandramouli. I mean, while MHCV and LCV volumes were like more flattish or more similar, but our other businesses which are more profitable businesses like power solutions, defense, spare parts, they had good levels of growth in Q3 as well, right? So especially on the IO side, which is, again, more profitable business, we had a growth of 33% in Q3. And Q2 growth, if I remember right, was like 14% or 15% on Y-o-Y, right? So I think other engines are also firing well, which are actually better for our margins.
Operator
The next question is from the line of Binay from Morgan Stanley.
Binay Singh
Just continuing actually on the previous chat. So if you look at gross margin versus mix, ideally, this quarter we should have had some gross margin expansion — when we talked about product mix is better with more trucks is lesser buses, exports were very strong. But our gross margin has actually come down quarter-over-quarter. And a lot of the margin expansion is coming from other expenses being down on a Y-o-Y basis. So could you just help us tie this up that why is the gross margin not showing the expansion? And is this other expenses Y-o-Y decline despite a revenue increase sustainable? Maybe defense has something to do, that defense has fallen this quarter or something.
Balaji K M
Actually, I mean, a portion of the metal cost reduction, I mean, we have also witnessed an increase in the prices of rubber. It’s been about — we have to consider a bit of the increase on the rubber side also. So that could have also got reflected on the gross margin. As well as your observation on this other expenses, Y-o-Y — again, we have been able to contain the cost in a better way. That’s all I can tell you, especially some of the costs like the variable cost, like the production overhead, selling overheads, the delivery charges, the administration overheads. All this, we have been able to contain.
Binay Singh
And sir, sir, how has defense turned for us this quarter, like any percentage revenue mix? Or — because the earlier quarter, it was weak. So how has it done this quarter?
Balaji K M
Defense revenue has been about INR100 crores this quarter as against INR150 crores in the previous quarter.
Binay Singh
Yes. So that, in a way, would have hit your gross margin.
Balaji K M
Yes, yes.
Binay Singh
And sir, secondly, just in the opening remarks, we talked about net cash and we talked about two investments. Could you sort of — sort of net cash is post this INR700 crore investment that we talked about?
Shenu Agarwal
No, that is before — this is before divestment.
Binay Singh
And could you repeat that number again for net cash. What is the number you gave, 900?
Balaji K M
INR958 crores.
Binay Singh
Okay. And sir, just lastly on just two trends we are seeing. Bus volumes being very strong in the last few years, were supporting profitability. They’ve started to — sort of growth has gone in the last 2, 3 months. Whereas exports have seen a pretty stellar growth, 33%. And in the previous conference call, you had talked about 50,000 target for exports for the company eventually. So could you comment a little bit about these two trends that we are seeing, slowing bus growth. I know base is getting tougher. But how do you see that going ahead? And at the same time, sustainability of this export jump that we’ve seen.
Shenu Agarwal
The bus demand is a temporary thing. I mean, overall, there is a huge pent-up demand still available in the market, whether it is STUs or MCVs or even ICV buses. We still believe that bus has is a story which will continue to be favorable, right, not just like next year but probably for at least 2 years or so right? So this is just a temporary thing. Because sometimes a confluence of a lot of STU orders come in, and sometimes they don’t, right?
But Q4, I mean, we have an order book of like 4,000 buses already right, which will be not supplied in Q4, but they will be supplied over next 6 months or 8 months or so, right. But these are like confirmed orders we have in hand. So nothing to really worry about on the bus. I think we’ll continue — the market will be continue to be good. And you have seen we have already grown to 38% plus market share on buses, right? So we will continue to have our leadership position intact also.
Your other question was about export, yes. So exports also, yes, in the long run, our target is to achieve 50,000. But in the medium run, also, we want to achieve a number of 25,000. This year, we are hoping that we will end up close to 15,000. That is at least we are stretching to achieve right now, although the gap is a little bit on the higher side, but we are still very confident based on the order book that we should be close to that number. So that would be a very good growth when we compare our export volumes of last year of roughly 11,800 numbers or so, right?
So export journey is actually very good. And I — like I said before, this is a result of some recent efforts, but more credit I will give to the actions that Leyland had taken several years ago. When we really solidified our position in some of these markets, by investing into manufacturing assembly facilities, investing into local branch offices, positioning people locally so that we have a better understanding. And that is the reason in some of the markets like UAE or Bangladesh, Ashok Leyland like a formidable brand in the CV business.
So as long as we continue to put in more products now since we have a very strong brand, with a strong distribution available. in some of these markets as we continue to put in more and more products, I think you will see our export volumes going up. But just to summarize, 25,000 medium-term target. We are — we should be around 15,000 this year. Another 2 years or 3 years, we would try to reach that 25,000 number.
Operator
The next question is from the line of Pramod Kumar from UBS.
Pramod Kumar
Congratulations on excellent operations metric. Sir, my first question is regarding the nonvehicle revenue mix, as to how should we see it going forward. Because this quarter, you had a difference decline. I can understand it could be lumpy. But how do you see the near-term nonvehicle revenue piece in terms of especially the pit supplies to defense and other different supplies? Because they kind of come with higher margins. So how should one look at that particular piece evolving over the next 1 or 2 quarters.
Shenu Agarwal
Yes. Listen, I think I can just say that defense business will continue to surprise all of us. Our pipeline is really very strong. Although in Q3, we had a major blip because some of the orders got pushed out. But I’m not just talking about from the Q4 perspective, right? I’m talking about like next 3 or 4 quarters. You will see a good jump in our defense business.
Pramod Kumar
And sir, if you can just help understand because everyone was worried about the cyclicality of the business and whether we are in a down cycle or up cycle, we don’t know. So if you can just help us understand at this point of time, how much is the revenue component, which is not cyclical, which basically domestic — excluding — basically what is the percentage of revenue coming from excluding domestic trucks, including international, including buses and everything?
If you can just help us understand. We used to share this historically back in the time. But if you can just help us, where are we there? And because that kind of gives us ideas to what piece of the business is going to remain resilient. And there, of course, it depends on the macro and the recovery in freight rates and all that stuff. So if you can just help us understand that better, sir.
Balaji K M
Pramod, regarding the CVs, I can tell you that including the LCV, our share is — our revenue share is about 80%. rest 20% comes from the spares, engines, exports, defense.
Pramod Kumar
And if I were to include LCV and buses in this side, Balaji? I mean, because they are not that cyclical. And I believe they should do well, especially with the LCV portfolio expansion, what you’re doing. So anything there which you can share, if you don’t mind?
Shenu Agarwal
Purely domestic trucks would be, I think, 55% to 60%.
Pramod Kumar
55% to 60%. So the percentage exposure has kind of come down over the years.
Shenu Agarwal
Yes. But within that also, I mean if you just get it into different segments, I think ICV industry is not that cyclical as the heavy-duty truck is. So ICV comprises of about 25% of the overall domestic truck, right? So I mean, you can then do the math and see like how it is.
Balaji K M
So buses and LCV constitute about 23%, 24% here.
Pramod Kumar
Okay. So effectively, a big chunk of the business is not that deep cyclical anymore. And even the cycle — the nature of the cycle has changed, right? We are not seeing that sharp up move and down move as such. But I believe you guys are constructive on CV demand incrementally, so is. So if you can just help us understand, when you look at 4Q, are you looking at the industry level, the DIB to grow on a year-on-year basis despite the higher base?
And from when you look at FY ’26, do you expect the volume momentum to be more back-ended? As to how you — when you’re doing the business planning, how you’re looking at the FY ’26 period? Because there’s a lot of concern around whether FY ’26 will be a big volume correction again or very muted or a small decline, for that matter. So if you can just help us understand how are you navigating the business running side for FY ’26?
Shenu Agarwal
Yes. Listen, Pramod, we don’t think we have a very high base actually because last 3 years, industry has been more or less within our range, quite flattish, right? Of course, FY ’23, we saw a big jump, but FY ’24 and ’25 have been like very similar range. So we think that FY ’26, at least first half, we have good visibility now we think the market should be positive. Q4, we are already getting some good signals. January was positive. February is definitely looking positive, yes. So yes, I mean, we are very hopeful that FY ’26 should be a growth year right now. Of course, maybe later sometime, we can give you more specific projections on FY ’26.
Yes. But we definitely think — I have been saying this on the calls before, that we’ll all be surprised the way cyclicity in this market will behave in the future, right? And it is not — I mean, being in India, I don’t think it is right to look at cyclicity of the past and project the same thing in the future. Yes, India is going to be a very, very different market. If you look at penetration ratio of trucks when compared to — compare those with any other country, China, U.S., Europe, we are far behind. There, India would need many more trucks.
The replacement demand has to be strong. I know it has not triggered itself in the last couple of years that much. but it has to be kind of strong in the future because we are at the all-time high. Most of the customers I need in the market are very clear. They are becoming — they are realizing more and more that they have to replace the truck at a certain given point in time. right? Because after that, it becomes a losing proposition for them, especially with the large fleet owners on contracted freight, etc. right?
So I think interest rate reduction, general upbeat of the economy, consumption demand, we don’t see any reason that anything adverse would happen. We only see an upside. Now how much it will be, we’ll come back to you in — maybe in another 30 to 45 days of time.
Pramod Kumar
And just one quick clarification, the price discipline holds in the industry?
Shenu Agarwal
I’m sorry?
Pramod Kumar
The price discipline. In terms of discounting, there’s no cut competition as such, right? Or do you see some improvement or — yes?
Shenu Agarwal
Yes. Actually, in January, we have been able to improve both on the pricing and slightly on the mix as well. right? But on the big side, definitely, we have more headroom. Because in the last couple of years, we had lost a bit on the tipper side and on the MAB side because of some internal issues, some gaps in the products. But now those are behind us. So I think what we are looking at now is good growth in tippers and multi-axles, which are much more profitable for us than the other — than the rest of the segments.
Operator
The next question is from the line of Kumar Rakesh from BNP Paribas.
Kumar Rakesh
My first question was around the budget business which you spoke about that you are quite confident in the coming quarters and, yes, it should continue to do pretty well, given the pipeline, which we’re looking at. Now looking at the budget allocation from the government for vehicle procurement for the different sources, it’s lower for next financial year compared to the current financial year. So do you think that could create a headwind for you? Or do you have enough visibility on your pipeline that this growth could continue to expand?
Shenu Agarwal
Are you talking about the defense side?
Kumar Rakesh
That’s right, yes, defense.
Shenu Agarwal
Yes. No, no, see, I mean, overall budgetary allocation to defense does not really matter too much for us. Basically, we have been supplying mobility solutions only. We are not into rest of the areas, right? On the mobility solutions, it just depends. The market demand just depends on the replacement demand, more or less. Now Indian Army and defense forces have a large fleet of our trucks. I think the number is close to 70,000. And many of these are now beyond their productive age.
And therefore, we expect that in the next 3 to 4 years, and this is what we are also hearing from the ministry, that about 10,000 to 12,000 new trucks would be required, right? So that is what is building us our confidence. And some of these orders are also coming in as we speak, right? So yes, I mean, that is what drives our confidence on the defense business. And even beyond these 3, 4 years, the rest of the trucks would again start aging, right? So this is kind of a cycle which is very beneficial to us.
Kumar Rakesh
Great. My second question was on the Switch investment which we are making in the quarter. So last quarter, you had spoken about that in second half, you would need about INR500 crores of investment, which is what you have already announced. So it’s fair to expect that for now the investment is done. And also you were looking at EBITDA breakeven in the business this year. So where are we trending on that?
Shenu Agarwal
Yes. So yes, you’re right. I mean, we had said earlier that we would probably be making about INR500 crores, so that is what we are doing now. I think Switch India going forward should be EBITDA positive. Now it can happen Q1 or latest Q2. So that is quite in sight. It just depends on our ability to fulfill all the orders we have in hand. And the order book is roughly 1,800 plus now that Switch has, right? So we are quite strong on the order book and the margins are good. So all these buses would be supplied in, I would say, next 12 to 18 months. So that is on the Switch India side.
But Switch UK side, the market itself is not doing very well. The government policies and other issues around the EV adoption have not been taken care of. And there, our EV market is still kind of very, very subdued in UK against our expectations 2, 3 years ago, right? So we are evaluating the options for Switch UK because there we are making losses. And also given that the market conditions are not okay, we have to kind of do some rationalization of Switch UK terms of reducing the losses. Also, there is a debt there in Switch UK, which we want to pay down because the market, again, outlook is not very good.
But we are evaluating various options on Switch UK. But as far as Switch, India is concerned, we are very, very positive. Switch India is actually going to be something that will be very value accretive to Ashok Leyland. That is what we believe at this stage. Although we are not looking at listing it in any near future, I think that part would be still 2 to 3 years away because we would like to expand the volumes. We would like to expand technology, make sure the technology, have a broader product change, etc. But yes, overall, we are very happy with the way Switch is moving.
Operator
The next question is from the line of Kapil Singh from Nomura.
Kapil Singh
Congratulations on a very strong performance in a tough quarter. Just one clarification on the previous question. This INR500 crore investment is going in Switch UK or Switch India?
Shenu Agarwal
See the way Switch is structured is that we have the holding company, which is in UK, which is Optare. And below that, we have Switch UK and then we have Switch India. So part of — so of course, this investment is going into Optare. But a part of that will go into Switch UK and also some part may flow into Switch India for some capex needs.
Kapil Singh
Okay. Because you seem to say that there is some uncertainty there. So I was just wondering why we are making this investment right now.
Shenu Agarwal
Like I explained, I mean, we want to pay down the debt. We have some debt in Switch UK So we want to pay down. So we are trying to reduce all the costs there, including the interest burden on Switch UK. And also the rest of the money could flow to Switch India for their capex.
Kapil Singh
Understood. Sir, my question is on the financing side. We have seen pretty good performance by Hinduja Leyland Finance with improvement in segmental results as well. So just want to understand that how is the financing situation for commercial vehicles. And we heard or read about certain problems in financing either on personal loans, two-wheelers. So just trying to understand, if you could give some perspective on this.
Shenu Agarwal
There is no significant change from — on the financing side, really, both on MHCV and LCV side. So there’s nothing to really worry about. I mean, we don’t see anything — any major shift around the financing side.
Kapil Singh
Okay. And sir, the second question is on LCVs. I think you mentioned close to achieving 20% market share in the near term. Is that on the overall LCV where currently, we are at about 11%? So if you could just talk us through how you are thinking about gaining market share? Or what are the salient points of the new product that we have launched?
Shenu Agarwal
See, right now, we are still looking at 2 to 4-tonne as far as market share is concerned. So in the shorter term, we want to achieve 20%. And then in the medium term, we want to achieve 25%. But that is within the 2 to 4-tonne market. Now coming to the rest of the market, where we are not participating as of now, as I have been telling you that we participate only in about 50% of the overall LCV market. Our goal is to cover about 80% of that market, right?
So SAATHI is like the first attempt, where we are — although we are positioned technically at 2.2, but we are placing this position as a premium product in the entry-level pickup truck market, right? So that is the first attempt. But you will see many more launches and many more products that will be coming in the future which, will take us from this 50% coverage to about 80% coverage. So that road map is very clear. Most of many of these projects are under development. So with — as time progresses, you will see some of those launches happening.
Operator
The next question is from the line of Amit Hiranandani from PhillipCapital.
Amit Hiranandani
Congrats to the team for good operational performance. Sir, my first question is basically the quick commerce segment is emerging very fast. So do you see a positive or a negative impact on any of our segments?
Shenu Agarwal
No, no, it will only mean positive developments on the last mile mobility, yes? So — and somewhat to the medium mile also. So I think ICV and LCV segment should get benefited with all these news — positive news on q-commerce.
Amit Hiranandani
Right. Sir, my second question is on the — what will be the growth driver in the company strategy, especially on the LCV side? And continuing with that, where do you see the product gaps and largely in which segment? And would you like to share any launch pipeline for the next 2 to 3 years, please?
Shenu Agarwal
Yes. So as I just explained, we have 2 mission objectives on LCV. One is that right now, we are at 48%, 49% of the market coverage. We want to expand that into 80% coverage. Now of course, that will take us about 3 to 4 years to go there because of the gestation period in developing new products. But that road map — that product road map internally in Ashok Leyland is very, very clear. SAATHI was actually the first major launch where we are trying to address that sub-2-tonne market. Although technically speaking, we wanted — we have placed the product at 2.2 tonnes, which is at the border of sub-2 tonne. But really, we wanted to start with addressing the customers who are upgrading from sub 2-tonne to 2 to 3.5, right? So we have strategically positioned ourselves there.
Now in future, we will go both downwards, like more towards more entry level. And also, we will go upwards. Right now, we are at 2 to 3.5, but we see that there is a huge potential in products between 3.5 to 5 tonne and also in 6 to 7.5 tonne, right? So all those plans are in place. Like I said, SAATHI is the first launch. Within the next 2 or 3 years, you will see some major launches from Ashok in the LCV segment.
Amit Hiranandani
All right. That’s helpful, sir. Sir, lastly, as per your assessment, how much presently is the impact of DFC on the CV industry?
Balaji K M
DFC.
Shenu Agarwal
DFC, yes. So see, I mean, this has to be — there would be some impact, like we spoke last time also. But it would be — it would take a long, long time. And the impact would be like gradual, right? Because there are a lot of challenges in setting up DFCs, in making the right proposition for the customers. Then there are a lot of challenges in like you go from point A to B. But once you reach B, then how do you go forward? So all these things will take a lot of time to really kind of create an impact. yes. So I think this will be small, and this will be a little bit more long term.
Operator
The next question is from the line of Mukesh Saraf from Avendus Spark.
Mukesh Saraf
My first question is on the tipper segment. When I look at your volumes in 3Q, sequentially, tipper seems to have grown significantly. So is this — could you kind of comment more on this? Is this more just a seasonality? Or are you seeing some significant revival in the space?
Shenu Agarwal
No, no, not exactly. So what has happened, like I explained earlier, if you look at our last 4 or 5 or 6 quarters of tipper volumes, you will see that we had substantially degrown in our tipper segment, right? And that was some specific issues, some specific gaps that got developed in our tipper range, which we have now addressed since the last 3 months or so. So now here onwards, you will see that our tipper volumes will continue to grow. And thankfully, this is a segment where the margins are much better than the rest of the segments. So that is also margin accretive to us. But you will see that continuous growth in our volumes — I mean, disproportionate growth in our volumes in tipper.
Mukesh Saraf
Okay. So we can expect you to kind of gain back some of that market share loss in this tipper?
Shenu Agarwal
Yes, yes. Roughly, we were close to 29%, 30%, about 2 years back. Now we are at 23% or so, right? So we have the 7% headroom on market share in tippers.
Mukesh Saraf
Got that, got that. And I think secondly, you had alluded something on pricing, but could you give, say, some more details what was the net price realization increase in 3Q ex of discounts, etc?
Balaji K M
Discounts can you repeat your question, Mukesh?
Mukesh Saraf
No.
Balaji K M
It has been almost been flat, Mukesh. We tried to increase the prices. In 1 month we succeeded. But subsequent 2 months, we do not succeed. But overall, if you look at, we remained flat as far as the trucks and buses are concerned.
Operator
The next question is from the line of Joseph George from IIFL.
Joseph George
Yes. I have two questions. Can you hear me now?
Shenu Agarwal
Yes, yes.
Joseph George
So I have two questions. One is in relation to what you’re hearing on the ground from fleet operators. Are there any cases of NPAs going up? And secondly, when you look at fleet utilization rates and freight rates, what are you seeing on the ground?
Balaji K M
So all these are — continued to do well, Joseph. If you look at the operating economics of the right operators, it is being good. They are able to increase the freight rates. We are really witnessing a gradual increase in the freight rates. And we all know that fuel rates continue to be constant. And with now possible a passing on of this 25% rate cut, BMIs are going to become lower. So this augurs well for the transporters from the profitability point of view. And the utilization levels are also quite healthy. We are seeing — this we are seeing in terms of the volumes in the last 2, 3 years. It continues to be around the same level of 3,50,000 to 3,70,000 vehicles. So I mean, all this augur well, Joseph, for the entire demand outlook, both on the utilization side as well as on the profitability side.
Joseph George
All right. Okay. And the second question that I had was in relation to Optare. So right now, you said that things are challenging. Can you let us know what is the annual cash burn that you’re seeing in Optare?
Balaji K M
It’s very difficult to quantify because volumes keep fluctuating there, Joseph.
Joseph George
Okay. But the last 2, 3 years, you’ve seen a lot of fluctuations in your revenue numbers. But is it right to assume that the last 2, 3 years, it’s never been FCF positive, as such?
Balaji K M
You are talking about Optare, per se, or you’re talking about.
Joseph George
I’m talking about Optare plc, the UK operation.
Balaji K M
Optare plc, it depends on the volume there. Sometimes volumes come, sometimes they don’t. In case the volumes are there, then we are able to get good margins, good money. In case volumes are not there, then it becomes an issue. See, what has happened in the last year is that there has been a good increase which has happened on the diesel demand. Diesel vehicles have gone up. It has grown by more than 100%. But when you look at the growth percentage, it will look very good, 120%.
But if you look at the numbers, it will be small. It will be around 300 vehicles to 500 vehicles. The market itself is like that. And on the electric vehicle side also, there has been a drop of 30% on the total volume. So volume itself is less than 1,000 there. So I mean, it doesn’t make much of a sense to continue and be there in this kind of a market unless now you have some visibility on the future volumes.
Shenu Agarwal
Actually, consistency is the problem. Lack of consistency is a real problem. So we have a factory there in UK, as you know, but sometimes the factory is idle and sometimes it is more than full, right? So that is the issue. And then also while this company was conceived to be an electric company, last few months, we have been producing diesel buses only because the electric demand is just about nothing, right? So I mean, these are the situations we are trying to tackle as to how to eventually deal with this situation.
Operator
The next question is from the line of Jinesh Gandhi from Ambit Capital.
Balaji K M
We are not able to hear you, Jinesh.
Operator
Jinesh got disconnected. We will move on to the next question. It’s from the line of Abishek, an individual investor.
Analyst
The margin of 13%, are they sustainable?
Balaji K M
Margin is dependent on various aspects. It depends on — as we discussed earlier in the call, it depends on the mix of the overall business with more contribution — more revenue coming from the non-CV side, especially the spare parts, defense and power solutions business as well as the mix within the business. Like in trucks, you have like the higher tonnage segments, higher volume, higher share from the higher tonnage segments like the multi-axle vehicles, tractor trailers, tippers. If all this happens, then this kind of mix is sustainable.
Shenu Agarwal
And just to, Abishek, what Balaji has said, we have been actively working on lowering our breakeven volume, right? Because we know that we are in a cyclical cycle, and therefore, we should be ready for a bad cycle also. And you — I would — I’m very happy to say that our breakeven volume — monthly breakeven volume has reduced to more than half in the last couple of years. Now that gives us a lot of confidence that we would be able to sustain a good financial performance even in that cycle. Of course, if the cycle is good, then definitely 13% is sustainable.
Operator
The next question is from the line of Sanket from Ashika Stock Broking.
Analyst
And congratulations on good set of numbers. Sir, income from operations from subsidiaries is somewhere around INR938 crores. So can you give us the segregation on which subsidiary is contributing the major section of here?
Balaji K M
Income from?
Analyst
Subsidiaries.
Balaji K M
I don’t know. I mean, you are looking at a consolidated number. We’ll give you later. We don’t have that number with us.
Analyst
Okay. So sir, can you provide us like what is the revenue share of Switch under consolidated?
Balaji K M
Revenue share of Switch will be — one minute.
Shenu Agarwal
Better to get back to you. We don’t have the table right now, but we will get back to you.
Analyst
No problem, sir. Sir, my second question is, so government is planning to mandate AC cabins in commercial vehicle starting from October this year. So do you look at any presales happening in Q1 FY ’26?
Shenu Agarwal
I’m sorry, you will have to repeat the question. We couldn’t get it.
Analyst
Sir, I mean government is going to mandate AC cabins in commercial vehicle — yes, yes. So accordingly, do you?
Shenu Agarwal
Yes. AC cabins are coming into effect from 8th of June, I think, right, the last week of June. So — and the cost delta because of this new regulation is very miniscule, right? So it is not something that will influence the market at all. That is what is our opinion is.
Operator
Ladies and gentlemen, this will be our last question. It’s from the line of Jay Kale from Elara Capital.
Jay Kale
Sir, my question is on the replacement demand. I mean we have mentioned that the average age of the holding period of the vehicle has moved up and hence, eventually the replacement demand should kick in. But what we also hear is that because of the price increases that we saw over the last 3, 4 years because of admission norms, etc, the tenure of the loans of the CVs have also moved up to cover for that price increase.
And hence, structurally, there is an increase in the average holding period. And hence, the replacement demand may not be as fast as what we are expecting. Has that played out in the last 1 or 2 years? And how do you see that impacting replacement demand going forward?
Shenu Agarwal
Yes, it has played out. You’re right, Jay, that the cost has gone up. And because of that, the tenure of the loans have gone up. But the difference, what we are seeing in the aging now with respect to what it usually was, which is a difference of at least 2 years, if not 2.5 years, you know that loan tenures have not gone up by that much. So loan tenures would have gone up by like 6 to 7 months on an average. But the replacement — but the aging of the fleet has gone up by 2.5 years — 2 to 2.5 years.
Jay Kale
Okay. Understood. And sir, in the last 1, 1.5 years, how would you have seen the replacement growth versus — I mean, have you seen acceleration of easement growth and the first-time buyer growth probably has softened? Or how have you seen that trend?
Shenu Agarwal
Yes, definitely two trends we are seeing, although they are not like — they’re quite gradual. But two trends is that we are seeing a shift from STUs to fleets. That is one. And the other is replacement demand is also becoming a better contributor to the overall demand.
Operator
Thank you. Ladies and gentlemen, that was the last question for today’s conference call. I now hand the conference over to the management for the closing comments.
Shenu Agarwal
No, thank you very much, and thank you for your continued interest. We are well positioned on our journey, our midterm goals, which is around EBITDA market share, etc. So we are very, very focused on that. And we assure you that we will do our best to continue on this path. Thank you very much.
Balaji K M
Thank you.
Operator
[Operator Closing Remarks]