September 13, 2024

Ashok Leyland Limited: Long-term rating upgraded to [ICRA]AA+(Stable); Short-term

rating reaffirmed; Rated amount enhanced
Summary of rating action
Previous Rated Current Rated
Instrument Rating Action
Amount (Rs. crore) Amount (Rs. crore)
Commercial Paper 2,000.00 2,000.00 [ICRA]A1+; reaffirmed
Non-Convertible Debenture 200.00 200.00 [ICRA]AA+ (Stable); upgraded from [ICRA]AA (stable)
Long term/Short term: Fund [ICRA]AA+ (Stable)/[ICRA]A1+; LT rating upgraded
2,000.00 2,000.00
based limits from [ICRA]AA (Stable) and ST rating reaffirmed
Long term/Short term: Non-fund [ICRA]AA+ (Stable)/[ICRA]A1+; LT rating upgraded
1,200.00 1,200.00
based limits from [ICRA]AA (Stable) and ST rating reaffirmed
Long-term – Fund based - Term [ICRA]AA+ (Stable); Upgraded from [ICRA]AA
1,111.25 1,457.50
loans (Stable)/assigned for enhanced limits
[ICRA]AA+ (Stable)/[ICRA]A1+; LT rating upgraded
Long term/Short term:
350.00 650.00 from [ICRA]AA (Stable) and ST rating reaffirmed
Unallocated
/assigned for enhanced limits
Total 6861.25 7507.50
*Instrument details are provided in Annexure-I

Rationale
The rating action on the non-convertible debentures (NCD), bank facilities and commercial paper (CP) programme of Ashok
Leyland Limited (ALL/the company) factors the sustained improvement in its credit profile in the last few years led by
improvement in operating performance, cost structure and debt metrics, and ICRA’s expectation that it will remain healthy
going forward as well. ALL remains the second largest player in the domestic medium and heavy commercial vehicle truck
(M&HCV) segment, with an M&HCV trucks market share of ~30% in Q1 FY2025. Its light commercial vehicle (LCV) sales also
improved in the last few years aided by a confluence of factors and its LCV trucks market share was ~12% in Q1 FY2025 (vis-à-
vis ~9% in FY2019). Supported by stable economic activities, better product realisations and healthy market share, ALL’s
revenues1 grew by 65% in FY2023, ~8% YoY in FY2024 and by 5% YoY (standalone) in Q1 FY2025. The cost-optimisation
measures undertaken over the last few years, lower discounts prevalent in the industry, favourable product mix (including
healthy growth in non-CV business) and benefits from operating leverage have translated into steady improvement in margins
in the last few years. For FY2024 and Q1 FY2025, the company reported a ~400 bps YoY improvement in operating margins2.
The measures undertaken by the company aimed at strengthening its product portfolio including that in the non-CV business,
market position and reducing break-even levels, would support the company’s earnings going forward.

The company’s planned investments towards its electric vehicle (EV) vertical continues, including e-Vehicles Mobility as a
Service (e-MaaS), apart from planned annual capex and investments of Rs. 1,000-1,500 crore in the existing businesses. The
capex is expected to be funded by a mix of debt and equity. Also, being in its initial years of operation, the cashflow contribution
from the EV vertical could remain minimal over the next 1-2 years. While ICRA expects the capital structure to remain
comfortable, the impact of the EV business’ accruals and debt on margins and coverage metrics of ALL (consolidated excluding
non-banking finance company (NBFC)) over the medium term remains a monitorable. Also, akin to other CV players, ALL’s
earnings are vulnerable to stiff competition and inherent cyclicality in the domestic CV industry, with earnings and return
indicators moderating during periods of downturns and improving thereafter as industry volumes revive. Nevertheless,

1 Consolidated revenues (excluding NBFC subsidiary)

2 Consolidated operating margins (excluding NBFC subsidiary)

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 improving presence in the LCV segment and higher revenues from the non-CV businesses like power solutions, aftermarket
spares etc, wherein the troughs are flatter, is likely to mitigate the cyclicality risk to an extent.

The stable outlook on the long-term rating reflects that the company will be able to sustain its credit profile supported by its
cash accruals, strong liquidity position and established business position, despite investments and gestational losses from the
EV business and modest industry growth expectations for FY2025.

Key rating drivers and their description

Credit strengths
Established market presence in the domestic CV industry – ALL is the second largest player in the domestic M&HCV industry
with healthy market share over the past several years (M&HCV trucks market share at ~30% in Q1 FY2025), aided by its long
operational track record, strong brand, and well diversified distribution and service network. Over the last decade, ALL has
transformed itself from a south-centric to a pan India player and holds a strong market share in most of the regions that it
operates in. Factors like enhanced product range, better product acceptance and revamping of dealership network are
expected to benefit volume growth and market presence going forward. The LCV sales also witnessed growth in FY2024 and
Q1 FY2025, post healthy two years of volume sales in the market. The expected increase in addressable market, demand from
agriculture and allied sectors is expected to support volume growth in FY2025. ALL’s market share in LCV trucks segments was
12% in Q1 FY2025 (vis-à-vis 9% in FY2019). Bus volumes also witnessed healthy traction in the recent quarters with the
improving replacement demand for old buses and higher orders from State Road Transport Undertakings (SRTUs) and private
players, and the momentum is expected to sustain going forward. Its market share in M&HCV bus was healthy at 33.4% in Q1
FY2025.

Significant improvement in profit margins in the last few years and expected sustenance of the same going forward - ALL’s
operating margins have improved over the last few years, aided by cost optimisation measures undertaken by the company,
lower discounts prevalent in the industry, favourable product mix and benefits from operating leverage. The company
undertook various sustainable measures such as automation, overhead cost reduction measures through price negotiations
and efficiency improvement among others. The proportion of revenues from the margin-accretive non-CV and LCV businesses
have also improved, and this along with volume improvement has aided the company in reporting elevated margins of ~11%
in FY20243 and ~10.6% in Q1 FY2025 (standalone). While the margins are expected to sustain at the improved levels in the
near-term, despite losses anticipated in the EV business for the near-term, it remains vulnerable to any sharp volatility in raw
material prices.

Comfortable capitalisation metrics and strong liquidity - ALL’s healthy market share, along with sustained growth in the CV
industry in FY2023, FY2024 and Q1 FY2025, have resulted in ALL’s revenues growing during the period. The healthy accruals
and networth have contributed to comfortable debt metrics with net gearing of 0.01 times (standalone) and 0.3 times
(consolidated excluding NBFC subsidiary) as on March 31, 2024, despite investments and gestational losses in the EV business.
ALL’s liquidity position is strong, supported by cash and liquid investments of over Rs. 2,000.0 crore (standalone) and undrawn
bank lines of over Rs. 2,000 crore as on June 30, 2024. The capitalisation is expected to remain comfortable going forward as
well. This apart, the exceptional financial flexibility with lenders also supports its financial profile.

Credit challenges
Moderate capex expected for EV segment over the medium – The company has moderate investments planned over the
medium term for its EV vertical, including e-MaaS, apart from planned annual capex and investments of Rs. 1,000-1,500 crore
in the existing businesses. The capex is expected to be funded by a mix of debt and equity. Also, being in its initial years of
operation, the cashflow contribution from the EV vertical could remain minimal over the next 1-2 years. While ICRA expects

3
Consolidated operating margins (excluding NBFC subsidiary)

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 the capital structure to remain comfortable, the impact of the EV business’ accruals and debt on the margins and coverage
metrics over the medium term remains a key monitorable.

Subdued performance of key investee entities impacting the overall profitability – Over the years, ALL has written off / closed
loss-making ventures and remains open to further pruning of investments, if required. While some of these investments were
aimed at strengthening technological capabilities and achieving business and geographical diversification, the performance of
key investee entities remains subdued, dragging down the overall profitability of the company. Subsidiaries such as Optare
PLC reported a consolidated net loss of Rs. 457.0 crore in FY2024 (Rs. 582.8 crore in FY2023). Also, being in its initial years of
operation, the cashflow contribution from the EV vertical is likely to be minimal in the next 1-2 years. While ALL’s investments
towards the investee entities (except the EV business) remained high in the past, it has moderated in the last few years and
ICRA expects the same to continue going forward. ICRA would continue to monitor the ability of the investee entities to achieve
self-sustenance and support the consolidated cash flows going forward.

Vulnerability to inherent cyclicality and competition in the CV industry, although revenues from non-CV business mitigate
risk to an extent – Over 90% of ALL’s (consolidated excluding NBFC business) revenues were derived from its standalone
operations in FY2024. CV sales, which constituted to ~85% of ALL’s standalone revenues in FY2024, remains inherently cyclical
in nature, with industry volumes strongly correlated to the level of economic activity, industrial growth and infrastructure
investments. ICRA expects a modest growth of 0-3% for the CV industry in FY2025. Other factors like regulatory changes
(emission norms, scrappage policy, etc.) and stiff competition leading to aggressive discounting practices, and sharp fluctuation
in raw material prices also impact the earnings profile of industry players. Nevertheless, improving presence in the LCV
segment and higher revenues from the non-CV businesses (CAGR of 12% over the last 5 years), wherein the troughs are flatter,
is likely to mitigate the cyclicality risk to an extent.

Liquidity position: Strong

ALL’s liquidity position is strong with cash and liquid investments of over Rs. 2,000.0 crore (standalone) and undrawn bank
lines of over Rs. 2,000.0 crore as of June 2024. The healthy improvement in accruals, from volume scale-up, would also support
the company’s liquidity. As against these sources of cash, the company has debt repayment obligations of Rs. 639.0 crore in
FY2025, Rs. 399.0 crore in FY2026 and Rs. 531.7 crore in FY2027 on existing loans. The company has planned moderate
investments over the medium term for its EV vertical, including e-MaaS, apart from planned annual capex and investments of
over Rs. 1,000-1,500 crore in the existing businesses. The capex is expected to be funded by a mix of debt and equity. Overall,
ICRA expects ALL to be able to meet its medium-term commitments through internal as well as external sources of cash and
yet be left with sufficient cash surpluses.

Rating sensitivities
Positive factors – Strengthening of the company’s business and financial profile, through revenue diversification, sustained
rise in market share in the CV business, scale-up in EV business, and material improvement in profit margins, RoCE and debt
metrics, could be a trigger for improvement in the long-term rating.

Negative factors – Downward pressure on the ratings could arise with sustained deterioration in ALL’s financial profile affected
by a sharp market slowdown or material contraction in market share, higher-than-estimated debt funded capital expenditure
and/or investments in group companies or dividend pay-outs. Specific triggers for downgrade would be net debt/OPBDITA
above 2.5 times on a sustained basis

Environmental and Social Risks

Environmental considerations - Automotive manufacturers like ALL remain exposed to climate transition risks arising from a
likelihood of tightening emission control requirements across its key operating markets, given the increasing focus on reducing
the adverse impact of automobile emission. The company's initiatives on increasing its EV penetration is a positive step in this
direction. ALL could be required to invest to develop products to cater to the regulatory thresholds or expected transition to

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 other alternative fuel vehicles going forward apart from what is being done already. This could have a moderating impact on
return and credit metrics temporarily.

Social considerations - ALL, akin to other automotive OEMs, has a healthy dependence on human capital. Retaining human
capital, maintaining healthy employee and supplier relationships remain essential for disruption-free operations. ALL also faces
risks of product safety and quality, wherein instances of product recalls may not only lead to financial implications but could
also harm the reputation and create a more long-lasting adverse impact on demand. Nevertheless, its history of limited
warranty expenses augurs well for the company. Akin to other automotive OEMs, ALL is also exposed to any shift in customer
preferences/demographics, which is a key driver for demand, and accordingly may need to make investments to realign its
product portfolio. Product innovations, including the AVTR range and phoenix platform vehicles, and healthy market
acceptance of the same provide comfort on this front.

Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology

Applicable rating methodologies
Commercial Vehicles

Parent/Group support Not applicable

For arriving at the ratings, ICRA has considered the consolidated financials of ALL, excluding
Consolidation/Standalone its NBFC-subsidiary - Hinduja Leyland Finance Limited (HLFL). However, the analysis considers
the ordinary and extraordinary funding support likely to be extended by ALL to HLFL.

About the company

Ashok Leyland Limited (ALL / the company), the flagship entity of Hinduja Group, is the 2 nd largest manufacturer in the medium
and heavy commercial vehicles segment in India. Globally, it is the 4 th largest manufacturer of buses, and the 19th largest
manufacturer of trucks. ALL’s key products include buses, trucks, defence and special application vehicles like fire-fighters and
diesel engines for industrial, genset and marine applications. Headquartered in Chennai, it has nine manufacturing plants as
on date. Of these, seven are in India (Ennore, Sriperumbudur, Hosur, Bhandara, Alwar, Pantnagar and Vijayawada), while two
facilities are overseas including a bus manufacturing facility in Ras Al Khaimah (the UAE) and Leeds (the UK). The company has
presence in the EV segment through Switch Mobility Limited. Switch Mobility Limited manufactures EVs, while E-Mobility as a
service solution is being catered through Ohm Global Mobility Private Limited in India, a subsidiary of ALL.

Key financial indicators (Audited)

Standalone Consolidated#
FY2023 FY2024 FY2023 FY2024
Operating income 36,144.1 38,367.0 41,672.6 45,790.6
PAT 1,380.1 2,617.9 1,348.1 2,680.0
OPBDIT/OI 8.1% 12.0% 12.2% 17.3%
PAT/OI 3.8% 6.8% 3.2% 5.9%
Total outside liabilities/Tangible net worth (times) 1.7 1.7 4.1 4.7
Total debt/OPBDIT (times) 1.1 0.5 6.1 5.1
Interest coverage (times) 10.1 18.5 2.4 2.7
Source: Company, ICRA Research; All ratios as per ICRA’s calculations; Amount in Rs. crore;
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation
# Consolidated includes NBFC and hence profit margins and debt metrics in the table above are not comparable with numbers mentioned in the body of the
rationale. For analysis purpose, NBFC related figures are excluded although ordinary and extraordinary funding support likely to be extended by ALL to HLFL
has been factored.

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 Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current (FY2025) Chronology of rating history for the past 3 years

Instrument Amount FY2025 FY2024 FY2023 FY2022

Type rated
(Rs. crore) Date Rating Date Rating Date Rating Date Rating
13-Sep- 12-Oct- 31-Oct- 28-Jan-
[ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
Commercial Short- 2024 2023 2022 2022
2,000.00
paper term 25-Oct-
[ICRA]A1+
2021
[ICRA]AA
12-Oct- 31-Oct- [ICRA]AA 28-Jan- [ICRA]AA
Non- - - (Stable);
Long- 2023 2022 (Stable) 2022 (Negative)
convertible 600.0 withdrawn
term
Debenture 25-Oct- [ICRA]AA
2021 (Negative)
Non- [ICRA]AA
Long- 12-Oct- 31-Oct- [ICRA]AA 28-Jan- [ICRA]AA
convertible 50.0 - - (Stable);
term 2023 2022 (Stable) 2022 (Negative)
Debenture withdrawn
13-Sep- [ICRA]AA+ 12-Oct- [ICRA]AA 31-Oct- [ICRA]AA 28-Jan- [ICRA]AA
Non-
Long- 2024 (Stable) 2023 (Stable) 2022 (Stable) 2022 (Negative)
convertible 200.00
term 25-Oct- [ICRA]AA
Debenture
2021 (Negative)
[ICRA]AA+ [ICRA]AA [ICRA]AA [ICRA]AA
13-Sep- 12-Oct- 31-Oct- 28-Jan-
Long- (Stable)/ (Stable)/ (Stable)/ (Negative)/
2024 2023 2022 2022
Fund based term / [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
2,000.00
limits Short- [ICRA]AA
25-Oct-
term (Negative)/
2021
[ICRA]A1+
13-Sep- [ICRA]AA+ 12-Oct- [ICRA]AA 31-Oct- [ICRA]AA 28-Jan- [ICRA]AA
Long-
2024 (Stable) 2023 (Stable) 2022 (Stable) 2022 (Negative)
Term loans term 1,457.50
25-Oct- [ICRA]AA
2021 (Negative)
[ICRA]AA+ [ICRA]AA [ICRA]AA [ICRA]AA
13-Sep- 12-Oct- 31-Oct- 28-Jan-
Long- (Stable)/ (Stable)/ (Stable)/ (Negative)/
2024 2023 2022 2022
Non-fund term / [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
1,200.00
based limits Short- [ICRA]AA
25-Oct-
term (Negative)/
2021
[ICRA]A1+
[ICRA]AA+ [ICRA]AA [ICRA]AA [ICRA]AA
13-Sep- 12-Oct- 31-Oct- 28-Jan-
Long- (Stable)/ (Stable)/ (Stable)/ (Negative)/
2024 2023 2022 2022
term / [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
Unallocated 650.00
Short- [ICRA]AA
25-Oct-
term (Negative)/
2021
[ICRA]A1+
Complexity level of the rated instrument

Instrument Complexity Indicator

Commercial Paper Very Simple
Non-Convertible Debenture Very Simple
Long term/Short term: Fund based limits Simple
Long term/Short term: Non-fund based limits Very Simple
Long-term – Fund based - Term loans Simple

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 Long term/Short term: Unallocated Not Applicable

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument’s
credit rating. It also does not indicate the complexity associated with analysing an entity’s financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details
Date of Coupon Amount Rated
ISIN Instrument Name Maturity Current Rating and Outlook
Issuance Rate (Rs. crore)
NA* Commercial Paper - - - 2,000.00 [ICRA]A1+
Non-convertible 17-Mar- 17-Mar-
INE208A07406 7.30% 200.00 [ICRA]AA+ (Stable)
Debenture 2022 2027
NA Fund based limits - - - 2,000.00 [ICRA]AA+ (Stable) /[ICRA]A1+
NA Term loans FY2020 ~8-9% FY2029 1,457.50 [ICRA]AA+ (Stable)
Non-fund based
NA - - - 1,200.00 [ICRA]AA+ (Stable) /[ICRA]A1+
limits
NA Unallocated - - - 650.00 [ICRA]AA+ (Stable) /[ICRA]A1+
Source: Company; * Yet to be Placed

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

Company Name ALL Ownership Consolidation Approach

Subsidiaries
Global TVS Bus Body Builders Limited 66.67% Full Consolidation
Gulf Ashley Motor Limited 93.15% Full Consolidation
Optare Plc 92.59% Full Consolidation
Ashok Leyland (Nigeria) Limited 100.00% Full Consolidation
Ashok Leyland (Chile) SA 100.00% Full Consolidation
HLF Services Limited 81.72% Full Consolidation
Albonair (India) Private Limited 100.00% Full Consolidation
Albonair GmbH 100.00% Full Consolidation
Ashok Leyland (UAE) LLC 100.00% Full Consolidation
Ashley Aviation Limited 100.00% Full Consolidation
Hinduja Tech Limited 73.22% Full Consolidation
Vishwa Buses and Coaches Limited 100.00% Full Consolidation
Gro Digital Platforms Limited 80.20% Full Consolidation
OHM Global Mobility Private Limited 100.00% Full Consolidation

Joint Ventures
Ashley Alteams India Limited 50.00% Equity method
Zebeyond Limited, United Kingdom 50.00% Equity method
Ashok Leyland John Deere Construction Equipment Company Private Limited 50.00% Equity method
TVS Trucks and Buses Private Limited 49.90% Equity method

Associates
Ashok Leyland Defence Systems Limited 48.49% Equity method

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 Company Name ALL Ownership Consolidation Approach
Mangalam Retail Services Limited 37.48% Equity method
Lanka Ashok Leyland PLC 27.85% Equity method
Source: ALL’s Annual report FY2024

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 ANALYST CONTACTS
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+91 44 4596 4305 +91 44 4596 4316
Vinutaa.s@icraindia.com ssriraman.mohan@icraindia.com

RELATIONSHIP CONTACT
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shivakumar@icraindia.com

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Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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