Ashok Leyland Shifts Focus to Indian Market: 4 Key Insights on Potential UK Operations Closure

In a move reflecting the ongoing economic challenges in the UK and Europe, particularly regarding the sluggish shift to electric vehicles in public transport, Ashok Leyland has made a significant decision to halt manufacturing and assembly at its Switch UK operations. The company is currently engaging in employee consultations, signaling a shift in strategy. In contrast, Switch India is thriving, with expectations to reach EBITDA break-even by FY25 and PAT break-even within the next 4 to 6 quarters, driven by a robust order backlog.

Restructuring for Improved Performance

According to a recent analysis by Motilal Oswal Financial Services (MOFSL), this restructuring represents a positive development for Ashok Leyland. By discontinuing the UK operations, the company will eliminate earnings dilution at a consolidated level. However, an increase in the promoters’ pledged shares may pose challenges for the stock’s performance in the short term.

Key financial highlights for Switch UK:
- Estimated losses for FY25 range between GBP 20-25 million.
- Optare UK, part of Switch, reported a loss of Rs 4.6 billion in FY24.
- Cumulative investments in the UK operations total Rs 21 billion as of FY24, with an additional Rs 5 billion recently allocated.

Future Plans for Switch UK and India

In a recent investor call, Ashok Leyland assured that Switch UK would fulfill all existing orders and continue providing aftermarket support for current vehicles. The strategy is to leverage Ashok Leyland’s alternative manufacturing facilities located in India and the UAE to serve the UK and European markets once conditions improve. Meanwhile, Switch India is set to capitalize on the burgeoning electric vehicle market, which is anticipated to expand significantly in the coming years.

Financial Outlook for Switch India

Switch India is performing exceptionally well, with projections indicating revenues of Rs 9-10 billion in FY25. The company is expected to become EBITDA-positive in the same fiscal year. With a solid order backlog of 1,300 buses, management forecasts a threefold increase in volumes for FY26. Consequently, Switch India aims to achieve PAT break-even within the next 4 to 6 quarters.

Strategic focus for Switch India:
- Prioritize direct sales contracts.
- Avoid engaging in GCC contracts, which will instead be managed by Ohm Mobility.

Despite the setbacks in the UK, Ashok Leyland’s management believes that the losses in the UK entity are outweighed by the growth in India. The firm also stated there is no immediate need for additional funding in either the UK or India, indicating a stable outlook for future operations.

Conclusion

In summary, while Ashok Leyland faces challenges in the UK with Switch’s operations, the company’s strategic pivot towards India positions it well for future growth in the electric vehicle sector. As the market evolves, Ashok Leyland’s focus on its Indian subsidiary could pave the way for significant advancements in the years to come.