Ashok Leyland

Ashok Leyland - the Hinduja Group's flagship company in India, reported far below the market expected net profit growth of 54% to Rs 66.90 crore in Dec 2011 quarter. The growth in net profit was moderated by higher other expenditure at operating level though crash in effective tax rate on account of higher R&D capital expenditure boosted the bottomline. The topline grew by 29% to Rs 2879.80 crore on 26% growth in sales volume and improved net sales realizations per unit. Fall in operating profit margin (OPM) by 10 bps is on account of several one time marketing initiatives including of LCV Dost, forex loss of Rs 15 crore and bunching up of claims from DTC maintenance costs that led to higher other expenditure. The operating profit growth was limited to 27% to Rs 209.78 crore

Commenting on performance, Mr. Vinod K. Dasari, Managing Director, Ashok Leyland said, Despite a substantial improvement in our quarter sales and profits, Q3 was a challenging one due to a few supply chain issues. He added that, These have since been resolved. STU demand was weaker in Q3 but is expected to bounce back in Q4. The initial feedback from customers for DOST has been very favourable and we are quickly ramping up production to meet the demand.

On back of 26% growth in sales volume and marginal 3% improvement in net sales realizations per unit, the operating income grew by healthy 29% to Rs 2879.80 crore in Dec 2011 quarter. The sales volume grew by 26% y-o-y to 23175 units though partially aided by lower sales volume in Dec 2010 quarter due to new emission norm related supply side issues. However higher other expenditure though moderated by lower staff and raw material costs led to 10 bps fall in OPM to 7.3%. Thus the operating profit growth was limited to 27% to Rs 209.78 crore. Other expenditure, as % to sales net stock adjusted, surged by 110 bps to 9%. The spike in other expenditure is on account of bunching up of annual maintenance cost related to DTC of Rs 20 crore, forex loss of Rs 15 crore and various one time marketing initiatives including that of Dost. On the other hand, raw material costs and cost of traded goods was flat at 74.8%. The staff cost in absolute terms grew by 12% to Rs 272.32 crore on account of provisioning of bonus payouts and increase in head count though, as % to sales net stock adjusted, fell by 110 bps to 9%.

The PBT improved by healthy 30% to Rs 71.96 crore on marginal growth in interest cost. The interest cost grew by 16% to Rs 55.01 crore on account of increase in working capital and higher interest costs on CAPEX loans. The other income grew by robust 39% to Rs 3.23 crore. Only the depreciation cost grew by 33% to Rs 86.04 crore (that too post excluding Rs 0.59 crore write back on modification of leasehold amortization method). The effective tax rate crashed by whopping 1490 bps on incurring higher R&D capital expenditure boosting the net profit by robust 54% to Rs 66.90 crore.

Nine Month Performance

In nine month ended Dec 2011, the topline grew by 16% to Rs 8469.87 crore. Higher other expenditure and staff cost led to 60 bps fall in OPM to 9.1%. Thus the operating profit growth was limited to marginal 10% to Rs 774.96 crore. Spike in interest cost (by 44%) due to increased working capital and interest on capex loans and increase in depreciation cost (post reduction of Rs 11.19 on modification in leasehold amortization method) led to 8% fall in PBT to Rs 375.55 crore. The net profit fell by 8% to Rs 307.24 crore limited by fall in effective tax rate by 60 bps.

• The Government of India, Ministry of Corporate Affairs has issued Notification No. G.S.R. 913 (E) dated December 29, 2011, amending the Companies (Accounting Standard) Rules, 2006 in respect of the exchange differences arising (effective from April 1, 2011) on reporting of long-term foreign currency monetary items, by extending the time period for the amortization of the said differences from upto March 31, 2012 to upto March 31, 2020. The unamortised net exchange difference on account of the above is a gain of Rs 461.17 lakh as at December 31, 2011 (September 30, 2011: Net loss of Rs 36.68 lakh, December 31, 2010: Net loss of Rs 259.68 lakh and March 31, 2011: Nil)

The impact of adopting the above Notification on the results for the nine months ended December 31, 2011 is that there has been a net cumulative higher charge of Rs 290.23 lakh (comprising a net gain of Rs 0.06 lakh for the quarter ended June 30, 2011 and a net charge of Rs 228.76 lakh and Rs 61.53 lakh for the quarters ended September 30, 2011 and December 31, 2011 respectively).

• The % share of promoters' shareholding in total share capital of the company stands unchanged at 50.98% as on 31^st Dec 2011. The % of promoters' shares pledged is 8.91% of the total company's share capital.

The scrip of the company is currently trading at Rs 27 on BSE.

Ashok Leyland: Results