Ashok Leyland (Q1 FY14)

India Infoline News Service | Mumbai |

In line with our estimates, Ashok Leyland (ALL) reported a slide of 22% yoy in its Q1 FY14 net revenues.

CMP Rs16.1, Target Rs17.0, Upside 5.7%
  • In line with our estimates, Ashok Leyland (ALL) reported a slide of 22% yoy in its Q1 FY14 net revenues. A sharp total volume decline of 21% yoy (M&HCV -26.5% yoy; Dost: -5.5% yoy) and extremely high discounting levels prevalent in the MDV segment led to the fall in topline. Management indicated that discounts per vehicle in M&HCV category touched ~Rs160,000 levels (+20% qoq), whereas competition is resorting to much higher discount levels (~Rs250,000). Additionally, defence segment saw a dearth of order inflow.


  • EBITDA was miniscule at Rs233mn as the volumes in the quarter hovered dangerously near the break-even levels of ~6,000 vehicles/month levels. EBITDA was below ours and consensus estimates, with EBITDA margin at a meek 1%, 700bps down yoy. Staff costs looked higher 200bps as % of sales, even though at an absolute level we observe some reduction owing to various production cuts and other cost control measures being taken by the management. Other expenses remained high at 12.6% of sales, hurting the operational performance materially. Amidst a tough business environment for ALL, other expenses have been trending higher (+300bps over last 6-7 quarters), fuelled by increase in maintenance charges (AMC contracts), consultancy and advertisement expenses and increased delivery costs under the new door delivery scheme.


  • Interest costs also moved higher on a qoq basis (+Rs180mn), on back of recent increase in debt. On back of a poor operational performance, ALL recorded a loss of Rs1,417mn in the quarter.
     

  • Working capital requirements shot up to Rs20bn at the quarter end, mainly owing to rise in unsold vehicle inventory (+20% qoq). Debt in the books increased to Rs55bn, on back of additional debt taken to fund the increased working capital requirements.


  • Going ahead, management guides for persisted weakness in FY14 and aims to curtail both capex and investments in FY14 as it faces crunch on free cash flow. ALL has further lowered the guidance for capex and investments to a cumulative Rs4bn in FY14 (FY13 was Rs15bn). The investments would be largely restricted to the Nissan JV (LCV Dost) and new product developments.


  • While the stock has corrected sharply in the past month, we do not see any green-shoots from the mining and infrastructure sector in near term suggesting a delayed recovery. Further, low freight utilization levels (multiple year lows of ~62% levels) will keep the recovery lagged in our view. We would wait for some kind of pick-up in investment cycle before recommending playing the up-cycle theme. We maintain our Market Performer rating with a revised 9-month price target of Rs17.

Cost Analysis
As a % of net sales
Q1 FY14
Q1 FY13
bps yoy
Q4 FY13
bps qoq
Material costs
63.5
63.9
(43)
63.8
(25)
Purchases
11.9
8.4
358
12.0
(5)
Personnel Costs
10.9
8.8
207
7.6
336
Other overheads
12.6
10.9
174
11.4
128
Total costs
99.0
92.0
697
94.7
433
Source: Company, India Infoline Research

Result table
(Rs m)
Q1 FY14
Q1 FY13
% yoy
Q4 FY13
% qoq
Volumes
21,721
27,487
(21.0)
34,627
(37.3)
Realisation (Rs/unit)
1,088,261
1,101,208
(1.2)
1,076,750
1.1
Net sales
23,638
30,269
(21.9)
37,285
(36.6)
Material costs
(15,014)
(19,355)
(22.4)
(23,775)
(36.8)
Purchases
(2,823)
(2,532)
11.5
(4,470)
(36.9)
Personnel costs
(2,582)
(2,679)
(3.6)
(2,821)
(8.5)
Other overheads
(2,987)
(3,297)
(9.4)
(4,235)
(29.5)
Operating profit
233
2,407
(90.3)
1,983
(88.3)
OPM (%)
1.0
BSE 112.95 0.55 (0.49%)
NSE 112.75 0.70 (0.62%)

***Note: This is a NSE Chart

 

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