Ashok Leyland (Q1 FY15)

India Infoline News Service | Mumbai |

Over the past three months stock price of Ashok Leyland has more than doubled. The key reason has been the turnaround in the sentiment for commercial vehicle demand.

CMP Rs33, Target Rs34, Upside 3.0% 
  • Revenues at Rs24.8bn higher by 4.8% yoy were better than our estimates

  • Volumes lower by 9.9% yoy, but blended realizations rose by 16.3% yoy; Sequentially volumes were lower by 24.8% while realizations rose 7.1%

  • While M&HCV volumes were lower by 2.2% yoy, LCV volumes plummeted 26.5% yoy

  • OPM at 4.7% was higher by 370bps yoy but fell 129bps qoq, while gross margins were higher both sequentially and yoy, staff costs and overheads were also lower on yoy basis

  • Performance at PAT level was better than expected as the company reported a loss of Rs480mn v/s our expectation of a loss of Rs1,072mn

  • Assign Accumulate rating while we retain our 9-month price target of Rs34

Result table
(Rs m) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Sales 19,581 21,721 (9.9) 26,048 (24.8)
Realisation 1,265,412 1,088,261 16.3 1,181,195 7.1
Net sales 24,778 23,638 4.8 30,768 (19.5)
Material costs (15,427) (15,014) 2.8 (20,117) (23.3)
Purchases (2,731) (2,823) (3.2) (3,047) (10.4)
Personnel costs (2,831) (2,582) 9.7 (2,473) 14.5
Other overheads (2,627) (2,987) (12.0) (3,292) (20.2)
Operating profit 1,161 233 399.1 1,839 (36.9)
OPM (%) 4.7 1.0 370 bps 6.0 (129) bps
Depreciation (1,033) (952) 8.6 (1,034) (0.1)
Interest (1,063) (1,007) 5.6 (1,126) (5.5)
Other income 231 123 88.6 157 46.9
PBT (705) (1,603) - (163) -
Tax 225 251 (10.4) 36 518.1
Effective tax rate (%) 31.9 15.7 22.3
Adjusted PAT (480) (1,352) (127)
Adj. PAT margin (%) (1.9) (5.7) 379 bps (0.4) (152) bps
Extra ordinary items - (65) - 3,761 -
Reported PAT (480) (1,417) - 3,634 -
Ann. EPS (Rs) (0.7) (2.0) - (0.2) -
Source: Company, India Infoline Research

Revenues better than expectations

Beating our estimates, Ashok Leyland (ALL) reported a revenue of Rs24.5bn an increase of 4.8% yoy in Q1 FY15. This was better than our expectations by 6.1% owing to much higher than anticipated increase in realizations. A sharp total volume decline of 9.9% yoy was offset by decline in discounting levels. While M&HCV volumes were lower by 2.2% yoy, LCV volumes plummeted 26.5% yoy. Management indicated that discounts per vehicle in M&HCV category have slipped to around Rs160,000 from Rs180,000 a couple of quarters ago. 


Operating performance was better than expectations

EBITDA was much better than expected as the OPM was at 4.7% as compared to our estimate of 3.5%. OPM was higher by 370bps yoy but was down 129bps qoq. Gross margins were higher on a yoy basis by 217bps as commodity prices have eased and realizations have seen sharp improvement on the back of better product mix and lower discounts. While staff costs as a percentage of sales were higher by 50bps yoy owing to operating deleverage the company was able to rein in other overheads by 203bps yoy as a percentage of sales. On a sequential basis, while staff costs were higher by 339bps as a percentage of sales owing to operating deleverage company was able to rein in overheads by 10bps as a percentage of sales.


Loss much lower than expected

Interest costs also moved lower on a qoq basis, on the back of recent decrease in debt as the company raised money via QIP. Working capital on the other hand increased as company built in inventories for JNNRUM and few export orders. Company reported a loss at the PAT level of Rs480mn as compared to our estimate of Rs1,072mn loss. Better performance was on the back of superior operational performance and lower interest expenses.


Cost analysis
As a % of net sales Q1 FY15 Q1 FY14 bps yoy Q4 FY14 bps qoq
Raw material 62.3 63.5 (125) 65.4 (312)
Purchases 11.0 11.9 (92) 9.9 112
Personnel Costs 11.4 10.9 50 8.0 339
Other overheads 10.6 12.6 (203) 10.7 (10)
Total costs 95.3 99.0 (370) 94.0 129
Source: Company, India Infoline Research

Assign Accumulate rating on back of volume upsides

Over the past three months stock price of Ashok Leyland has more than doubled. The key reason has been the turnaround in the sentiment for commercial vehicle demand. With stable government at the centre and empirical track record of pro infra stance of the NDA government, street is building in a strong recovery in FY16 and FY17. While we corroborate the view but we feel the stock is factoring in the upsides adequately. We retain our price target of Rs34 and assign an Accumulate rating.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 124,812 99,434 117,791 153,155
yoy growth (%) (3.3) (20.3) 18.5 30.0
Operating profit 8,765 1,666 7,161 12,431
OPM (%) 7.0 1.7 6.1 8.1
Pre-exceptional PAT 1,442 (4,763) 529 4,818
Reported PAT 4,337 294 529 4,818
yoy growth (%) (23.4) (93.2) 80.1 810.3
 
EPS (Rs) 0.5 (1.8) 0.2 1.8
P/E (x) 60.9 - - 18.2
Price/Book (x) 2.0 2.0 2.0 1.9
EV/EBITDA (x) 15.0 76.0 17.9 10.2
Debt/Equity (x) 1.0 0.9 0.9 0.9
RoE (%) 3.3 (10.7) 1.2 10.5
RoCE (%) 6.5 (1.6) 4.5 10.2
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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