Ashok Leyland (Q2 FY14)

India Infoline News Service | Mumbai |

A sharp total volume decline of 22.6% yoy and extremely high discounting levels prevalent in the MDV segment led to the fall in topline.

CMP Rs17, Target Rs15, Downside 11.8%
  • In line with our estimates, Ashok Leyland (ALL) reported a slide of 22.6% yoy in its Q2 FY14 net revenues. A sharp total volume decline of 22.6% 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 ~Rs175,000 levels (+10% qoq), whereas competition is resorting to much higher discount levels (~Rs225,000).

  • EBITDA was better than expected at Rs563mn. On a qoq basis, margins were higher by 122bps mainly on the back of 94bps decline in personnel costs and 114bps fall in overheads. The improvement can be attributed to 1) sequential growth of 6.4% in volumes and 2) cost controls. On a yoy basis though, margins were down 793bps to 2.2% on the back of operating deleverage.

  • Interest costs also moved higher on a qoq basis (+Rs237mn), on back of recent increase in debt and also owing to higher interest rates on working capital loans. On back of a poor operational performance, ALL recorded a loss of Rs251mn in the quarter. 

  • The stock has seen a decent run in the recent past. However, 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 ~60% levels) will keep the recovery lagged in our view. We downgrade our rating to SELL from Market Performer with a revised 9-month price target of Rs15.

Cost Analysis
As a % of net sales
Q2 FY14
Q2 FY13
bps yoy
Q1 FY14
bps qoq
Material costs
64.1
63.6
47
63.5
57
Purchases
12.2
9.2
305
11.9
29
Personnel Costs
10.0
8.0
198
10.9
(94)
Other overheads
11.5
9.1
243
12.6
(114)
Total costs
97.8
89.9
793
99.0
(122)
Source: Company, India Infoline Research

Result table
(Rs m)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Sales
23,110
29,840
(22.6)
21,721
6.4
Realisation (Rs/unit)
1,103,255
1,104,573
(0.1)
1,088,261
1.4
Net sales
25,496
32,960
(22.6)
23,638
7.9
Material costs
(16,339)
(20,967)
(22.1)
(15,014)
8.8
Purchases
(3,118)
(3,026)
3.0
(2,823)
10.5
Personnel costs
(2,546)
(2,638)
(3.5)
(2,582)
(1.4)
Other overheads
(2,931)
(2,988)
(1.9)
(2,987)
(1.9)
Operating profit
563
3,341
(83.2)
233
142.0
OPM (%)
2.2
10.1
(793) bps
1.0
122 bps
Depreciation
(901)
BSE 113.15 0.75 (0.67%)
NSE 113.15 1.10 (0.98%)

***Note: This is a NSE Chart

 

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