Ashok Leyland (Q3 FY14)

India Infoline News Service | Mumbai |

In line with our estimates, Ashok Leyland (ALL) reported a slide of 17.9% yoy in its Q3 FY14 net revenues.

CMP Rs17.3, Target Rs15.0, Downside 13.0%
  • In line with our estimates, Ashok Leyland (ALL) reported a slide of 17.9% yoy in its Q3 FY14 net revenues. A sharp total volume decline of 18.6% 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 continue to remain at high levels.


  • EBITDA was much lower than expected. As compared to our expectation of -1.5% OPM, the company reported -5%. Gross margins were ghastly lower at 20.3% compared to 28.1% in Q3 FY13 and 23.7% in Q2 FY14. Impact of operating deleverage was seen with personnel costs rising 127bps yoy and 228bps qoq as a percentage of sales. Overheads were relatively controlled with only 14bps yoy and 149bps qoq increase as a percentage of sales.


  • Interest costs also moved lower on a qoq basis (-Rs92mn), on back of recent decrease in debt as the company was able to rein in its working capital requirements by reducing its inventories. On back of a poor operational performance, ALL recorded a loss of Rs1.7bn in the quarter as cmpared to our expectations of Rs2.2bn loss owing to higher extraordinary income from sale of non-core assets and land. The company has also spent Rs435mn on VRS whereby it has pruned its workforce by 500 men.


  • In the conference call the company has cited that the retail level volumes have been better in January 2014 so far when compared December 2013. With macro issues such as 1) slowdown in investments, 2) weak mining activity, 3) high interest rates and 4) rise in fuel prices, profitability of fleet operators will continue to be under pressure. We are building in a modest recovery in FY15 and a faster one in FY16. However, given the rising competition levels in the CV industry we believe that recovery in margins would not be as pronounced as in FY10 (post the financial crisis). This, as per our estimates, would result in losses in FY15 as well. We reiterate our SELL rating with a price target of Rs15.

Cost Analysis
As a % of net sales
Q3 FY14
Q3 FY13
bps yoy
Q2 FY14
bps qoq
Material costs
60.8
58.9
187
64.1
(333)
Purchases
19.0
13.0
598
12.2
673
Personnel Costs
12.3
11.0
127
10.0
228
Other overheads
13.0
12.8
14
11.5
149
Total costs
105.0
95.7
926
97.8
717
Source: Company, India Infoline Research

Result table
(Rs m)
Q3 FY14
Q3 FY13
% yoy
Q2 FY14
% qoq
Sales
18,453
22,666
(18.6)
23,110
(20.2)
Realisation (Rs/unit)
1,058,481
1,050,256
0.8
1,103,255
(4.1)
Net sales
19,532
23,805
(17.9)
25,496
(23.4)
Material costs
(11,866)
(14,017)
(15.3)
(16,339)
(27.4)
Purchases
(3,702)
(3,089)
19.8
(3,118)
18.7
Personnel costs
(2,396)
(2,617)
(8.4)
(2,546)
(5.9)
Other overheads
(2,537)
(3,059)
(17.1)
(2,931)
(13.4)
Operating profit
(969)
1,023
-
563
-
OPM (%)
(5.0)
4.3
(926) bps
2.2
(717) bps
BSE 112.40 [1.50] ([1.32]%)
NSE 112.05 [2] ([1.75]%)

***Note: This is a NSE Chart

 

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