Ashok Leyland
Performance Highlights
Quarterly highlights (Standalone)
Y/E March (` cr) Net Sales EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research
BUY
CMP Target Price
Investment Period
1QFY13 3,027 241 8.0 67 % chg (yoy) (21.9) (90.3) (697)bp 4QFY13 3,728 198 5.3 16 % chg (qoq) (36.6) (88.3) (433)bp -
`16 `22
12 Months
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Automobile 4,284 3,491 0.9 29/16 889,393 1.0 19,949 5,973 ASOK.BO AL@IN
Ashok Leyland (AL) reported an extremely disappointing performance for 1QFY2014 as its EBITDA margins collapsed to 1% (a severe decline of 697bp yoy and 433bp qoq) which led to a bottom-line loss of `135cr. The margin contraction was on account of a significant decline in volumes (down 21.3% yoy and 37.2% qoq) and also due to higher discounts and an inferior product-mix (absence of revenue from defense supplies). Additionally, a higher interest cost (up 20.8% yoy and 21.6% qoq) due to higher working capital requirements also impacted the bottom-line. Given the sluggish demand environment, we revise our volume estimates marginally downwards, leading to a 3.2%/3.6% downward revision in revenues for FY2014/15. We also lower our EBITDA margin estimates by 146bp/40bp for FY2014/15 to account for continued margin pressure. Consequently, we revise downwards our earnings estimates by 55.1%/10.4% for FY2014/15. Notwithstanding the sharp correction of ~30% in the stock price over the last one month, we believe that the company would benefit immensely with a revival in the commercial vehicle cycle which we expect to start gradually from 2HFY2014. We thus maintain our Buy rating on the stock. 1QFY2014 results surprise negatively: ALs top-line registered a steep decline of 21.9% yoy (36.6% qoq) to `2,364cr which is broadly in-line with our estimates. The top-line declined primarily on account of a 21.3% yoy (37.3% qoq) decline in volumes, following a slowdown in industrial activity. At the operating level, EBITDA margins registered a sharp contraction of 697bp yoy (433bp qoq) to a meager 1% as against our estimates of 4.5%, largely on account of higher discounts, lower utilization levels and also due to an inferior product-mix. Consequently, other expenditure and staff costs as a percentage of sales surged 170bp yoy (120bp qoq) and 210bp yoy (330bp qoq) respectively. Additionally, raw-material expenditure as a percentage of sales too increased 320bp yoy (flat qoq) to 75.5% although in value terms it declined 22.4% yoy (36.8% qoq). Outlook and valuation: At `16, AL is trading at 8.6x FY2015E earnings. We maintain our Buy rating on the stock with a target price of `22.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 38.6 19.3 31.5 10.6
3m 6.5
1yr 16.6
3yr 11.1
FY2012 12,904 13.0 562 (10.7) 8.5 2.1 7.6 1.5 13.8 10.6 0.4 4.7
FY2013E 12,481 (3.3) 163 (71.0) 6.7 0.6 26.3 1.4 3.8 5.7 0.4 6.5
FY2014E 13,450 7.8 102 (37.6) 6.5 0.4 42.1 1.4 2.3 5.5 0.4 6.5
FY2015E 15,853 17.9 496 387.5 8.4 1.9 8.6 1.3 11.0 10.4 0.3 4.0
Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com
1QFY14 2,364 1,501 63.5 258 10.9 282 11.9 299 12.6 2,341 23 1.0 101 95 12 (160) 7 (167) (7.1) (25) 15.0 (142) (135) (6.0) 266 (0.5)
1QFY13 3,027 1,935 63.9 268 8.8 253 8.4 330 10.9 2,786 241 8.0 83 89 13 81 0 81 2.7 14 17.3 67 67 2.2 266 0.3
% chg (yoy) (21.9) (22.4) (3.6) 11.5 (9.4) (16.0) (90.3) 20.8 6.6 (4.7) -
4QFY13 3,728 2,378 63.8 282 7.6 447 12.0 423 11.4 3,530 198 5.3 83 100 12 27 (134) 161 4.3 11 7.1 150 16 4.0 266
% chg (qoq) (36.6) (36.8) (8.5) (36.9) (29.5) (33.7) (88.3) 21.6 (4.8) 6.4 -
FY2013 12,481 7,811 62.6 1,076 8.6 1,312 10.5 1,406 11.3 11,605 876 7.0 377 381 62 181 (290) 471 3.8 37 7.9 434 144 3.5 266
FY2012 12,904 8,954 69.4 1,020 7.9 507 3.9 1,166 9.0 11,648 1,256 9.7 255 353 40 688 (2) 690 5.3 124 18.0 566 564 4.4 266 2.1
% chg (yoy) (3.3) (12.8) 5.4 158.5 20.6 (0.4) (30.2) 47.7 7.9 54.5 (73.7) (31.8) (70.2) (23.4) (74.5)
0.1
0.5
(74.5)
Top-line broadly in-line with estimates: ALs top-line for the quarter registered a steep decline of 21.9% yoy (36.6% qoq) to `2,364cr which was broadly in-line with our estimates. The top-line declined primarily on account of a 21.3% yoy (37.3% qoq) decline in volumes, following a slowdown in industrial activity. While medium and heavy commercial vehicle (MHCV) sales declined by 26.7% yoy (36.8% qoq); Dost too registered a drop in sales by 5.8% yoy (38.1% qoq).
Total volumes
43.1 26.1
(0.8)
20.2
1,303,468
1,316,545
1,250,684
1,213,161
1,097,296
1,104,573
1,061,899
1,076,750
19,277
23,659
23,215
35,688
27,585
29,840
22,661
34,627
21,721
(21.3)
400,000 200,000 0
(15.8)
1,088,261
43.4
600,000
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
(17.1)
2,513
3,115
2,903
4,330
3,027
3,296
2,406
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
3,728
19.2
21.1
1QFY14
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14 1QFY14
EBITDA margin pressure continues: At the operating level, EBITDA margins registered a sharp contraction of 697bp yoy (433bp qoq) to a meager 1% as against our estimates of 4.5%, largely on account of higher discounts, an inferior product-mix (absence of revenue from defense supplies) and lower utilization levels. Consequently, other expenditure and staff cost as a percentage of sales surged 170bp (120bp qoq) and 210bp yoy (330bp qoq) respectively. Further, raw-material expenditure as a percentage of sales too increased 320bp yoy (flat qoq) to 75.5% although in value terms it declined 22.4% yoy (36.8% qoq). As a result, the operating profit declined substantially by 90.3% yoy (88.3% qoq) to `23cr. According to the Management, a foreign exchange gain of `40cr (included in other expenditure), control over employee expenses due to lesser working days, and a salary cut of 5% across the executive level, enabled the company to remain EBITDA positive. Additionally, the Management is targeting to bring down the breakeven level from ~6,000units/ month currently to ~5,000units/ month.
154
257
67
67
143
86
(81)
16
(135)
(5.7)
(3.4)
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
Bottom-line surprises negatively: Led by a disappointing operating performance and a significant increase in interest expense, AL reported a net loss of `135cr as against our expectations of a loss of `74cr. The Management has stated that the debt levels have increased from `43bn as of March 2013 to `55bn currently. The increase has been due to higher working capital requirement of `20bn currently.
1QFY14
Investment arguments
Volume growth to revive with easing of interest rates and recently launched Dost: MHCV demand has witnessed a substantial slowdown in recent times due to high interest rates and slowdown in industrial activity; however, we believe MHCV demand is near its trough. With reversal in interest rates in CY2013, we expect a pick-up in industrial activity, leading to a gradual revival in MHCV sales in FY2014. We expect ALs MHCV volumes to register an ~5% volume CAGR over FY2013-15E. Further, the recently introduced LCV - Dost [through JV with Nissan]) has been received well by the market and AL expects to ramp-up its production going ahead. We expect the company to clock sales of 40,000 units (~15% yoy growth) in FY2014. EBITDA margin to improve gradually over the next two years: While raw-material prices have stabilized and AL expects to benefit from higher production at the Pantnagar facility (total profitability estimated to be higher due to cost savings of ~`60,000/vehicle), the companys product-mix has changed due to increasing proportion of the lower margin LCV - Dost (contribution to total volumes increased from ~7% in FY2012 to ~30% in FY2013). AL has indicated that it earns marketing/distribution fees of `15,000-`18,000/vehicle on Dost sales and has also guided that the margins should be structurally lower by ~200bp due to Dost sales. While the EBITDA margins have declined by 270bp in FY2013 led by higher share of Dost and higher levels of discounting, we expect margins to improve ~200bp over the next two years, primarily on account of revival in MHCV sales leading to operating leverage benefits and also due to lower levels of discounts.
Notwithstanding the sharp correction of ~30% in the stock price over the last one month, we believe that the company would benefit immensely with a revival in the commercial vehicle cycle which we expect to start gradually from 2HFY2014. At `16, AL is trading at 8.6x FY2015E earnings. We maintain our Buy rating on the stock with a target price of `22.
Feb-04
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Jun-07
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Oct-05
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Company background
Ashok Leyland (AL) is the country's second largest CV manufacturer. The company has a strong presence in the MHCV segment, with a domestic market share of ~26% as of FY2013. AL enjoys a dominant position in southern India, with an ~50% market share, and is currently focusing on expanding its presence in northern India by increasing its touch points in the region. The company, through its JV with Nissan Motor and John Deere, intends to expand its product portfolio and has recently launched Dost to tap the growing LCV demand, and a backhoe loader used in the construction industry.
10
11
Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.4 1.9 5.5 0.2 0.8 5.0 0.2 0.8 2.9 0.3 1.4 1.2 0.3 1.6 1.1 0.2 0.8 2.3 1.4 73 49 110 40 1.8 61 35 95 11 1.9 63 34 108 (6) 1.6 60 39 123 (10) 1.7 60 38 118 (3) 1.9 59 38 115 2 9.2 12.4 10.7 14.4 17.7 16.5 10.6 12.8 13.8 5.7 6.2 3.8 5.5 6.4 2.3 10.4 12.3 11.0 7.5 0.8 1.7 9.7 3.7 0.4 12.2 8.3 0.8 2.3 15.2 6.4 0.3 17.9 5.8 0.8 2.3 10.9 8.8 0.2 11.4 3.6 0.8 1.9 5.6 10.4 0.2 4.5 3.6 0.8 1.8 5.4 9.4 0.3 4.2 5.9 0.8 2.1 10.1 8.5 0.3 10.5 1.4 1.4 2.2 0.8 8.8 2.4 2.4 3.4 1.0 10.0 2.1 2.1 3.4 1.0 10.9 0.6 0.6 2.0 0.6 11.9 0.4 0.4 1.9 0.6 11.6 1.9 1.9 3.4 0.6 12.7 11.2 7.3 1.8 4.7 0.7 7.5 0.9 6.8 4.8 1.6 6.2 0.4 4.3 0.8 7.6 4.7 1.5 6.2 0.4 4.7 0.7 26.3 7.9 1.4 3.7 0.4 6.5 0.6 42.1 8.6 1.4 3.7 0.4 6.5 0.6 8.6 4.8 1.3 3.7 0.3 4.0 0.6 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E
12
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Ashok Leyland No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
13