Visit http://indiaer.blogspot.com/ for complete details Ashok Leyland (ALL) registered a substantial 72% yoy growth in net sales for
2QFY2011. However, lower-than-expected growth in other businesses (engine
and spare parts) restricted growth. Net average realisation was flat due to the
increase in excise duty and change in product mix. EBITDA margins came in
better than our expectation at 11.3%. Net profit jumped on higher top-line and
improved operating leverage. We remain Neutral on the stock.
Strong volumes support healthy 72% growth in top-line; OPM’s up on higher
operating leverage: For 2QFY2011, ALL reported a 72% yoy growth in net sales
to `2,714cr (`1,578cr), which was marginally below our expectation. The jump in
sales came on the back of the substantial 72% yoy growth in volumes. Net
average realisation for the quarter was flat on yoy at `1,103,684 (`1,103,203),
largely due to lower growth in non-cyclical business. During 2QFY2011, ALL
witnessed 76bp yoy increase in EBITDA margin mainly on the back of improved
operating leverage. Net profit surged 88.5% yoy to `167cr (`89cr) on a low base,
robust volume growth and better operating performance.
Outlook and Valuation: Overall outlook for the domestic commercial vehicle (CV)
industry is positive with volumes expected to grow 15-18% yoy in FY2011. A
majority of the factors that drive freight demand and consequently medium and
heavy CV (M&HCV) demand have turned positive and the CV manufacturers are
expected to benefit from the economic recovery going forward. We remain
Neutral on the stock with our fair value working out to `78, at which level the
stock would trade at 14.3x FY2012E earnings. We prefer Tata Motor in the CV
space as it is trading at a reasonable discount in relative terms.
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