Ashok Leyland Some steam left; maintain Buy:: Anand Rathi

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Ashok Leyland
Some steam left; maintain Buy
 Earnings growth to sustain. With the CV demand curve in midcycle,
Ashok Leyland (ALL) is set for steady growth. We expect
ALL to report a healthy FY10-12e earnings CAGR of 37%, with
potential for positive surprises on earnings growth. We raise our
target price to `91 from `73 and re-iterate Buy.
 2Q performance robust. ALL saw a robust 2QFY11, with sales
growth of 72% yoy, healthy EBITDA margin of 11.3% and profit
of `1.7bn (up 86.9% yoy, albeit in line with our estimates).
 Stable volume growth ahead. We expect ALL to see 11.7%
growth in the rest of FY11 (though it would be higher at 28.8%,
as per the higher-end of company guidance). The Pantnagar plant
ramp-up has been slower and benefits for the year would be backended.
While the margin improvement potential from Pantnagar
exists, possible delays in vendor ramp-up may hamper optimal
margin expansion in FY12 as well.
 Raise estimates; introduce FY13e. We raise our FY11 earnings
estimate 7.7% (and FY12e by 0.3%), to reflect better than
expected CV demand in 1HFY11 and new export orders. Also, we
introduce FY13e EPS at `6.5 (20.4% yoy growth).
 Valuation and risks. We raise our target price to `91, based on
target PE of 16x FY12e core EPS and `8 value of cash and
investments. We maintain Buy. Risks: An increase in interest rates;
commodity price increase; delay in Pantnagar ramp-up.