Visit http://indiaer.blogspot.com/ for complete details Ashok Leyland: Upgrading volume forecasts
We raise our EPS forecasts by 14% for FY11 and 5% for FY12 following
management's 9% upgrade of FY11 sales volume guidance. We believe new
product launches, a stabilising trend at the Pantangar plant and strong pricing
power bode well for the company going into FY12. We reiterate our Buy rating.
September 2010 quarter result impresses with 36% qoq growth in PAT
Ashok Leyland has reported 2QFY11 PAT up 36% qoq and 86.7% yoy to Rs1.67bn, in line
with our estimate of Rs1.69bn. Savings across cost segments and qoq operating leverage
(14.9% growth in sales volume) helped the EBIDTA margin expand 130bp qoq to 11.3%. The
impact of higher interest costs and lower other income was offset by lower tax provisions.
EPS was Rs1.26 for the quarter and Rs2.2 for 1HFY11.
We raise our EPS forecasts, mainly on increased volume guidance
We have raised our volume forecasts for FY11 to 98,000 units from 92,000, in line with
increased management guidance. Our FY12 volume forecasts also rise around 3% to about
110,000 units. The total 6% pricing increase implemented in early October for BS-3
compliant vehicles should cover emission upgrade costs, according to management. The
current net debt to equity ratio stands at a comfortable 0.63x and we expect it to decline
further as we believe working capital will decrease in 3Q due to inventory depletion. Our
revised EPS forecasts are up 14% for FY11 and 5% for FY12.
Benefits from Pantnagar plant and new products bode well for future; Buy
We raise our target price 6% to Rs89.70 reflecting the increase in our EPS forecasts. We
believe the expected tax benefits from the Pantnagar plant (which should reach breakeven
by end-FY11) and its planned launch of new U platform trucks bode well for the company
from FY12 onwards in terms of both volume and profitability, given the strong outlook for
medium and heavy commercial vehicles (M&HCVs) in India. The stock is currently trading at
12.9x our FY12 EPS forecast and with upside potential of around 22% to our current target
price, we reiterate our Buy rating on the stock.
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