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Ashok Leyland Underweight
ASOK.BO, AL IN
3Q PAT below estimates (-59% yoy) on drop in operating margins
• 3Q PAT at Rs.434m (-59% yoy) was below ours and street estimates
as the company had a sharp decline in operating profits – margins
came in at 7.5% (-390bp yoy & -380bp qoq) given a sharp increase in
staff costs as well as other expenditure.
• While volumes were up +14% yoy, realizations increased +7% yoy,
resulting in revenues of Rs. 22.2B (+23% yoy). Over the quarter,
volumes were lower -25% qoq given that volumes have moderated
post the roll over to the Euro III emission norms in Oct’10.
• EBITDA margins at 7.5% declined -390bp yoy given an overall
increase in expenditure - Employee cost rose by 40% at Rs. 2,439m
owing partly to increase in manpower strength. Other expenditure also
increased by 35% at Rs. 1,879m attributed to expenses incurred for the
setting and ramping up of the Pantnagar manufacturing facility, higher
R&D expenses and the launch of the new U-Truck platform.
• Financial expenses were also up by 193% at Rs. 475m due to an
increase in working capital.
• In its press statement, management highlighted that ‘3Q has been bit
of a dampener attributable to the time taken by the market to accept the
new emission norms and critical supply issues’.
• Residual growth of 18% required over 4Q to achieve growth target
of 95,000 units: Management is guiding for FY11E volumes of 95,000
units as it expects volumes to ramp up over the March quarter. The
residual growth rate required to achieve this target is 18% over 4Q –
the company will have to sell over 30,000 units to meet the target.
• Ashok Leyland has announced a change in its top management:
Mr. Vinod K. Dasari will be Managing Director - he is currently the
Chief Operating Officer and a Whole-time Director of the Company.
He takes over from Mr. Seshasayee – who had been the MD of Ashok
Leyland since 1998.
• We re-iterate our UW stance on Ashok Leyland given that volume
growth is moderating post the roll over to the Euro III emission norms
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland Underweight
ASOK.BO, AL IN
3Q PAT below estimates (-59% yoy) on drop in operating margins
• 3Q PAT at Rs.434m (-59% yoy) was below ours and street estimates
as the company had a sharp decline in operating profits – margins
came in at 7.5% (-390bp yoy & -380bp qoq) given a sharp increase in
staff costs as well as other expenditure.
• While volumes were up +14% yoy, realizations increased +7% yoy,
resulting in revenues of Rs. 22.2B (+23% yoy). Over the quarter,
volumes were lower -25% qoq given that volumes have moderated
post the roll over to the Euro III emission norms in Oct’10.
• EBITDA margins at 7.5% declined -390bp yoy given an overall
increase in expenditure - Employee cost rose by 40% at Rs. 2,439m
owing partly to increase in manpower strength. Other expenditure also
increased by 35% at Rs. 1,879m attributed to expenses incurred for the
setting and ramping up of the Pantnagar manufacturing facility, higher
R&D expenses and the launch of the new U-Truck platform.
• Financial expenses were also up by 193% at Rs. 475m due to an
increase in working capital.
• In its press statement, management highlighted that ‘3Q has been bit
of a dampener attributable to the time taken by the market to accept the
new emission norms and critical supply issues’.
• Residual growth of 18% required over 4Q to achieve growth target
of 95,000 units: Management is guiding for FY11E volumes of 95,000
units as it expects volumes to ramp up over the March quarter. The
residual growth rate required to achieve this target is 18% over 4Q –
the company will have to sell over 30,000 units to meet the target.
• Ashok Leyland has announced a change in its top management:
Mr. Vinod K. Dasari will be Managing Director - he is currently the
Chief Operating Officer and a Whole-time Director of the Company.
He takes over from Mr. Seshasayee – who had been the MD of Ashok
Leyland since 1998.
• We re-iterate our UW stance on Ashok Leyland given that volume
growth is moderating post the roll over to the Euro III emission norms
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