Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ASHOK LEYLAND
Emission norms impact wearing off
Adjusted PAT marginally above estimates
Ashok Leyland’s (ALL) Q3FY11 adjusted PAT, at INR 642 mn, was marginally
above our estimate. While revenue surprised positively on better–than-expected
realisations (up 10% Q-o-Q), tax rate was slightly above expectation.
Raw material costs dip; EBITDA 5% above estimate
The company’s realisations improved on account of: (a) price hikes (3% for BSII
compliant vehicles and an incremental 3% for BSIII compliant trucks); and (b)
sequential growth in engines/ spare parts.
Raw material cost to sales dipped sequentially (down 40bps Q-o-Q) to 73.2%,
indicating that the cost push due to change in emission norms had been
successfully passed on to consumers. Staff costs (after an adjustment of INR
260 mn on account of settlement related to last year) were higher than
expected, partly due to wage revisions.
Financing costs rose 20% Q-o-Q due to higher working capital debt (on account
of higher receivables from State Transport Undertakings) as well as lower
interest capitalisation, as the Pantnagar plant was operationalised.
FY11 volume guidance maintained; strong FY12 outlook
ALL has maintained that the company will meet its FY11 volume guidance of
95,000 units (implying Q4FY11 volume growth of 18% Y-o-Y) as the impact of
prebuying due to a change in emission norms wears off. The recent vehicle price
hikes (2% in January 2011) should enable the company to offset higher raw
material costs and meet its EBITDA margin guidance (of over 10.5%). With a
favourable outlook, ALL expects an 18% Y-o-Y volume growth for FY12E (versus
our assumption of 12% growth).
Outlook and valuations: Industrial growth will be key; maintain ‘BUY’
After a slump in Q3FY11 due to a shift in emission norms, we expect commercial
vehicle volumes to recover in Q4FY11. The competitive scenario remains benign,
leading to strong pricing power. We maintain ‘BUY/Sector Outperformer’
recommendation/rating on the stock with a target price of INR 75, implying a
mid cycle P/E of 13x FY12E EPS. A sustained slowdown in industrial growth
would be a key risk to our recommendation.
Other key takeaways from conference call
• Capacity at Pantnagar plant to ramp up
• Currently, Pantnagar plant capacity stands at 3,000 vehicles/month (against
2,100 vehicles/month in December). ALL has guided to roll out of 15,000
vehicles in FY11 and 35,000 vehicles in FY12 from the plant. Currently, it is
facing constraints on two counts: (a) supply constraints; and (b) logistics
constraints to deliver the output.
• ALL has already deployed 1,400 employees, to be scaled up to 2,000 in FY12E,
to ensure output of 35,000 units in FY12E. This will benefit the company on
account of operating leverage.
• Incremental benefits per vehicle currently stand at INR 35,000 which could rise
to INR 70,000 in FY12E on a double shift basis and further to INR
75,000/vehicle on a three shift basis.
• Sequentially, sales of engines jumped 11% Q-o-Q to 3,800. Sales of spare parts
stood at INR1.6 bn (up 5% Q-o-Q).
• Pan-India launch of the newly launched U Truck by FY12E which currently is
available only in South.
Company Description
ALL is the second-largest commercial vehicle manufacturer in India. The Hinduja Group
holds 51% stake in the company through a holding company Hinduja Automotive, UK.
ALL has six manufacturing plants at four locations in India: Ennore (Tamil Nadu), Hosur
(Tamil Nadu), Alwar (Rajasthan), Bhandara (Maharashtra) and Pantnagar (Uttaranchal).
The company is focused on the M&HCV segment and has a significant presence in the
bus segment.
Investment Theme
ALL is one of the key beneficiaries of the recovery in the commercial vehicle space. In
addition its new plant at Uttaranchal offers excised duty breaks that add to the bottomline.
ALL the only pure commercial vehicle play is well positioned to benefit from the
growth in the Indian economy. Further investments in JV’s (LCV and construction
equipment) would pay off over a medium to long term.
Key Risks
Slowdown in industrial activity
A slowdown in industrial activity will restrain the growth of M&HCV sales. A sharp rise in
input costs may hurt margins adversely. Given the high strong capacity expansion, the
company could face earnings risk in the event of low capacity utilisation.
Investments in JVs failing to fructify
If the company’s venture into the LCV and construction segments through JVs with
Nissan and John Deere, respectively, fails to contribute to the profitability over a period,
earnings could deteriorate on the consolidated level. Further, any incremental
investments over and above budgeted by the company to keep the ailing operations
going would worsen the return ratios.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
ASHOK LEYLAND
Emission norms impact wearing off
Adjusted PAT marginally above estimates
Ashok Leyland’s (ALL) Q3FY11 adjusted PAT, at INR 642 mn, was marginally
above our estimate. While revenue surprised positively on better–than-expected
realisations (up 10% Q-o-Q), tax rate was slightly above expectation.
Raw material costs dip; EBITDA 5% above estimate
The company’s realisations improved on account of: (a) price hikes (3% for BSII
compliant vehicles and an incremental 3% for BSIII compliant trucks); and (b)
sequential growth in engines/ spare parts.
Raw material cost to sales dipped sequentially (down 40bps Q-o-Q) to 73.2%,
indicating that the cost push due to change in emission norms had been
successfully passed on to consumers. Staff costs (after an adjustment of INR
260 mn on account of settlement related to last year) were higher than
expected, partly due to wage revisions.
Financing costs rose 20% Q-o-Q due to higher working capital debt (on account
of higher receivables from State Transport Undertakings) as well as lower
interest capitalisation, as the Pantnagar plant was operationalised.
FY11 volume guidance maintained; strong FY12 outlook
ALL has maintained that the company will meet its FY11 volume guidance of
95,000 units (implying Q4FY11 volume growth of 18% Y-o-Y) as the impact of
prebuying due to a change in emission norms wears off. The recent vehicle price
hikes (2% in January 2011) should enable the company to offset higher raw
material costs and meet its EBITDA margin guidance (of over 10.5%). With a
favourable outlook, ALL expects an 18% Y-o-Y volume growth for FY12E (versus
our assumption of 12% growth).
Outlook and valuations: Industrial growth will be key; maintain ‘BUY’
After a slump in Q3FY11 due to a shift in emission norms, we expect commercial
vehicle volumes to recover in Q4FY11. The competitive scenario remains benign,
leading to strong pricing power. We maintain ‘BUY/Sector Outperformer’
recommendation/rating on the stock with a target price of INR 75, implying a
mid cycle P/E of 13x FY12E EPS. A sustained slowdown in industrial growth
would be a key risk to our recommendation.
Other key takeaways from conference call
• Capacity at Pantnagar plant to ramp up
• Currently, Pantnagar plant capacity stands at 3,000 vehicles/month (against
2,100 vehicles/month in December). ALL has guided to roll out of 15,000
vehicles in FY11 and 35,000 vehicles in FY12 from the plant. Currently, it is
facing constraints on two counts: (a) supply constraints; and (b) logistics
constraints to deliver the output.
• ALL has already deployed 1,400 employees, to be scaled up to 2,000 in FY12E,
to ensure output of 35,000 units in FY12E. This will benefit the company on
account of operating leverage.
• Incremental benefits per vehicle currently stand at INR 35,000 which could rise
to INR 70,000 in FY12E on a double shift basis and further to INR
75,000/vehicle on a three shift basis.
• Sequentially, sales of engines jumped 11% Q-o-Q to 3,800. Sales of spare parts
stood at INR1.6 bn (up 5% Q-o-Q).
• Pan-India launch of the newly launched U Truck by FY12E which currently is
available only in South.
Company Description
ALL is the second-largest commercial vehicle manufacturer in India. The Hinduja Group
holds 51% stake in the company through a holding company Hinduja Automotive, UK.
ALL has six manufacturing plants at four locations in India: Ennore (Tamil Nadu), Hosur
(Tamil Nadu), Alwar (Rajasthan), Bhandara (Maharashtra) and Pantnagar (Uttaranchal).
The company is focused on the M&HCV segment and has a significant presence in the
bus segment.
Investment Theme
ALL is one of the key beneficiaries of the recovery in the commercial vehicle space. In
addition its new plant at Uttaranchal offers excised duty breaks that add to the bottomline.
ALL the only pure commercial vehicle play is well positioned to benefit from the
growth in the Indian economy. Further investments in JV’s (LCV and construction
equipment) would pay off over a medium to long term.
Key Risks
Slowdown in industrial activity
A slowdown in industrial activity will restrain the growth of M&HCV sales. A sharp rise in
input costs may hurt margins adversely. Given the high strong capacity expansion, the
company could face earnings risk in the event of low capacity utilisation.
Investments in JVs failing to fructify
If the company’s venture into the LCV and construction segments through JVs with
Nissan and John Deere, respectively, fails to contribute to the profitability over a period,
earnings could deteriorate on the consolidated level. Further, any incremental
investments over and above budgeted by the company to keep the ailing operations
going would worsen the return ratios.
No comments:
Post a Comment