Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland ---------------------------------------------------------------- Maintain OUTPERFORM
3Q11 marks the bottom
● Ashok Leyland (AL) 3Q11 EBITDA was 5% ahead of estimates,
led by higher revenues, while margins at 7.5% were in-line. Higher
interest costs (+20% QoQ), however, led to an 8% miss in profits.
● The Dec-Q was impacted by weak volumes (+14% YoY, -25%
QoQ) and weak margins (-400 bp YoY, QoQ). Supply chain
disruption led by the emission norm change and logistics
constraints resulted in low volumes.
● While operating leverage played an adverse role, margins were
also impacted by higher salary costs, most explained by one-time
expenses (Rs260 mn) on ex-gratia payments.
● With supply constraints resolved, we expect 4Q11 volumes to
recover sharply (est 30,000). This, combined with the expected
ramp-up at Pantnagar and recent price hikes (about 2% in Jan),
we expect margins to improve (FY11E margins est at 10.5%).
● We factor in higher staff and interest costs for FY11 (volume
forecast unchanged) and lower our tax rate assumptions. Our
FY11-13E EPS declines 2-3%, while target price drops to Rs84.9
(from Rs87.9).
AL 3Q11 results in-line
Ashok Leyland (AL) reported 3Q11 results in line with expectations on
margins, while revenues were 5% ahead. Commodity costs remained
flat QoQ, as expected. However, interest costs increased 20% QoQ
due to higher working capital, leading to an 8% miss in profits.
Volumes and margins to recover from 3Q11 lows
Supply chain dislocation and production constraints on account of the
change in emission norms in October primarily led to weak volumes
this quarter – 25% lower QoQ (versus 7% for industry). This was also
aggravated by logistics issues as AL struggled to supply the southern
market with vehicles from its Pantnagar plant in the north. With these
constraints mostly resolved, AL expects to deliver a volume run-rate of
10,000 per month in 4Q11 (we forecast similar volumes).
Margins in 3Q11 were mainly impacted by 1) operating leverage due
to lower volumes and 2) higher than expected staff costs (+40% YoY,
+15% QoQ). One-time expenses (Rs260 mn) due to wage
settlements/ ex-gratia payments that explained most of the surprise in
employee costs. Lastly, AL’s product mix slightly deteriorated in 3Q11,
with the low margin STU buses forming close to 24% of domestic
volumes (versus 19% in 1HFY11).
With the expected recovery in volumes, ramp-up at Pantnagar
(current run-rate at 3,000 p.m. versus 3Q11 average of 1,300) and
recent pricing action (about 2% in Jan), we expect margins to
improve. We forecast FY11E margins at 10.5%.
Industry demand continues to be robust
Supply constraints notwithstanding, CV industry demand continues to
be strong despite steep price increases and the emission norm
change. We note that BSIII (new emission norm) vehicles constituted
50% of AL’s 3Q10 volumes, indicating the market’s ability to absorb
higher prices. This is primarily supported by high truck utilisation
levels as well as firm freight rates. The industry is also witnessing a
steady shift to higher tonnage vehicles (MAVs, tractor trailers, tippers).
Management expects MHCV industry volumes to grow at 35% in
FY11 (15% in FY12). The company maintains its FY11 volume target
of 95,000 vehicles (in line with our estimates) and expects FY12
growth for AL at 18% (we forecast 14%).
Non-auto segments stable
Engine sales remained muted due to the reduced exposure to the
telecom sector with 3Q11 volumes at 3,800 units (11,200 YTD).
Defence sales, however, improved this quarter (3Q11 volumes at 600
units, 1,000 units YTD). Fulfilment of the remaining order book (about
1000 units) should lead to strong sales in 4Q11 as well.
Changes to estimates
We keep our volume and revenue estimates intact, but incorporate
higher staff costs and interest expenses for FY11 (adjusting for the
YTD run-rate). Our EBITDA margins, therefore decline 70 bp for FY11
to 10.6% (about 25 bp drop in FY12/13 estimates). We also reduce
our tax rate assumptions, which counters the impact of higher costs,
leading to 2-3% drop in FY11/12/13E EPS. As a result, our target
price (based on 8.5x FY12E EV/EBITDA) declines marginally to
Rs84.9 (from Rs87.9). We maintain our OUTPERFORM rating.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland ---------------------------------------------------------------- Maintain OUTPERFORM
3Q11 marks the bottom
● Ashok Leyland (AL) 3Q11 EBITDA was 5% ahead of estimates,
led by higher revenues, while margins at 7.5% were in-line. Higher
interest costs (+20% QoQ), however, led to an 8% miss in profits.
● The Dec-Q was impacted by weak volumes (+14% YoY, -25%
QoQ) and weak margins (-400 bp YoY, QoQ). Supply chain
disruption led by the emission norm change and logistics
constraints resulted in low volumes.
● While operating leverage played an adverse role, margins were
also impacted by higher salary costs, most explained by one-time
expenses (Rs260 mn) on ex-gratia payments.
● With supply constraints resolved, we expect 4Q11 volumes to
recover sharply (est 30,000). This, combined with the expected
ramp-up at Pantnagar and recent price hikes (about 2% in Jan),
we expect margins to improve (FY11E margins est at 10.5%).
● We factor in higher staff and interest costs for FY11 (volume
forecast unchanged) and lower our tax rate assumptions. Our
FY11-13E EPS declines 2-3%, while target price drops to Rs84.9
(from Rs87.9).
AL 3Q11 results in-line
Ashok Leyland (AL) reported 3Q11 results in line with expectations on
margins, while revenues were 5% ahead. Commodity costs remained
flat QoQ, as expected. However, interest costs increased 20% QoQ
due to higher working capital, leading to an 8% miss in profits.
Volumes and margins to recover from 3Q11 lows
Supply chain dislocation and production constraints on account of the
change in emission norms in October primarily led to weak volumes
this quarter – 25% lower QoQ (versus 7% for industry). This was also
aggravated by logistics issues as AL struggled to supply the southern
market with vehicles from its Pantnagar plant in the north. With these
constraints mostly resolved, AL expects to deliver a volume run-rate of
10,000 per month in 4Q11 (we forecast similar volumes).
Margins in 3Q11 were mainly impacted by 1) operating leverage due
to lower volumes and 2) higher than expected staff costs (+40% YoY,
+15% QoQ). One-time expenses (Rs260 mn) due to wage
settlements/ ex-gratia payments that explained most of the surprise in
employee costs. Lastly, AL’s product mix slightly deteriorated in 3Q11,
with the low margin STU buses forming close to 24% of domestic
volumes (versus 19% in 1HFY11).
With the expected recovery in volumes, ramp-up at Pantnagar
(current run-rate at 3,000 p.m. versus 3Q11 average of 1,300) and
recent pricing action (about 2% in Jan), we expect margins to
improve. We forecast FY11E margins at 10.5%.
Industry demand continues to be robust
Supply constraints notwithstanding, CV industry demand continues to
be strong despite steep price increases and the emission norm
change. We note that BSIII (new emission norm) vehicles constituted
50% of AL’s 3Q10 volumes, indicating the market’s ability to absorb
higher prices. This is primarily supported by high truck utilisation
levels as well as firm freight rates. The industry is also witnessing a
steady shift to higher tonnage vehicles (MAVs, tractor trailers, tippers).
Management expects MHCV industry volumes to grow at 35% in
FY11 (15% in FY12). The company maintains its FY11 volume target
of 95,000 vehicles (in line with our estimates) and expects FY12
growth for AL at 18% (we forecast 14%).
Non-auto segments stable
Engine sales remained muted due to the reduced exposure to the
telecom sector with 3Q11 volumes at 3,800 units (11,200 YTD).
Defence sales, however, improved this quarter (3Q11 volumes at 600
units, 1,000 units YTD). Fulfilment of the remaining order book (about
1000 units) should lead to strong sales in 4Q11 as well.
Changes to estimates
We keep our volume and revenue estimates intact, but incorporate
higher staff costs and interest expenses for FY11 (adjusting for the
YTD run-rate). Our EBITDA margins, therefore decline 70 bp for FY11
to 10.6% (about 25 bp drop in FY12/13 estimates). We also reduce
our tax rate assumptions, which counters the impact of higher costs,
leading to 2-3% drop in FY11/12/13E EPS. As a result, our target
price (based on 8.5x FY12E EV/EBITDA) declines marginally to
Rs84.9 (from Rs87.9). We maintain our OUTPERFORM rating.
No comments:
Post a Comment