Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland Ltd
Valuations attractive, upgrade to OUTPERFORM
Upgrade to OUTPERFORM with a price target of Rs83
per share.
Strong volume outlook (13% yoy in FY12E) and ramp up
of the Pantnagar facility likely to drive margin expansion
in FY12.
Stock has witnessed sharp 26% price erosion over NovJan 2011, and appears attractively valued at current
valuations of 10x FY12E earnings.
Sharp earnings erosion (net profit down 42% yoy) in 3Q
FY11 led by a lower volume offtake and higher interest
burden.
Valuations – Strong volume outlook and ramp up of the
Pantnagar facility is likely to boost margins in FY12, in our
view. While we maintain our estimates, the stock has come
off sharply and is attractively valued at PE of 10x and
EV/EBITDA of 6.6x FY12E. Upgrade to OUTPERFORM
with a price target of Rs83.
Strong outlook – On account of a robust outlook from high
haulage vehicles as well as a strong order book from STUs
and private operators, management has maintained its
volume guidance of 95,000 units for FY11E; we factor in
92,000 units. We believe that the volume dip in 3Q was a
result of inventory correction and remain confident of our
full year estimates. Going forward, we factor in 13%
volume growth in FY12 (vs. estimated 44% in FY11E)
which we believe is achievable given the 8%+ GDP growth
forecast. Further, ramp up of the excise exempt Pantnagar
facility is likely to lead to margin expansion in FY12 (we
have factored in a conservative 40bps expansion to factor
in impact of rising input cost pressures).
Lower volume offtake, high interest burden hurts
earnings – In 3QFY11, volumes declined 25%qoq (up
14%yoy) as the company lowered production to bring down
inventory to normal levels. However, the ~5% price hike
taken in 3Q compensated for rising input cost pressure.
Operating margin (adjusted) declined 280bps yoy to 8.6%
led by lower volume offtake. Further, interest burden
increased to Rs475m on account of higher working capital
requirement. Consequently, adjusted net profit declined
42% yoy to Rs616m. The company expensed bonus to
employees aggregating Rs260m, considered extraordinary. Reported net profit declined 59% yoy to Rs434m.
Volume growth decelerates
In 3QFY11, ALL’s volumes decelerated as the company lowered production to bring back
finished goods inventory to normal levels. Volumes for the quarter declined 25% qoq to
18,437units. However, sharp price increase to compensate for rising input costs helped arrest the
overall revenue decline. In Oct2010, the company hiked prices by 3% (~31,000 per vehicle) for
BSII vehicles and by ~6% (~Rs62,000 per unit) for BSIII vehicles.
Operating margins witness sharp erosion on lower volume offtake
The sharp price hikes taken during the quarter compensated for rising input cost pressure.
However, staff cost (excluding bonus payout) and other expenses (as a % of net saes) increased
200bps and 110bps qoq on account of the lower volume offtake. Resultant, Ashok Leyland
witnessed a sharp 280bps yoy decline in operating margin (adjusted) to 8.6%.
Margin erosion, higher interest burden impacts earnings
On account of the sharp margin decline, absolute EBITDA for the quarter declined 7% yoy to
Rs1.9bn. Further, the company had ~Rs5bn worth of receivables from STUs which together with
finished goods inventory of 9,500 units led to higher working capital requirement. As a result,
interest burden for the quarter increased to Rs475m (Rs395m in 2Q FY11). A sharp margin
erosion and higher interest burden resulted in 42% yoy decline in adjusted net profit to Rs6.2bn.
The company has expensed bonus to employees aggregating Rs260m, which we have
considered an extra-ordinary expense for the quarter. On account of the bonus outgo, reported
net profit declined 59% yoy to Rs434m.
Conference call highlights
The company’s product mix in the quarter turned adverse on supplies of more vehicles to
state transport undertakings (STUs). The company sold ~3,600 vehicles to STUs including
~2,500 units to Tamil Nadu STU.
The company has exported 3,500 units in 3Q FY11 (YTD exports at 7,800 units). The export
outlook appears promising with the company being on track to export in excess of 10,000
units in FY11E (FY10 exports at 5,979 units)
Engine sales were 3,800 units in 3Q FY11 (YTD sales at 11,200 units). Engine sales have
declined on account of a conscious effort to reduce exposure to the telecom space. Engine
revenues YTD FY11 stood at Rs2bn (revenues for FY10 at Rs3.7bn)
Production from the Pantnagar unit has increased to 3,000 units per month by Jan 2011 (from
2,100 units in December). The company expects to produce ~15,000 units in 4Q FY11 from
Pantnagar.
The company has cleared stock of ~9,500 units BSII vehicles (except for 1,500 units for
exports) in 3Q FY11. Finished goods inventory of BSIII vehicles currently
The lower tax rate for the year is primarily on account of higher R&D spend. Expect only
marginal tax benefit because of Pantnagar ramp up in FY12. Bulk of the benefit is likely to flow
in from FY13 onwards
The LCV JV with Nissan is likely to be operational by June 2011 while the JV with John Deere
is expected to be operational by Q1FY12
Hinduja Finance is on track to finance about 5% of ALL’s total sales in FY11, which is likely to
increase to 10% in FY12 and further stabilize at 15% levels going forward.
Ashok Leyland incurred capex of Rs7bn in 9MFY11 (total for FY11E at Rs10bn) and plans for
a further Rs10bn for FY12
The company’s debt as at 3QFY11 end stands at Rs30bn, which is likely to be Rs26bn by
FY11 end
ALL is confident of achieving its 95,000 units target for FY11 (run rate of 10,000 units per
month for the balance quarter)
The company is confident of achieving 10.5% operating margin in FY11 (YTD FY11 at 9.7%).
The company expects FY12 volume to grow by about 18% yoy on the back of sustained
demand from high tonnage vehicles as well as demand for passenger vehicles from both
STUs as well as private operators
Valuations and Outlook
ALL has significantly outperformed the domestic CV industry in FY11 and posted a robust
69%yoy growth YTDFY11 (40%yoy growth for the CV industry). Led by sustained volume outlook
for the industry, the company is all set to clock 92,000 units for FY11 (a strong 43%yoy growth).
An 8%+ GDP growth is likely to drive a sustained demand for MHCVs in FY12 (we factor in
13%yoy growth for FY12). Further, ramp up of the excise exempt Pantnagar facility (average
savings of Rs35,000 per vehicle) is likely to lead to margin expansion in FY12 (we have factored
in a conservative 40bps expansion to factor in impact of rising input cost pressures). The stock
has come off sharply by 26% over Nov-Jan2011. While we maintain our estimates, at current
valuations of 10x FY12E and at 6.6x FY12E EV/EBITDA, the stock appears attractively valued.
Upgrade to Outperform with a price target of Rs83.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland Ltd
Valuations attractive, upgrade to OUTPERFORM
Upgrade to OUTPERFORM with a price target of Rs83
per share.
Strong volume outlook (13% yoy in FY12E) and ramp up
of the Pantnagar facility likely to drive margin expansion
in FY12.
Stock has witnessed sharp 26% price erosion over NovJan 2011, and appears attractively valued at current
valuations of 10x FY12E earnings.
Sharp earnings erosion (net profit down 42% yoy) in 3Q
FY11 led by a lower volume offtake and higher interest
burden.
Valuations – Strong volume outlook and ramp up of the
Pantnagar facility is likely to boost margins in FY12, in our
view. While we maintain our estimates, the stock has come
off sharply and is attractively valued at PE of 10x and
EV/EBITDA of 6.6x FY12E. Upgrade to OUTPERFORM
with a price target of Rs83.
Strong outlook – On account of a robust outlook from high
haulage vehicles as well as a strong order book from STUs
and private operators, management has maintained its
volume guidance of 95,000 units for FY11E; we factor in
92,000 units. We believe that the volume dip in 3Q was a
result of inventory correction and remain confident of our
full year estimates. Going forward, we factor in 13%
volume growth in FY12 (vs. estimated 44% in FY11E)
which we believe is achievable given the 8%+ GDP growth
forecast. Further, ramp up of the excise exempt Pantnagar
facility is likely to lead to margin expansion in FY12 (we
have factored in a conservative 40bps expansion to factor
in impact of rising input cost pressures).
Lower volume offtake, high interest burden hurts
earnings – In 3QFY11, volumes declined 25%qoq (up
14%yoy) as the company lowered production to bring down
inventory to normal levels. However, the ~5% price hike
taken in 3Q compensated for rising input cost pressure.
Operating margin (adjusted) declined 280bps yoy to 8.6%
led by lower volume offtake. Further, interest burden
increased to Rs475m on account of higher working capital
requirement. Consequently, adjusted net profit declined
42% yoy to Rs616m. The company expensed bonus to
employees aggregating Rs260m, considered extraordinary. Reported net profit declined 59% yoy to Rs434m.
Volume growth decelerates
In 3QFY11, ALL’s volumes decelerated as the company lowered production to bring back
finished goods inventory to normal levels. Volumes for the quarter declined 25% qoq to
18,437units. However, sharp price increase to compensate for rising input costs helped arrest the
overall revenue decline. In Oct2010, the company hiked prices by 3% (~31,000 per vehicle) for
BSII vehicles and by ~6% (~Rs62,000 per unit) for BSIII vehicles.
Operating margins witness sharp erosion on lower volume offtake
The sharp price hikes taken during the quarter compensated for rising input cost pressure.
However, staff cost (excluding bonus payout) and other expenses (as a % of net saes) increased
200bps and 110bps qoq on account of the lower volume offtake. Resultant, Ashok Leyland
witnessed a sharp 280bps yoy decline in operating margin (adjusted) to 8.6%.
Margin erosion, higher interest burden impacts earnings
On account of the sharp margin decline, absolute EBITDA for the quarter declined 7% yoy to
Rs1.9bn. Further, the company had ~Rs5bn worth of receivables from STUs which together with
finished goods inventory of 9,500 units led to higher working capital requirement. As a result,
interest burden for the quarter increased to Rs475m (Rs395m in 2Q FY11). A sharp margin
erosion and higher interest burden resulted in 42% yoy decline in adjusted net profit to Rs6.2bn.
The company has expensed bonus to employees aggregating Rs260m, which we have
considered an extra-ordinary expense for the quarter. On account of the bonus outgo, reported
net profit declined 59% yoy to Rs434m.
Conference call highlights
The company’s product mix in the quarter turned adverse on supplies of more vehicles to
state transport undertakings (STUs). The company sold ~3,600 vehicles to STUs including
~2,500 units to Tamil Nadu STU.
The company has exported 3,500 units in 3Q FY11 (YTD exports at 7,800 units). The export
outlook appears promising with the company being on track to export in excess of 10,000
units in FY11E (FY10 exports at 5,979 units)
Engine sales were 3,800 units in 3Q FY11 (YTD sales at 11,200 units). Engine sales have
declined on account of a conscious effort to reduce exposure to the telecom space. Engine
revenues YTD FY11 stood at Rs2bn (revenues for FY10 at Rs3.7bn)
Production from the Pantnagar unit has increased to 3,000 units per month by Jan 2011 (from
2,100 units in December). The company expects to produce ~15,000 units in 4Q FY11 from
Pantnagar.
The company has cleared stock of ~9,500 units BSII vehicles (except for 1,500 units for
exports) in 3Q FY11. Finished goods inventory of BSIII vehicles currently
The lower tax rate for the year is primarily on account of higher R&D spend. Expect only
marginal tax benefit because of Pantnagar ramp up in FY12. Bulk of the benefit is likely to flow
in from FY13 onwards
The LCV JV with Nissan is likely to be operational by June 2011 while the JV with John Deere
is expected to be operational by Q1FY12
Hinduja Finance is on track to finance about 5% of ALL’s total sales in FY11, which is likely to
increase to 10% in FY12 and further stabilize at 15% levels going forward.
Ashok Leyland incurred capex of Rs7bn in 9MFY11 (total for FY11E at Rs10bn) and plans for
a further Rs10bn for FY12
The company’s debt as at 3QFY11 end stands at Rs30bn, which is likely to be Rs26bn by
FY11 end
ALL is confident of achieving its 95,000 units target for FY11 (run rate of 10,000 units per
month for the balance quarter)
The company is confident of achieving 10.5% operating margin in FY11 (YTD FY11 at 9.7%).
The company expects FY12 volume to grow by about 18% yoy on the back of sustained
demand from high tonnage vehicles as well as demand for passenger vehicles from both
STUs as well as private operators
Valuations and Outlook
ALL has significantly outperformed the domestic CV industry in FY11 and posted a robust
69%yoy growth YTDFY11 (40%yoy growth for the CV industry). Led by sustained volume outlook
for the industry, the company is all set to clock 92,000 units for FY11 (a strong 43%yoy growth).
An 8%+ GDP growth is likely to drive a sustained demand for MHCVs in FY12 (we factor in
13%yoy growth for FY12). Further, ramp up of the excise exempt Pantnagar facility (average
savings of Rs35,000 per vehicle) is likely to lead to margin expansion in FY12 (we have factored
in a conservative 40bps expansion to factor in impact of rising input cost pressures). The stock
has come off sharply by 26% over Nov-Jan2011. While we maintain our estimates, at current
valuations of 10x FY12E and at 6.6x FY12E EV/EBITDA, the stock appears attractively valued.
Upgrade to Outperform with a price target of Rs83.
No comments:
Post a Comment