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Ashok Leyland Ltd.
High Staff Costs Hit F3Q11;
Opportunity in Bad Quarter
Quick comment – below expectations: Ashok
Leyland (AL) posted 22% YoY growth in revenues but
EBITDA was down 20% YoY. A sharp 15% QoQ
increase in staff costs drove margins down to 7.5%, with
EBITDA 11% below expectations. We expected Q3 be a
weak quarter but the high staff costs were a negative
surprise. Management maintains FY11 guidance at 95k,
implying that Q4 volumes will be up 18% YoY and a
strong 66% QoQ. Given the high operating leverage of
the business, with a 25% QoQ decline in volumes in Q3,
the results were weak – but we think Q4 is set for a
volume uptick and thus strong sequential earnings
growth. Given disappointing results the stock should be
weak near-term but we would use this as an opportunity
to add exposure as we enter a strong Q4.
EBITDA 11% below expectations: In F3Q11
realizations improved by an impressive 9% QoQ. The
ratio of raw material costs to sales was in line with Q2,
but the 15% QoQ increase in staff costs drove EBITDA
margins down to 7.5% vs our expectation of 9%.
Management stated that the staff costs went up as hiring
ramped up. Other expenses as a percentage of sales
went up 1.1% QoQ owing to the setup of Pantnagar,
increased R&D expenses and launch of U Truck
Platform. Overall revenues were 18% above
expectations but EBITDA was 11% below expectations.
High interest costs hamper net income: Interest
costs were up 20% QoQ as the company increased its
working capital spend.
Management maintained guidance at 95k: The
domestic environment remains buoyant and exports are
showing strong growth. The company is hosting a
conference call at 1200 hrs IST on 24th January 2011,
Primary Number +91 22 3065 0121.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland Ltd.
High Staff Costs Hit F3Q11;
Opportunity in Bad Quarter
Quick comment – below expectations: Ashok
Leyland (AL) posted 22% YoY growth in revenues but
EBITDA was down 20% YoY. A sharp 15% QoQ
increase in staff costs drove margins down to 7.5%, with
EBITDA 11% below expectations. We expected Q3 be a
weak quarter but the high staff costs were a negative
surprise. Management maintains FY11 guidance at 95k,
implying that Q4 volumes will be up 18% YoY and a
strong 66% QoQ. Given the high operating leverage of
the business, with a 25% QoQ decline in volumes in Q3,
the results were weak – but we think Q4 is set for a
volume uptick and thus strong sequential earnings
growth. Given disappointing results the stock should be
weak near-term but we would use this as an opportunity
to add exposure as we enter a strong Q4.
EBITDA 11% below expectations: In F3Q11
realizations improved by an impressive 9% QoQ. The
ratio of raw material costs to sales was in line with Q2,
but the 15% QoQ increase in staff costs drove EBITDA
margins down to 7.5% vs our expectation of 9%.
Management stated that the staff costs went up as hiring
ramped up. Other expenses as a percentage of sales
went up 1.1% QoQ owing to the setup of Pantnagar,
increased R&D expenses and launch of U Truck
Platform. Overall revenues were 18% above
expectations but EBITDA was 11% below expectations.
High interest costs hamper net income: Interest
costs were up 20% QoQ as the company increased its
working capital spend.
Management maintained guidance at 95k: The
domestic environment remains buoyant and exports are
showing strong growth. The company is hosting a
conference call at 1200 hrs IST on 24th January 2011,
Primary Number +91 22 3065 0121.
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