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Ashok Leyland – Seasonally strong quarter ahead
Adjusted for one-off costs, 3Q was in line with our estimate. Now in its seasonally strong fourth
quarter, Ashok Leyland seems on course to achieve its full-year sales guidance, although there
may be a small earnings impact from higher interest costs. We lower our EPS forecasts and TP
slightly but maintain a Buy.
Results for 3Q in line, after adjusting for previous-year employee bonuses
Ashok Leyland saw 59% yoy and 74% qoq falls in reported PAT to Rs434m on 22.7% yoy growth
in net sales in 3QFY11. However, adjusting for prior-period employee bonuses of Rs260m,
normalised PAT was Rs694m, in line with our estimate of Rs701m, as higher EBITDA helped
absorb an interest cost jump of 20% qoq. Net sales came in 5% above our forecast on the back
of better-than-expected realisations, which rose 3.5% qoq, resulting in an EBITDA surprise of 8%.
Improved realisations helped EPS absorb higher interest expenses
The company’s sales volumes declined sharply in October and November due to an upgrade in
emission norms and supply chain issues, but started to recover from December onwards. We
believe Ashok Leyland can clock a monthly run rate of over 10,000 vehicles to reach our FY11
sales volume estimate (which is down 1% vs earlier). However, improved price realisations in 3Q,
along with the recent price hikes, negated the impact of a volume downgrade on our sales
forecasts. We cut our FY11F-12F EPS 4-5% on higher interest expense forecasts, driven by an
increase in the base rate.
Seasonally strong quarter ahead; Buy
We see 302% qoq EPS growth in a seasonally strong 4QFY11 as the worst seems to be over in
terms of the emission norms impact. For FY12, we build in 18% EPS growth, which looks
conservative given management guidance of 18% volume growth and additional monetary
incentives that will likely accrue from the Uttaranchal plant. We see the recent sharp stock
correction as a good short- to medium term opportunity to Buy. The EPS downgrade and a higher
risk-free rate in our DCF valuation reduces our target price to Rs82.10 from Rs93.30. At our new
target price, the stock would trade at 14.5x FY12F PE with an 18% EPS CAGR for FY11F-13F
and a 0.57x debt-to-equity in FY11F
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland – Seasonally strong quarter ahead
Adjusted for one-off costs, 3Q was in line with our estimate. Now in its seasonally strong fourth
quarter, Ashok Leyland seems on course to achieve its full-year sales guidance, although there
may be a small earnings impact from higher interest costs. We lower our EPS forecasts and TP
slightly but maintain a Buy.
Results for 3Q in line, after adjusting for previous-year employee bonuses
Ashok Leyland saw 59% yoy and 74% qoq falls in reported PAT to Rs434m on 22.7% yoy growth
in net sales in 3QFY11. However, adjusting for prior-period employee bonuses of Rs260m,
normalised PAT was Rs694m, in line with our estimate of Rs701m, as higher EBITDA helped
absorb an interest cost jump of 20% qoq. Net sales came in 5% above our forecast on the back
of better-than-expected realisations, which rose 3.5% qoq, resulting in an EBITDA surprise of 8%.
Improved realisations helped EPS absorb higher interest expenses
The company’s sales volumes declined sharply in October and November due to an upgrade in
emission norms and supply chain issues, but started to recover from December onwards. We
believe Ashok Leyland can clock a monthly run rate of over 10,000 vehicles to reach our FY11
sales volume estimate (which is down 1% vs earlier). However, improved price realisations in 3Q,
along with the recent price hikes, negated the impact of a volume downgrade on our sales
forecasts. We cut our FY11F-12F EPS 4-5% on higher interest expense forecasts, driven by an
increase in the base rate.
Seasonally strong quarter ahead; Buy
We see 302% qoq EPS growth in a seasonally strong 4QFY11 as the worst seems to be over in
terms of the emission norms impact. For FY12, we build in 18% EPS growth, which looks
conservative given management guidance of 18% volume growth and additional monetary
incentives that will likely accrue from the Uttaranchal plant. We see the recent sharp stock
correction as a good short- to medium term opportunity to Buy. The EPS downgrade and a higher
risk-free rate in our DCF valuation reduces our target price to Rs82.10 from Rs93.30. At our new
target price, the stock would trade at 14.5x FY12F PE with an 18% EPS CAGR for FY11F-13F
and a 0.57x debt-to-equity in FY11F
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