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What’s the theme?
The commercial vehicle (CV) segment took a hit for a couple of months to absorb pre-buying due to new
emission norms, effective October 1, 2010. The domestic truck segment picked up momentum since December
2010 on strong economic growth. Further, increased production at Ashok Leyland's Uttarakhand facility is
expected to boost margins.
What will move the stock?
1) Management targets 95k units during FY11 while we estimate volume of 89k units. We expect the
company to surpass our estimates by 4-5%. In FY12, we expect the company to record volume growth of
10% to 97k units with an upward bias. 2) Due to fiscal benefits available at the Pantnagar unit, we expect
Ashok Leyland to realize significant savings per vehicle produced at the facility. Production is expected to
ramp up to 15k units in Q4FY11 as against the YTD number of 5K units. We estimate margin expansion of
100bps in FY12 due to increased contribution from this facility. 3) Ashok Leyland entered into a JV with
Nissan, to participate in the high growth LCV segment. The JV is likely to commence production by H2
CY11. However, in our earning estimates, we have not considered any volumes for this JV during FY12.
Commissioning of this JV would boost our earning estimate for FY12
Where are we stacked versus consensus?
Our earnings estimates for FY11 and FY12 are Rs4.3 and Rs5.5 respectively. Our FY12 earnings estimate
are 5.7% lower than consensus estimate of Rs5.8. We have a 'BUY' recommendation on the stock with a
target price of Rs76, which discounts FY12E earnings by 14x.
What will challenge our target price?
1) Increase in prices of raw materials such as steel and rubber affecting profitability; 2) Increase in excise
duty hampering industry growth; and 3) Significant rise in interest rates increasing cost of ownership.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s the theme?
The commercial vehicle (CV) segment took a hit for a couple of months to absorb pre-buying due to new
emission norms, effective October 1, 2010. The domestic truck segment picked up momentum since December
2010 on strong economic growth. Further, increased production at Ashok Leyland's Uttarakhand facility is
expected to boost margins.
What will move the stock?
1) Management targets 95k units during FY11 while we estimate volume of 89k units. We expect the
company to surpass our estimates by 4-5%. In FY12, we expect the company to record volume growth of
10% to 97k units with an upward bias. 2) Due to fiscal benefits available at the Pantnagar unit, we expect
Ashok Leyland to realize significant savings per vehicle produced at the facility. Production is expected to
ramp up to 15k units in Q4FY11 as against the YTD number of 5K units. We estimate margin expansion of
100bps in FY12 due to increased contribution from this facility. 3) Ashok Leyland entered into a JV with
Nissan, to participate in the high growth LCV segment. The JV is likely to commence production by H2
CY11. However, in our earning estimates, we have not considered any volumes for this JV during FY12.
Commissioning of this JV would boost our earning estimate for FY12
Where are we stacked versus consensus?
Our earnings estimates for FY11 and FY12 are Rs4.3 and Rs5.5 respectively. Our FY12 earnings estimate
are 5.7% lower than consensus estimate of Rs5.8. We have a 'BUY' recommendation on the stock with a
target price of Rs76, which discounts FY12E earnings by 14x.
What will challenge our target price?
1) Increase in prices of raw materials such as steel and rubber affecting profitability; 2) Increase in excise
duty hampering industry growth; and 3) Significant rise in interest rates increasing cost of ownership.
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