Ashok Leyland -Growth at risk; rating lowered to Underperform 􀂄 BofA Merrill Lynch

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Ashok Leyland
Growth at risk; rating lowered
to Underperform
􀂄 Cut EPS forecasts by 12-15%, PO to Rs 62
We downgrade rating to Underperform from Neutral, driven by (1) 12-15% cut in
EPS forecasts over the next two years taking us 13%-15% below consensus, and
(2) reduced late cycle valuation multiple of 7x EV/EBITDA FY13E (earlier midcycle
multiple of 7.5x FY12E). Our PO is also lowered by 11% to Rs 62.

Revise volume assumptions on decelerating truck demand
Ashok Leyland failed to meet FY11 sales guidance of 95,000 units, albeit by a
small margin. We believe that management guidance of 15% growth is unlikely in
the next fiscal as (1) truck demand will decelerate sharply due to slowing IIP and
growing competition and, (2) bus segment will be restricted by the absence of
JNNURM orders (100% of segmental growth last year). We therefore cut volume
assumptions by 9% each in FY12E and FY13E to 105K & 117K units, respectively.
Foray into light commercial vehicles will be a challenge
Although we retain our sales forecasts of ~5,000 units in FY12 and ~8,000 units in
FY13, we believe that the company’s foray into the light commercial vehicles
space will be a challenge given (1) the past track record of limited success in this
segment, and (2) growing competition from more established entities eg, M&M.
Double digit earnings growth at risk
We have retained margin assumptions at earlier levels despite cutting volume
forecasts. We therefore believe that our below consensus estimates could be at
risk, mainly due to cost and competitive pressures