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Growth rates to moderate
Ashok Leyland (ALL) is India’s second-largest
manufacturer of M&HCVs with a market share of ~44% in
the passenger segment and ~23% in the goods segment.
Though the company has reduced its dependence on the
cyclical M&HCV (goods) segment, this business still
remains the major revenue driver accounting for 67% of
overall revenues. Considering ALL’s high dependence on
trucks and our expectations of demand in the M&CHV
segment moderating over FY12-13E, we initiate coverage
with a HOLD rating and a target price of Rs61, valuing the
stock at 7.4x FY13E EV/EBITDA + Rs4.3 per share (the value
of its investments in JVs).
Volume growth to moderate over FY12-13E: We expect
volume growth in the M&HCV segment to moderate,
going forward. Based on our outlook for the CV industry,
we expect ALL to register volume growth of 10% each in
FY12E and FY13E in the M&HCV goods segment and
10%/10% in M&HCV passenger segment over
FY12E/FY13E compared to 54%/25% in FY11E.
FY12 guidance looks optimistic: ALL has guided 15%
YoY volume growth in FY12E (108,000 units vs our
estimate of 103,651 units) compared to its expectation of
the industry growth rate of 10%. We believe the 15%
growth guided is optimistic. The company failed to meet
its FY11 sales guidance of 95,000 units, though by a small
margin.
Significant margin improvement unlikely despite
cushion from Uttarakhand plant: We have assumed
production of 30,000/42,000 units in FY12E/FY13E at its
tax-free Uttarakhand plant and benefit of Rs30,000 per
unit as indicated by management. However, increase in
RMC and limited pricing power, along with moderation in
volume growth, would largely offset these benefits. We
expect EBITDA margin of 10.4% in FY12E and 10.2% in
FY13E compared to 10.4% in FY11E.
Contribution from JVs unlikely to be significant over
FY12-13E: We have not factored in earnings upside from
existing JVs as we believe they will take a longer time
before making a significant impact on earnings. However,
we have factored in a value of Rs.4.3 based on the
investments expected till FY13E after assigning 50%
discount.
Valuations and Recommendations: At the CMP of Rs55,
the stock trades at 10.7x FY12E EPS of Rs5.1 and 9.8x
FY13E EPS of Rs5.5. We initiate coverage with a Hold
rating and a target price of Rs61 (based on 7.4x FY13E
EV/EBITDA, inline with its historical average multiple and
Rs4.3 per share as value of investments in JVs).
We expect volume growth in the M&HCV segment to moderate
to 10% each in FY12E and FY13E compared to 25% in FY11E.
Significant margin improvement unlikely despite cushion from
Uttaranchal plant due to limited pricing power and operating
leverage.
Working capital pressure to continue as Inventory still remains
high
Valuations to mirror moderation in CV cycle
At the CMP of Rs55, the stock trades at 10.7x FY12E EPS of Rs.5.1 and 9.8x FY13E EPS of Rs5.5. We
initiate coverage with a Hold rating and a target price of Rs61 (based on 7.4x FY13E EV/EBITDA,
inline with its historical average multiple and Rs4.3 per share as value of investments in JVs).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growth rates to moderate
Ashok Leyland (ALL) is India’s second-largest
manufacturer of M&HCVs with a market share of ~44% in
the passenger segment and ~23% in the goods segment.
Though the company has reduced its dependence on the
cyclical M&HCV (goods) segment, this business still
remains the major revenue driver accounting for 67% of
overall revenues. Considering ALL’s high dependence on
trucks and our expectations of demand in the M&CHV
segment moderating over FY12-13E, we initiate coverage
with a HOLD rating and a target price of Rs61, valuing the
stock at 7.4x FY13E EV/EBITDA + Rs4.3 per share (the value
of its investments in JVs).
Volume growth to moderate over FY12-13E: We expect
volume growth in the M&HCV segment to moderate,
going forward. Based on our outlook for the CV industry,
we expect ALL to register volume growth of 10% each in
FY12E and FY13E in the M&HCV goods segment and
10%/10% in M&HCV passenger segment over
FY12E/FY13E compared to 54%/25% in FY11E.
FY12 guidance looks optimistic: ALL has guided 15%
YoY volume growth in FY12E (108,000 units vs our
estimate of 103,651 units) compared to its expectation of
the industry growth rate of 10%. We believe the 15%
growth guided is optimistic. The company failed to meet
its FY11 sales guidance of 95,000 units, though by a small
margin.
Significant margin improvement unlikely despite
cushion from Uttarakhand plant: We have assumed
production of 30,000/42,000 units in FY12E/FY13E at its
tax-free Uttarakhand plant and benefit of Rs30,000 per
unit as indicated by management. However, increase in
RMC and limited pricing power, along with moderation in
volume growth, would largely offset these benefits. We
expect EBITDA margin of 10.4% in FY12E and 10.2% in
FY13E compared to 10.4% in FY11E.
Contribution from JVs unlikely to be significant over
FY12-13E: We have not factored in earnings upside from
existing JVs as we believe they will take a longer time
before making a significant impact on earnings. However,
we have factored in a value of Rs.4.3 based on the
investments expected till FY13E after assigning 50%
discount.
Valuations and Recommendations: At the CMP of Rs55,
the stock trades at 10.7x FY12E EPS of Rs5.1 and 9.8x
FY13E EPS of Rs5.5. We initiate coverage with a Hold
rating and a target price of Rs61 (based on 7.4x FY13E
EV/EBITDA, inline with its historical average multiple and
Rs4.3 per share as value of investments in JVs).
We expect volume growth in the M&HCV segment to moderate
to 10% each in FY12E and FY13E compared to 25% in FY11E.
Significant margin improvement unlikely despite cushion from
Uttaranchal plant due to limited pricing power and operating
leverage.
Working capital pressure to continue as Inventory still remains
high
Valuations to mirror moderation in CV cycle
At the CMP of Rs55, the stock trades at 10.7x FY12E EPS of Rs.5.1 and 9.8x FY13E EPS of Rs5.5. We
initiate coverage with a Hold rating and a target price of Rs61 (based on 7.4x FY13E EV/EBITDA,
inline with its historical average multiple and Rs4.3 per share as value of investments in JVs).
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