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Ashok Leyland
Q4 margins surprise, but not
sustainable
„Cut PO, Maintain Underperform
Q4 profit at Rs 3bn beat expectations, driven by 30% yoy sales growth at
Rs38.3bn, 6% ahead of estimates, resulting in stronger 35% EBITDA growth at
Rs 5.1bn. While we raise EPS forecasts by 8%-6% over FY12-13E to factor this
surprise, our PO is cut 6% to Rs 58 by imputing late cycle valuation multiple of
6.5x EV/EBITDA (earlier 7x), reflecting growth moderation.
Sales guidance unlikely to be met
Management guidance of 15% growth in FY12 seems aggressive, despite rising
contribution from exports. We expect domestic demand to lag peers, due to
(1) increased competition in trucks, (2) absence of JNNRUM orders, which
contributed to the 23% growth last year in buses (23% of sales), and (3) delayed
foray and weak franchise in light vehicles. We therefore retain sales growth
assumption of 11%/year at 104K units in FY12E and 116K units in FY13E.
Margins an aberration
Q4 EBITDA margins increased 45bps yoy/470bps qoq to 13.3%, much sharper
than expected, despite one-time staff expenses (65bps), due to better sales mix
(defence supplies, spares, in-house engines) and higher production from
Uttarakhand (~24%). Despite continuing shift to tax-free unit, margins are likely to
be pulled down by increased sales of completely built U-trucks. Margin
assumptions are unchanged at 10.6%/10.4%, but EBITDA raised by 12%/10%.
Balance sheet issues
(1) Investments Rs 12bn (4x FY10), incl Rs 3bn conversion of advance to
associates to equity, (2) NWC 22 days’ sales (last yr 18 days’), to correct on
recovery of dated receivables, (3) Gearing higher at 90% (last year 71%), despite
favourable cycle, expected to remain similar on planned capex/investments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland
Q4 margins surprise, but not
sustainable
„Cut PO, Maintain Underperform
Q4 profit at Rs 3bn beat expectations, driven by 30% yoy sales growth at
Rs38.3bn, 6% ahead of estimates, resulting in stronger 35% EBITDA growth at
Rs 5.1bn. While we raise EPS forecasts by 8%-6% over FY12-13E to factor this
surprise, our PO is cut 6% to Rs 58 by imputing late cycle valuation multiple of
6.5x EV/EBITDA (earlier 7x), reflecting growth moderation.
Sales guidance unlikely to be met
Management guidance of 15% growth in FY12 seems aggressive, despite rising
contribution from exports. We expect domestic demand to lag peers, due to
(1) increased competition in trucks, (2) absence of JNNRUM orders, which
contributed to the 23% growth last year in buses (23% of sales), and (3) delayed
foray and weak franchise in light vehicles. We therefore retain sales growth
assumption of 11%/year at 104K units in FY12E and 116K units in FY13E.
Margins an aberration
Q4 EBITDA margins increased 45bps yoy/470bps qoq to 13.3%, much sharper
than expected, despite one-time staff expenses (65bps), due to better sales mix
(defence supplies, spares, in-house engines) and higher production from
Uttarakhand (~24%). Despite continuing shift to tax-free unit, margins are likely to
be pulled down by increased sales of completely built U-trucks. Margin
assumptions are unchanged at 10.6%/10.4%, but EBITDA raised by 12%/10%.
Balance sheet issues
(1) Investments Rs 12bn (4x FY10), incl Rs 3bn conversion of advance to
associates to equity, (2) NWC 22 days’ sales (last yr 18 days’), to correct on
recovery of dated receivables, (3) Gearing higher at 90% (last year 71%), despite
favourable cycle, expected to remain similar on planned capex/investments.
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