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Ashok Leyland
Ashok Leyland (ALL) reported a mixed performance for 1QFY2012, with revenue and
operating margin coming in-line with our estimates. The bottom line, however, came in
lower than our estimates due to higher finance and depreciation cost. ALL reported modest
6.3% yoy growth in its top line to `2,496cr, driven by an 18% yoy increase in average net
realisation. Volume performance, however, was subdued during the quarter, reporting a
9.9% yoy decline. Average net realisation improved to `1,294,551 on account of price
increases to mitigate raw-material cost pressures and emission norm changes. On a
sequential basis, revenue declined by 34.8% as volumes were lower by 23.4%. During
1QFY2012, ALL lost 500bp of market share in the M&HCV segment and its share currently
stands at 22.2%.
The company’s EBITDA margin came in at 9.8%, registering marginal decline of 22bp as
compared to 10% in 1QFY2011 and 30bp ahead of our estimates of 9.5%. Sequentially,
operating margins declined by 352bp from 13.3%, largely due to the decline in volumes,
which negatively affected the company’s operating leverage. The operating margin on a
yoy basis was supported mainly due to the price increases carried out by the company. ALL
reported a 29.7% yoy decline in net profit to `86cr as against our estimate of `102cr on
account of higher-than-expected interest and depreciation expenses. While interest cost
increased by 69% yoy and 19% qoq, depreciation expense jumped by 38% yoy and 10%
qoq. Interest cost increased mainly due to increased working capital requirements.
At `51, the stock is trading at 11.1x FY2012E and 8.9x FY2013E earnings. We currently
have a Buy rating on the stock with a target price of `60. We shall revise our numbers and
release a detailed note post the earnings conference call with management.
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