Ashok Leyland F1Q12: In Line at EBITDA :: Morgan Stanley Research,

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Ashok Leyland Ltd.
F1Q12: In Line at EBITDA
Level
Quick Comment – In line at operating level: Ashok
Leyland (AL) posted 6% growth in revenue and 4%
growth in EBITDA but a disappointing 30% decline at the
PAT level as increased depreciation and interest
charges dragged profitability for F1Q12. EBITDA margin
was in line with our expectations at 9.8%, down 350bp
QoQ. We remain UW as the stock trades at 10x F2012e,
in line with median multiples.
EBITDA in line with expectations: In F1Q12,
realizations were flat QoQ. The company maintained
gross margins on sequential basis, implying that the CV
industry had pricing power in F1Q. Fixed costs (staff and
others) drove margins down on a sequential basis as
volumes were down 35% QoQ.
Depreciation and interest charges drag down
profitability: The PAT disappointment reflected higher-
than-expected interest and depreciation charges. We
believe that the ramp-up in production at a new facility
may be the key reason for the increased depreciation,
which was up 38% YoY. An increase in working capital
loans resulted in higher interest charges, up 69% YoY.
Other key points: 1) Rising interest costs and a hike in
diesel prices are expected to be growth dampeners in
the coming quarters. 2) F2Q12 will see the launch of the
DOST, the LCV from the AL-Nissan stable, and
construction equipment products with John Deere.
Initially, both ventures will be margin dilutive. 3) The
company intends to do capex of Rs40bn in the coming
two years.
The company has a conference scheduled for July 20,
and we will revert with more details post that.