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Ashok Leyland (ASOK.BO)
2QFY12 Operationally In Line; But Headwinds Remain
PAT at Rs 1.54 bn beat our estimates by 15% — Marginal revenue beat of ~1% reflects
higher-than-expected ASPs (mix shift, better pricing and higher dispatches to the Vehicle
Factory at Jabalpur). While gross margin at 26.5% was ~40bps lower than our estimates,
lower-than-expected employee expense (~7% below estimates) amplified revenue beat
to deliver an EBITDA beat of 6%. PAT beat reflects 1) Higher-than-expected other income
(+115% Y/Y, +160% Q/Q), and 2) Lower effective tax rate of ~20% vs ~22% in 1Q.
Con call takeaways — 1) Mgmt maintained a moderate volume growth guidance of 5-
6% YoY for FY12 for the industry. For ALL, FY12 volume guidance was ~100k vehicles,
with margin guidance at ~10.5%, 2) Volume decline of ~4% YoY in 2QFY12 reflects an
overall drop in Southern India sales ( ALL's dominant market) and in the MAV segment,
3) ~20 days of dispatches were lost from Pantnagar plant due to civil insurgencies in the
area - mgmt expects ~20K vehicle sales from Pantnagar in 2HFY12, 4) Pricing
environment remains healthy, for now (ALL undertook ~1% price hike w.e.f. 1 Nov). That
said, mgmt was cautious about freight rates and interest rates, 5) High demand for Fully
Built Units in the tipper segment resulted in supply constraints- mgmt expects supply
constraints to ease out, and 6) higher debt partially reflects loan for working capital.
Market share — Ashok Leyland clawed back ~200bps / 20bps Q/Q in the domestic
heavy trucks / bus segment, partially reversing the trend in the MHCVs wherein it lost
~5ppt in 1Q. The company expects to gain market share in the LCV segment with the
launch of the new LCV from Nissan JV- Dost; though accompanied by some margin
loss, as the vehicles will be fully-built units sourced from the JV.
Maintain Sell ; increase TP to Rs 26 — We increase our FY12/FY13/FY14 earnings
by 8%/15%/18% respectively. While we reduce our volume assumptions by ~2.4 %–
2.6% over the same period, we are more sanguine on our margin assumptions.
However, we maintain our Sell recommendation on ALL, given macro headwinds
(mgmt also had a cautious stance on interest rates and freight rates) and ALL's
relatively weaker positioning as compared to Tata Motors.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashok Leyland (ASOK.BO)
2QFY12 Operationally In Line; But Headwinds Remain
PAT at Rs 1.54 bn beat our estimates by 15% — Marginal revenue beat of ~1% reflects
higher-than-expected ASPs (mix shift, better pricing and higher dispatches to the Vehicle
Factory at Jabalpur). While gross margin at 26.5% was ~40bps lower than our estimates,
lower-than-expected employee expense (~7% below estimates) amplified revenue beat
to deliver an EBITDA beat of 6%. PAT beat reflects 1) Higher-than-expected other income
(+115% Y/Y, +160% Q/Q), and 2) Lower effective tax rate of ~20% vs ~22% in 1Q.
Con call takeaways — 1) Mgmt maintained a moderate volume growth guidance of 5-
6% YoY for FY12 for the industry. For ALL, FY12 volume guidance was ~100k vehicles,
with margin guidance at ~10.5%, 2) Volume decline of ~4% YoY in 2QFY12 reflects an
overall drop in Southern India sales ( ALL's dominant market) and in the MAV segment,
3) ~20 days of dispatches were lost from Pantnagar plant due to civil insurgencies in the
area - mgmt expects ~20K vehicle sales from Pantnagar in 2HFY12, 4) Pricing
environment remains healthy, for now (ALL undertook ~1% price hike w.e.f. 1 Nov). That
said, mgmt was cautious about freight rates and interest rates, 5) High demand for Fully
Built Units in the tipper segment resulted in supply constraints- mgmt expects supply
constraints to ease out, and 6) higher debt partially reflects loan for working capital.
Market share — Ashok Leyland clawed back ~200bps / 20bps Q/Q in the domestic
heavy trucks / bus segment, partially reversing the trend in the MHCVs wherein it lost
~5ppt in 1Q. The company expects to gain market share in the LCV segment with the
launch of the new LCV from Nissan JV- Dost; though accompanied by some margin
loss, as the vehicles will be fully-built units sourced from the JV.
Maintain Sell ; increase TP to Rs 26 — We increase our FY12/FY13/FY14 earnings
by 8%/15%/18% respectively. While we reduce our volume assumptions by ~2.4 %–
2.6% over the same period, we are more sanguine on our margin assumptions.
However, we maintain our Sell recommendation on ALL, given macro headwinds
(mgmt also had a cautious stance on interest rates and freight rates) and ALL's
relatively weaker positioning as compared to Tata Motors.
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