Ashok Leyland:: Growth story continues:: Alchemy

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Ashok Leyland:: Growth story continues



Revenue up 72%YoY led by 72% volume growth
Ashok Leyland reported top-line revenue at `27.1bn, up 72% YoY. This was primarily
driven by a strong volume growth. The company sold 22,093 medium and heavy
commercial vehicles (M&HCV) in the domestic market and exported 2,337 vehicles. It
sold 160 light commercial vehicles in 2QFY11.
Operating margins improve 130bps QoQ
The company’s operating margins improved by 130bps QoQ to 11.3% on lower input
costs and better operating efficiencies (due to higher volumes).
EBIDTA for the quarter was `3.0bn, up 84% YoY.
Market share at 27.3% improves 700bps YoY (M&HCV segment)
Ashok Leyland improved its market share from 20.4% in 2QFY10 to 27.4% in 2QFY11.
Its market share in the M&HCV Passenger carrier segment stood at 39.0%, up 420bps
YoY and 25.1% in M&HCV Goods carrier segment, up 780bps YoY.
Other details
The company has planned a capex of `12bn over the next two years. It will be investing
Rs8bn in its two joint ventures with John Deere and Nissan Motors. The venture with
John Deere is expected to start production in 3QFY10 and the venture with Nissan
Motors to produce and sell light commercial vehicles is scheduled to commence by the
end of this fiscal year.
View and Recommendation
 We upgrade our FY11 estimates on higher guidance given by the management
(from 85,000 vehicles to ~90,000 vehicles) The company has sold ~46,000 vehicles
in 1HFY11.
 As per our (upwards) revised estimates, Ashok Leyland’s EPS for FY11 stands at
Rs4.4 from 3.7 earlier. Similarly, EPS for FY12 stands revised from Rs4.5 to Rs5.3.
 We continue to remain bullish on the commercial vehicle sector. The stock currently
trades at 14.3xFY12 estimates. We maintain Accumulate