Visit http://indiaer.blogspot.com/ for complete details Ashok Leyland Ltd. |
Mixed Bag, Maintain HOLD |
HOLD
CMP: Rs 75 Target Price: Rs 76
n EBIDTA at Rs 3.1bn was in line with our est. despite lower than expected net sales. Margins at 11.3% were above our est. of 10.8%. APAT at Rs 1.7bn marginally below est.
n Hike prices by 3%/6% for BSII/BSIII vehicles over the 4% hike taken in H1FY11. Currently, it has inventory of ~9000 units
n Raises FY11 volume guidance to 95000 units (our est. is 92692 units). Upgrade FY11E EPS by 4.2% to Rs 5.2, retain FY12E EPS at Rs 6.4.
n Retain our TP of Rs 76 and our HOLD rating. M&HCV demand momentum to peak out, expect concerns with volume growth for FY12 from 3Q/4Q FY11
Net Sales –Below expectation due to lower engine & defense sales
Net sales at Rs 27.1bn was marginally below expectation of Rs 28.3bn due to lower
engine and defense sale. Inspite of 4% price hike in H1FY11, avg. realization per
vehicle were flat both YoY & QoQ due to unfavorable product mix. Avg. realization per
vehicle stood at Rs 1,103,682 against expectation of Rs 1,152,843.
EBIDTA margins at 11.3% above expectation
Despite lower than expected topline, EBIDTA was in line with estimate at Rs 3.1bn.
Margins at 11.3% were above our est. of 10.8%. Margin expansion was supported by
lower than expected RM to sales (73.6% against est. of 73.9%) and other expenses
(7.3% against est. of 7.5%).
APAT – marginally below est. due to higher interest & tax expense
Net profits at Rs 1.7bn were marginally below expectation of Rs 1.8bn, due to higher
interest cost and tax expense. Interest cost was higher at Rs 395 mn (est. Rs 300mn)
due to higher working capital. Effective tax rate stood at 19.5% against expectation of
18.0%
Valuations and View
At Rs 75 the stock trades at PER of 14.5x and 11.7x and EV/EBIDTA of 9.5x and 7.9x our
FY11 and FY12 estimates respectively. We have upgraded our FY11 EPS est. by 4.2% to Rs
5.2 due to volume upgrades. Retain our FY12 EPS est. at Rs 6.4. We retain our target price
of Rs 76, valuing the stock at 11.8x PER and 8.0 EV/EBIDTA of our FY12 estimates. We
maintain our HOLD rating on the stock. We expect volume momentum to slow down from
3Q/4QFY11.
Key Con Call Extracts
n Revenue break for Q2FY11 – Engines – Rs 690mn, VFJ – Rs 1.75bn and Vehicle Sales
around Rs 24.7bn
n Revise volume guidance from 90,000 units to 95,000 units for FY11. Expect Q3FY11
volume numbers to be soft. Guidance for FY 12 of around 15-18% growth
n Robust demand in HCV segment being witnessed especially in Tractor trailers and tipper
market. Bus demand from state undertaking is also strong.
n Export markets are growing for ALL - Sri Lanka and Middle East (especially Saudi Arabia)
are doing well. Exports could be doubled over next couple of years.
n Pricing action – 4% in H1FY11 (1.5% in Apr and 2.5% in July), another 3% hike taken in
October for BSII vehicles and 6% for BSIII vehicles.
n Cost increase due to shifting to BSIII norms is around Rs 40k per vehicle.
n Production run rate in Q3FY11 could come down to 6k-8k units per month due to shift to
BSIII vehicles. Currently, ALL has an inventory of around 9k units of BSII norms.
n Looking for reduction in steel prices from domestic players, expecting steel prices in line
with international prices. Tata steel took price hike in beginning of the month.
n Pantnagar- has produced around 2500 units in H1FY11. Expect a run rate of 2500 pm for
H2FY11 resulting in total of 12.5k units for H2FY11.
n At full capacity utilization, Pantnagar plant can do a run rate of 4k units pm.
n Company would be launching 10 new models on U-Truck platforms in tractor and tipper
segments. These vehicles are upgraded in terms of technical specifications. Prices for
these vehicles could be higher to tune of 50K to 100k
n Market Share – South – 47%, West -25%, East 14%, North 22 % Central 23%
n JV with Nissan for LCV, targets 50k units in 2 years post commencement of production.
n Capex – FY11 – Rs 6.5-7.0 bn (already done Rs 2.5bn in H1FY11)
n Debt levels could go upto Rs 26 bn from current level of Rs 25bn
n Cash surplus on books would be around Rs 2-3bn. There is around Rs 1-1.5 bn in loans
and advances from dealers.
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