Visit http://indiaer.blogspot.com/ for complete details Ashok Leyland
Momentum in favour, but not
valuations
Raise PO to Rs 80, Maintain Neutral
Q2 profit at Rs 1.67bn was 10% ahead of our estimate, driven by higher EBITDA
and lower tax rate. Sales grew 87% YoY at Rs 27.1bn, but were 2% lower than
our estimate on average sales realisation. Raise EPS forecasts by 8%-10% over
FY12E-13E to reflect (1) revision to volumes on increased guidance, and (2)
lower tax rate due to benefits from new unit.
Volume outlook still strong
Truck/bus volumes grew 72% in Q2, ahead of estimates. Although Q3 could be
muted post-implementation of emission norms, we raise sales assumptions by 7%
to 96,000 units in FY11E (similar to the management guidance of 95-98K units).
Likely launch of light vehicle drives 5% increase to 115,000 units in FY12E.
Margin estimates pruned
Q2 margins were ahead of estimates at 11.3%, due to higher volumes and resultant
operating leverage. However, we expect emission related cost pressures to lower
margins in H2, reflected in our full year assumption of 10.7% (earlier 11.5%). We
also trim margins over FY12-13E by 30bps each year to 11.3%/11.4%, despite
improvement from production ramp up at the Uttarakhand unit.
Prefer Tata Motors in this space
Revised PO is based on same mid-cycle multiple of 8x FY12E EV/EBITDA, in line
with the sector. Prefer Tata Motors on (1) lower vulnerability to new competition,
given its balanced product portfolio, and (2) JLR, which is on a structural uptrend.
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