Visit http://indiaer.blogspot.com/ for complete details Adjusted net profit at INR 1.67 bn
Ashok Leyland‘s (ALL) Q2FY11 net revenue at INR 27.1 bn (72% plus Y-o-Y) and
adjusted profit at INR 1.67 bn were in line with our estimates of INR 27.1 bn and
INR 1.69 bn, respectively. Realisation per vehicle improved sequentially by
60bps to INR 1.10 mn led primarily by pricing action.
EBITDA margins up 130bps Q-o-Q at 11.3%
As estimated, ALL’s EBITDA margins improved sequentially 130bps to 11.3% on
back of softening commodity prices, better realizations, and strong volume
growth which was accentuated by operating leverage benefits.
Net interest costs, at INR 395 mn, rose 25% Q-o-Q as the company had raised
debt at Q1FY11 end of nearly INR 3.3 bn to fund its capex plans. Consequently,
for the quarter ended, leverage ratio stood at 0.64x (0.60x as of March 2010).
Volume guidance raised to 95,000 units; cautious on margin expansion
On the back of buoyant underlying trend, management has revised its volume
guidance to 95,000 (from 90,000 units) with an upward bias. Despite recent
price hikes, management remained cautious on incremental EBITDA margin
expansion and maintain EBITDA margin estimate in the 10.5-11.0% range for
FY11, partially on account of input cost pressures (particularly tyres) as well
higher expenses on account of emission norm changes. Incremental benefit from
the Pantnagar plant will be visible after higher capacity ramp up.
We continue to remain positive on ALL as it is reaping the benefit of upswing in
MHCV demand being the only pure CV manufacturer in the space. We are raising
our EPS estimates for FY11-12 by a marginal 2% as the impact of a greater top
line is negated by higher tax rates and interest expenses. Currently, at INR 76,
the stock trades at 12.6x FY12E EPS of INR 6. We maintain ‘BUY/ Sector
Outperformer’ recommendation/rating with a target price of INR 85, implying
14x FY12E P/E.
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