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1Q results disappoint on PAT (12%), as high depreciation and interest costs eat into EBIDTA
surprise. Adjusted for change in accounting policy for land lease rent, PAT dip 37% yoy. The
sharp rise in vehicle inventory is a cause of concern, which requires corrective action and may in
turn keep profit under pressure.
June quarter result surprises on EBIDTA, but disappoints on PAT
Normalised PAT is 12% below our estimate and 21% below consensus. The better-thanexpected
sales and EBIDTA were eaten away by higher interest and depreciation cost.
Net sales was Rs24.96bn, +6.3% yoy and -35% qoq (RBS estimate Rs22.75bn). Net sales
realisation per vehicle rose 18% yoy and 0.4% qoq, surprising us. The better product mix
seems to have helped, but sustaining the same for the rest of year will be key.
Management changed accounting policy for lease land amortisation, which reduced
manufacturing & other expenses by Rs94.6m. This we treat as an extra-ordinary item in the
result analysis for the quarter.
Adjusting for accounting policy change, EBIDTA margin was 9.4%, down 60bp yoy and 330bp
qoq (RBS est 9.4%).
EBIDTA of Rs2.35bn was flat yoy, but down 50% qoq. RBS's estimate was Rs2.14bn, so 10%
surprise, which is driven through sales surprise.
Interest expenses Rs533m, +69% yoy and 18% qoq (RBS est Rs400m). High working capital
and rising interest rate scenario impact interest expenses.
Depreciation expenses Rs847m, +38% yoy and 9.6% qoq (RBS est Rs670m). We look for
management clarification, as it will impact our estimates sharply.
PBT is Rs1.01bn, - 31% yoy and -73% qoq, (RBS est Rs1.09bn).
Tax rate is 24% vs 16.6% in 1Q and 20.6% in FY11 vs RBS est of 20%.
Normalised PAT is Rs768m, -37% yoy and -72% qoq. RBS est Rs877m, BB consensus
Rs950m.
Normalised EPS is Rs0.6 for quarter.
Reported PAT is Rs863m, -30% yoy and -69% qoq.
Sharp rise in vehicle inventory in weakening IIP scenario concerns us
From the production data, we derive that company's finished goods inventory has increased
by 33% qoq in 1Q to 10,940 vehicles.
We feel the sharp weakness in Index of Industrial production (IIP) in 1Q will have strong
bearing in terms of freight availability and in turn truck demand. Also with sharp rise in diesel
price recently, we feel freight rates may take time to adjust, so as to return to normative profit
margins for truck operators. In this environment, carrying large inventory by Ashok Leyland is
a cause for concern.
Large fixed cost and high base effect may dampen sentiment
Fixed costs like interest and depreciation formed large chunk of EBIDTA in 1Q (59%) and
FY11 (35%). This will have a dampening impact in weak sales volume scenario.
The high base effect of sales volume in 2Q and 4Q can put growth under pressure
considering macro headwinds of weak IIP and rising vehicle finance rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1Q results disappoint on PAT (12%), as high depreciation and interest costs eat into EBIDTA
surprise. Adjusted for change in accounting policy for land lease rent, PAT dip 37% yoy. The
sharp rise in vehicle inventory is a cause of concern, which requires corrective action and may in
turn keep profit under pressure.
June quarter result surprises on EBIDTA, but disappoints on PAT
Normalised PAT is 12% below our estimate and 21% below consensus. The better-thanexpected
sales and EBIDTA were eaten away by higher interest and depreciation cost.
Net sales was Rs24.96bn, +6.3% yoy and -35% qoq (RBS estimate Rs22.75bn). Net sales
realisation per vehicle rose 18% yoy and 0.4% qoq, surprising us. The better product mix
seems to have helped, but sustaining the same for the rest of year will be key.
Management changed accounting policy for lease land amortisation, which reduced
manufacturing & other expenses by Rs94.6m. This we treat as an extra-ordinary item in the
result analysis for the quarter.
Adjusting for accounting policy change, EBIDTA margin was 9.4%, down 60bp yoy and 330bp
qoq (RBS est 9.4%).
EBIDTA of Rs2.35bn was flat yoy, but down 50% qoq. RBS's estimate was Rs2.14bn, so 10%
surprise, which is driven through sales surprise.
Interest expenses Rs533m, +69% yoy and 18% qoq (RBS est Rs400m). High working capital
and rising interest rate scenario impact interest expenses.
Depreciation expenses Rs847m, +38% yoy and 9.6% qoq (RBS est Rs670m). We look for
management clarification, as it will impact our estimates sharply.
PBT is Rs1.01bn, - 31% yoy and -73% qoq, (RBS est Rs1.09bn).
Tax rate is 24% vs 16.6% in 1Q and 20.6% in FY11 vs RBS est of 20%.
Normalised PAT is Rs768m, -37% yoy and -72% qoq. RBS est Rs877m, BB consensus
Rs950m.
Normalised EPS is Rs0.6 for quarter.
Reported PAT is Rs863m, -30% yoy and -69% qoq.
Sharp rise in vehicle inventory in weakening IIP scenario concerns us
From the production data, we derive that company's finished goods inventory has increased
by 33% qoq in 1Q to 10,940 vehicles.
We feel the sharp weakness in Index of Industrial production (IIP) in 1Q will have strong
bearing in terms of freight availability and in turn truck demand. Also with sharp rise in diesel
price recently, we feel freight rates may take time to adjust, so as to return to normative profit
margins for truck operators. In this environment, carrying large inventory by Ashok Leyland is
a cause for concern.
Large fixed cost and high base effect may dampen sentiment
Fixed costs like interest and depreciation formed large chunk of EBIDTA in 1Q (59%) and
FY11 (35%). This will have a dampening impact in weak sales volume scenario.
The high base effect of sales volume in 2Q and 4Q can put growth under pressure
considering macro headwinds of weak IIP and rising vehicle finance rates.
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