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Weak 1Q but is in the price
ALL’s 1Q net profit dropped a sharp 30% YoY due to lower volumes and
higher interest and depreciation costs. CV industry volume growth has slipped
sharply in 1Q and ALL has lost market share. Management is still targeting
15% volume growth in FY12 but we believe that this is very unlikely and build
in flat volumes in FY12. However we believe that most of the negatives are
priced in ALL’s stock and expect stock performance to start improving by end-
FY12 when visibility of lower interest rates and better economic growth in
FY13 improves. We raise FY12-13 EPS by 2-6% and maintain O-PF.
1Q net profit drops 30% YoY
ALL’s 1Q net profit at Rs863mn dropped a sharp 30% YoY but came in 5% above
estimates. 1Q volumes were 10% lower YoY but higher ASPs resulted in a 6%
revenue growth. EBITDA margins at 9.8% were fairly stable, dropping just 20 bps
YoY due to which 1Q EBITDA at Rs2.4bn grew 4% YoY. However, sharply higher
interest and depreciation due to full impact of the new Pantnagar plant as well as
higher tax rate resulted in net profit declining 30% YoY. 1QFY12 results include
Rs95mn benefit from change in amortization policy. Excluding this, recurring net
profit is lower at Rs789mn – down 36% YoY & 4% below estimates.
CV market remains weak; ALL has lost share in 1Q
CV industry growth has slipped to 7% YoY in 1QFY12 after two years of strong
35% growth. The South market is particularly weak, where ALL has a higher 50%
market share versus 26% across India. As a result, ALL’s market share has
slipped in both trucks and buses in 1Q. Management expects the CV industry to
grow 8-9% in FY12 and expects its own sales to rise 14%. This expectation
assumes interest rates going down in 2HFY12 and assumes strong market share
gains in balance FY12. We believe that these are very aggressive assumptions and
build in a lower 1% growth in total volumes for ALL in FY12.
ALL’s stock seems to have priced in the negatives
After falling 38% from the Nov-10 peak, ALL’s stock has been stable at ~Rs50
since Feb-11 despite weak monthly numbers and quarterly results. This makes us
believe that most of the negatives are there in the price. Historically, the best
returns in ALL have been made when it is bought in CV downturns. We believe
that the question to ask is when to buy ALL’s stock and not whether to sell.
Dividend yield of 4% provides further support to the stock. We see a high
likelihood of a better FY13 for CVs when we believe that interest rates will decline
and economic growth will improve. We upgrade FY12-13 EPS estimates by a
modest 2-6% factoring in slightly higher volumes and margins and maintain O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weak 1Q but is in the price
ALL’s 1Q net profit dropped a sharp 30% YoY due to lower volumes and
higher interest and depreciation costs. CV industry volume growth has slipped
sharply in 1Q and ALL has lost market share. Management is still targeting
15% volume growth in FY12 but we believe that this is very unlikely and build
in flat volumes in FY12. However we believe that most of the negatives are
priced in ALL’s stock and expect stock performance to start improving by end-
FY12 when visibility of lower interest rates and better economic growth in
FY13 improves. We raise FY12-13 EPS by 2-6% and maintain O-PF.
1Q net profit drops 30% YoY
ALL’s 1Q net profit at Rs863mn dropped a sharp 30% YoY but came in 5% above
estimates. 1Q volumes were 10% lower YoY but higher ASPs resulted in a 6%
revenue growth. EBITDA margins at 9.8% were fairly stable, dropping just 20 bps
YoY due to which 1Q EBITDA at Rs2.4bn grew 4% YoY. However, sharply higher
interest and depreciation due to full impact of the new Pantnagar plant as well as
higher tax rate resulted in net profit declining 30% YoY. 1QFY12 results include
Rs95mn benefit from change in amortization policy. Excluding this, recurring net
profit is lower at Rs789mn – down 36% YoY & 4% below estimates.
CV market remains weak; ALL has lost share in 1Q
CV industry growth has slipped to 7% YoY in 1QFY12 after two years of strong
35% growth. The South market is particularly weak, where ALL has a higher 50%
market share versus 26% across India. As a result, ALL’s market share has
slipped in both trucks and buses in 1Q. Management expects the CV industry to
grow 8-9% in FY12 and expects its own sales to rise 14%. This expectation
assumes interest rates going down in 2HFY12 and assumes strong market share
gains in balance FY12. We believe that these are very aggressive assumptions and
build in a lower 1% growth in total volumes for ALL in FY12.
ALL’s stock seems to have priced in the negatives
After falling 38% from the Nov-10 peak, ALL’s stock has been stable at ~Rs50
since Feb-11 despite weak monthly numbers and quarterly results. This makes us
believe that most of the negatives are there in the price. Historically, the best
returns in ALL have been made when it is bought in CV downturns. We believe
that the question to ask is when to buy ALL’s stock and not whether to sell.
Dividend yield of 4% provides further support to the stock. We see a high
likelihood of a better FY13 for CVs when we believe that interest rates will decline
and economic growth will improve. We upgrade FY12-13 EPS estimates by a
modest 2-6% factoring in slightly higher volumes and margins and maintain O-PF.
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