Ashok Leyland: Another good quarter but valuations price in recovery :: Kotak Securities

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Another good quarter but valuations price in recovery. Ashok Leyland’s 3QFY15 EBITDA of Rs2,381 mn was 12.5% higher than our estimates led by lower-thanexpected staff cost and higher realizations (qoq decline in staff cost was the key reason for the surprise). Volumes grew 38% yoy led by strong growth in larger commercial vehicles (>25MT). We revise our price target to `44 (from `40 earlier) to factor higher earnings estimates, and maintain our SELL rating because of expensive valuations.

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Ashok Leyland - Weak Quarter; Result Update Q3FY15 ::Edelweiss

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“Leap of faith” on big economic recovery! • Ashok Leyland :: ICICI Securities

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Steady performance; rich valuations limit upside Ashok Leyland :: HDFC Securities

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Best case priced in! • Ashok Leyland :: ICICI Securities, pdf link

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Ashok Leyland Weak demand persists; Sell :: Anand Rathi

Ashok Leyland
Weak demand persists; Sell
Key takeaways
Sales down yoy and qoq. Ashok Leyland’s 3QFY14 sales were poor, down
18.4% yoy, capping a weak 9MFY14. The decline is all encompassing, as
LCVs dipped 4.1% yoy and M&H CVs were down 26.4% yoy. A near-term
recovery is unlikely, although 3Q may mark the bottom in absolute volumes.
A full-fledged cyclical recovery is likely only in 2HFY15.
Revenues to dip. For a fifth consecutive quarter, AL’s revenues are expected
to decline in 3QFY14. Moreover, we do not expect any respite for the
company in 4Q either. On the 18.4% yoy volume decline, and an expected
1% yoy dip in realisations, we expect AL’s 3Q revenues to be `19.2bn, lower
19.3% yoy and 24.6% qoq.
Losses to sustain for third successive quarter. On low operating leverage,
we expect 3Q EBITDA margin to be 1%, while there would be an adjusted
loss of `1.1bn. Sale of 1.8m IndusInd Bank shares would provide a boost to
the reported profit in 3Q.
Our take. With the company at the wrong end of the CV cycle, the poor
performance is likely to continue in 1HCY14. Although its LCV, Dost, was
faring better, its recent performance has been a bit restrained. The bread-andbutter M&H CV segment continues to sputter. We have a Sell on the stock
because of the ongoing downswing in the M&H CV cycle, with a short-term
recovery appearing unlikely. While the low 2HFY13 base would arrest the fall,
recouped volumes based on swelling demand are likely only in 2HFY15. On a
positive note, the company is taking steps to de-leverage the balance sheet,
which is a long-term positive; in the near-term, the cyclical downturn would
be an overbearing factor. The stock quotes at 12x FY15e EV/EBITDA. Our
target of `13 is based upon a target EV/E of 10.5x FY15e. Risks. Strong
economic growth, rise in freight rates, more-than-expected LCV profitability

Technicals: Essel Propack, Bajaj Electricals, BHEL, Ashok Leyland, Glenmark, ITC : Business Line

Ashok Leyland - Hitting the nadir! LKP research

Q1 results simply dismal

Ashok Leyland (ALL)’s topline was in line with our expectations. Volumes during the quarter dipped by a huge 27% yoy and 37% qoq as the CV industry is going through one of its toughest phases. The company lost market share by 3% on a yoy basis primarily in the south as the southern markets continued to post weak demand. However, net realizations have remained flattish as discounts came down a bit by Rs 25,000 to Rs 1.45 lakh and ALL took a price hike of Rs 18,000. EBITDA margins came in at a dismal all-time low of 1% indicating the sorry state of heavy discounting and adverse product mix. This was a sharp decline of 430 bps qoq, as RM to sales expanded to 75.5% of sales as product mix became unfavorable. Employee costs to sales jumped to 10.9% from 7.6% qoq and 8.9% yoy, however, on absolute basis, there was a decline of 8.5% qoq in employee costs as the company reduced their number of working days, employee strength as well as incurred salary cuts. Other expenses to sales went up to 12.6% from 11.6% qoq and 10.3% as sales declined, but in absolute terms, this cost item declined by 29% qoq and 4% yoy as a lot of cost savings on the admin side as well as marketing side were initiated. Higher interest costs stemming from higher working capital, higher investments in JVs, increased borrowings for product development and Pantnagar facilities tarnished the bottomline. Due to the operational underperformance as well as higher interest costs, ALL posted deep losses to the tune of Rs 1.35bn, biggest loss ever incurred by the company.

Outlook and valuation

We believe the company’s volumes will face pressure in the coming quarters as  economy as well as industrial activity is taking lot of time to revive. With mining ban lifting up in Karnataka gradually and new launches coming from ALL along with good network expansion in markets other than South India, we believe the company would be able to achieve our modest estimate of 2% volume growth in FY 14E. With margins hitting rock bottom, we believe that with new models getting launched, pricing action taken, RM costs coming down and employee costs getting cut, margins will move upwards from Q1 level for sure. On balance sheet side, the company is striving to bring down their inventory levels and working capital in FY 13. ALL has also given a pruned down capex and investment guidance for FY 14E, which would help the company to put up a better show going forward. Although the stock has declined by more than 40% over the last couple of months, with weak volume expectations, we believe that the further growth catalysts for ALL are limited, though balance sheet may improve. We have cut down our earnings forecast for FY 14E/15E by 45%/33% on lower volume expectations than before and have cut down our target price to Rs15.7 from Rs25.7 earlier and rating from Outperformer to Underperformer.

Operating performance disappoints; Maintain Buy Ashok Leyland :: Centrum

Operating performance disappoints; Maintain Buy
Ashok Leyland’s (ALL) 3QFY13 operating results were lower compared to our
expectations with EBITDA margins at 4.3% vs. est. 7.8%. Operating deleverage
coupled with higher other expenditure led to weak operating
performance. As a result, the company reported adjusted loss of Rs.587mn
(adjusted for exceptional item of Rs.1.6bn) and managed to post PAT of
Rs.741mn. Despite disappointing 3QFY13 results, we believe that favorable
macro impetus and expected interest rate down cycle (we expect 100-125bps
cut in interest rates for FY14E) should augur well for the M&HCV business in
FY14E. Also our metals analyst expects mining-related issues to be resolved
leading to court orders for resumption of closed mines. Mining activity has a
significant bearing on the freight market, especially in south India where ALL
has a strong market. We continue to maintain our Buy rating on the stock with
a target price of Rs.31.
Operating performance disappoints: Net revenues stood at Rs.24bn
registering a YoY/QoQ drop of 17%/28%. Net revenues were lower by 4% on
account of lower realizations (drop of 5% vs. our expectations of drop by 1%).
Driven by operating de-leverage and higher other expenditure, EBITDA
margins stood at 4.3% vs. our estimate of 7.8%. As a result, the company
reported a loss of Rs.587mn (excluding the exceptional item of Rs.1.6bn).
Including the exceptional item, the company managed to post PAT of
Rs.741mn.
Conference call highlights: 1) the management indicated that it had
withdrawn plans to raise funds through QIP worth Rs.5bn; instead it will raise
funds through divestment from un-related areas and could also look at
liquidating its stake in IndusInd bank. 2.) total long term borrowing was at
Rs.35bn and short term loans at Rs.15bn. 3.) Total capex and investment
planned for FY13E stands at Rs.9bn (Rs.5.5bn incurred thus far) 4.) Production
from UTK plant stands at 6,700 units compared to 7,200 units in 2QFY13 (it
targets volumes of 32k in FY13E and 42k in FY14E) 5.) Dost’s supply side
constraints related to gear boxes were resolved a few months back
(management is targeting 11-12k in 4QFY13) 6.) Discount levels have moved
up to Rs.100k from 80k in 2Q and 50k in 1Q).

Ashok Leyland - Management Interaction - Centrum

Management Interaction Takeaways

Ashok Leyland

Neutral

Target Price: Rs25.8

CMP: Rs27.3

Downside: 5.5%

Challenges persist; Maintain Neutral

We interacted with the management of Ashok Leyland to get the sense on recent developments. Overall demand environment for the M&HCV segment continues to be challenging with inventory and discounting levels inching up compared to 2QFY13 levels. The management now expects a volume drop of 5-10% for FY13E compared to flattish volume growth guided in 2QFY13. We continue to maintain our Neutral rating on the stock with a revised target price of Rs25.8 in line with the earnings downgrade.

Key takeaways:

Use bear call spread to benefit from Leyland's u-turn :: Business Line

2Q beats but challenges persist; Maintain Neutral Ashok Leyland :: Centrum

2Q beats but challenges persist; Maintain Neutral
Ashok Leyland’s (ALL) 2QFY13 operating results were ahead of our estimates
with EBITDA margins at 10.1% compared to our estimate of 7.8% largely
driven by better than expected realization growth. ASP for the quarter grew
1.3% despite higher contribution from low realization Dost (we believe this
was largely on account of strong export realizations). Based on our
calculations, we believe that domestic realizations have dropped 1.4% during
the quarter. While, we are upgrading our earnings estimates by 9% and 14%
for FY13E and FY14E respectively driven by better performance in 2Q, we
continue to believe that current discounts and negligible rise in fleet
operators’ pricing power suggest weak demand environment for M&HCV
goods segment. We expect the recovery to be gradual for the M&HCV goods
segment over 2HFY13-FY14E and await meaningful signs of recovery in the
investment cycle before re-rating the stock. As a result, we maintain our
Neutral rating on the stock with a revised target price of Rs26.8 in line with
the earnings upgrade.

Sizzling Stocks: Ashok Leyland and Ipca Lab:: Business Line

Technical Query - Ashok Leyland, BHEL, Dabur, Tata Global Beverages, Gravita, Gabriel, Kennametal::Business Line

Annual Report Analysis - Ashok Leyland:: Edelweiss,

Ashok Leyland (AL) has w/off direct investment of INR1.5bn in Avia; however, indirect investment of INR1.4bn held through associates is still carried at book value. The company’s cash exposure to associates, loss making JVs and other group companies increased by INR3bn to INR16.5bn (39.1% of FY12 networth). MTM forex losses capitalised stood at INR2.1bn (30.4% of FY12 PBT).

Ashok Leyland - “Pruning estimates, maintaining Outperformer on attractive valuations” :: LKP Research

ALL still expects to grow at 7-8% in FY 13 as South India recovers and market share goes up

Although the MHCV industry has de-grown by 12.5% in Q1 FY13, the drop in Southern markets has been as low as 4.5%, thus indicating that the South Indian markets which were subdued for last one year are showing signs of improvement, where ALL commands more than 50% market share. This has led ALL to gain market share from 25.7% to 26.2% on a sequential basis. Company believes that despite slowdown in the MHCV industry, they will do better on the back of  demand coming back to south India. ALL has targeted to grow by 7-8% this year on the back of 15-20% growth in the bus segment and exports mainly to Africa and Middle East. Also the LCV Dost may help the company to gain market share (currently 25%) in the LCV segment in the 7 states where it is launched. The production of Dost is slated to increase rapidly and consume the entire capacity of 50,000, while ALL expects to sell 32,000 units in FY 13. New launches include a 10x2 rigid axle vehicle, a front engine, low floor, fully flat Jan Bus, haulage U truck and a mini bus in 3Q FY13.  Over and above this, accounting of sales of LCV Dost outside Tamil Nadu (currently ~70%) will provide the additional trigger to volume growth as Dost has got an encouraging response.

LKP LIKES : ASHOK LEYLAND (Buy, Target Rs.32)

Angel Broking - Ashok Leyland - RU4QFY2012 - Result Updates - PDF link

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Ashok Leyland - RU4QFY2012

ASHOK LEYLAND -- : ACCUMULATE TARGET PRICE: RS.33 :: Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight09042012.pdf


ASHOK LEYLAND (ALL)
PRICE: RS.31 RECOMMENDATION: ACCUMULATE
TARGET  PRICE: RS.33 FY13E P/E: 9.3X
 We expect the M&HCV demand to gradually pick up in FY13. Expected
improvement in domestic economy and reduction in interest rates will
kick start recovery in this segment.
 After underperforming in FY12, we expect ALL to outperform the industry volumes in FY13. South India had relatively poor demand off-take in
FY12 and any improvement there will be major positive for the volumes.
 We are increasing our volume estimates to factor in volumes from their
new LCV (Dost) and also raising our M&HCV volume growth rate assumption. Based on revision on revenue and margin estimates, our net
profit estimates stands revised upward by 6.3% to Rs5,190mn for FY12
and by 24% to Rs8,840mn for FY13.
 On the back of increase in our earnings estimate we revise our target
price upward to Rs33 (Rs27 earlier) and upgrade the stock from REDUCE
to ACCUMULATE.
M&HCV demand expected to improve gradually
 In FY12, the M&HCV goods segment is expected to grow by 10% despite various macro headwinds.
 In the current slowdown, the segment did not witness any sharp de-growth in
volumes which otherwise has been the case in previous downturns.  Freight rates
have been relatively stable in recent past despite weak macro indicators.
 Expected improvement in economic activities in the medium term will provide
some boost to the sector in FY13.
 Recent hike in freight rates by the railways is a positive for the sector. Road
transport segment stands to benefit from the sharp hike in freight rates announced by the Indian Railways. Alternatively, this will give transport operators
the levy to raise freight rates.
 Interest rates are expected to come down in phased manner over the medium to
long term which will play a positive role towards demand recovery.
ALL expected to outperform in FY13
 ALL's M&HCV volume growth in FY12 has been flat as against expected 10%
growth in industry volumes.
 Weak demand in the southern region remained one of the prime reasons for the
company's underperformance in FY12. Company's volumes in Southern market
were impacted by 1.Ban on mining activity 2.Elections and 3.Overall sluggish
demand. Improvement in the Southern market will be a major positive for the
company volumes.
 ALL's volumes in FY12 were also impacted by production/logistic issues at the
company's Uttaranchal plant.
 With expected recovery in the medium term and low FY12 base, we expect ALL
to outperform the industry growth rate in FY13 and improve its market share.

Ashok Leyland- ADD- Hardwired to the infrastructure story :: ICICI Direct

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With a heritage of over six decades, Ashok Leyland (ALL) is the only listed
pureplay commercial vehicle (CV) manufacturer in India. We are broadly
affirmative on the stock, although we do have concerns. Our positive view is
based on: a) EBITDA margins that appear to have bottomed out, and b) a longterm
trend pointing at the CV industry’s shift towards high-end trucks, which is
ALL’s forte. Our concerns arise from: a) the company’s dependence on core
infrastructure sectors, which makes near-term volume growth vulnerable, b)
increasing competition, which will limit ALL’s pricing power. We expect ALL’s
EPS to grow from ~Rs2.0 in FY12 to Rs2.2/Rs3.1 in FY13/FY14 owing to sales of
~Rs134bn/Rs152bn, and EBITDA margins of 10.1%/10.9% in FY13/14 respectively.
We value ALL at Rs32 (7x FY13-14 average EBITDA, and Rs3/share for its key joint
ventures). Initiate with ADD.