Ashok Leyland-Aug13 15

investors eye
stock update
Ashok Leyland
Reco: Buy
Stock Update
A strong operating performance; Buy maintained with revised PT of Rs98

Key points
Company details
Price target:
Rs98
Market cap:
Rs25,172 cr
52 week high/low:
Rs90/33
NSE volume:
(no. of shares)
189 lakh
BSE code:
500477
NSE code:
ASHOKLEY
Sharekhan code:
ASHOKLEY
Free float:
(no. of shares)
CMP: Rs88
141.2 cr
Shareholding pattern
ALL continues to beat industry growth: For Q1FY2016, Ashok Leyland Ltd
(ALL) maintained a lead over its competitors and posted an impressive growth
of 44.6% in the domestic medium and heavy commercial vehicle (MHCV) segment
as against the industry growth of 23.1%. The multiple price hikes undertaken
during FY2015, soft commodity prices and a higher operating leverage enabled
ALL to expand operating margins by 540BPS YoY to 10.1% vis--vis our expectation
of 9.7%. The interest cost for the quarter also fell by 28% YoY, enabling the
company to post a net PAT of Rs159 crore as against our expectation of Rs131
crore.
Consistent gain in market share: ALL has been consistently gaining market
share in the bread and butter, MHCV truck segment. In FY2015, ALL expanded
its market share by 443BPS to 27.2% and is nearing 30% in the current quarter.
The company is benefitting from an industry shift to higher tonnage multi-axle
vehicles (>25mt). Additionally, efforts taken by the management to expand its
network outside its traditional southern market are also paying dividends. The
management expects the MHCV industry to grow by about 20% in FY2016, higher
than the earlier guidance of 10-15%. We expect ALL to outperform with a 31%
growth. Additionally, the benefit of relatively benign commodity prices and
high operating leverage is expected to help maintain margins above the 10%
mark.
Maintain Buy with a revised PT of Rs98: Given the significant outperformance
by ALL as compared with the industry, we have revised upwards our volume
estimates for FY2016 and FY2017. We have also factored-in higher operating
margins due to soft commodity prices and increased operating leverage. As a
result, we have raised our earnings estimates for FY2016 and FY2017 by 12%
and 15% respectively. We remain positive on the stock and reiterate our Buy
recommendation with a revised price target of Rs98 (earlier Rs78).
Price chart
Results
Rs cr
Particulars
Price performance
(%)
1m
3m
6m 12m
Absolute 23.0
23.3
32.0 153.1
Relative 23.4
to Sensex
19.4
36.7 134.8
Revenues
EBITDA
EBITDA margins (%)
Depreciation
Interest
Other income
PBT
Tax
Adjusted PAT
Reported PAT
Adjusted EPS (Rs)
Sharekhan
Q1FY16
Q1FY15
YoY %
Q4FY15
QoQ %
3,841.2
388.7
10.1
104.3
76.6
27.1
234.9
75.6
159.3
159.3
0.6
2,477.8
116.1
4.7
103.3
106.3
23.1
(70.5)
(22.5)
(48.0)
(48.0)
(0.2)
55.0
234.8
4,505.7
457.1
10.1
110.1
88.2
37.2
296.1
58.0
238.0
230.0
0.8
-14.7
-15.0
August 13, 2015
1.0
-28.0
17.2
NA
NA
NA
NA
Home
-5.2
-13.2
-27.3
-20.7
30.2
-33.1
-30.7
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investors eye
stock update
Domestic MHCV market share
20% plus growth continues for CV industry

The growth momentum in the domestic MHCV segment
continued in Q1FY2016 as the industry posted a volume
growth of 23.1%. The MHCV truck segment volumes grew
by 24.2% year on year (YoY) to cross the 50,000 vehicle
mark. The MHCV bus segment volumes too were strong
and grew by 18.8% YoY. However, the light commercial
vehicle (LCV) segment continued to decline. The LCV
segment volumes were down 9.5% YoY, this is the ninth
consecutive quarter of volume decline for the segment.
Domestic MHCV truck volumes
Operating margins beat estimates

The product mix for the quarter was richer with an
increased proportion of higher tonnage vehicles.
Additionally, the company has undertaken a series of price
increases to boost realisations. As a result, the blended
realisation for the company rose by 9.9% YoY to Rs1.34
lakh per vehicle. Given the impressive volume growth
and a sharp improvement in realisations, the revenues
for Q1FY2016 were higher by 55% YoY at Rs3,841 crore.
Helped by a richer product mix, soft commodity prices
and a higher operating leverage, the operating profit
margin (OPM) expanded by 540BPS YoY to 10.1% beating
our estimate of 9.7%. The operating profit for Q1FY2016
more than tripled YoY to Rs389 crore.
ALL outperforms industry with a 41% volume growth YoY

In Q1FY2016, ALLs domestic MHCV truck volumes rose by
47% YoY to 14,706 units. The company comfortably
outperformed the industry growth of 24.2% and thus
expanded its market share by 453 basis points (BPS) YoY
to 29.2%. The company is gaining from a shift in preference
towards higher tonnage vehicles wherein it has a higher
market share. Also, ALL has significantly expanded its
distribution network in the non-southern areas which has
benefitted the company. The companys bus segment
volumes rose by 36.5% YoY. The companys export volumes
in Q1FY2016 rose by 34.3% YoY to 3,408 units.
Profitability trend
Sales volume trend
Adjusted PAT at Rs159 crore

ALL managed to significantly reduce the debt on its books
through a series of measures. As a result of the actions
the interest cost for Q1FY2016 fell by 28% YoY to Rs76.6
crore. The company reported a net profit after tax (PAT)
of Rs159 crore as against a loss of Rs48 crore in the
corresponding quarter of last year. The PAT for the quarter
was higher than our expectation of Rs131 crore.
Sharekhan
August 13, 2015
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stock update
Valuations
and increased operating leverage. As a result, we have

raised our earnings estimates for FY2016 and FY2017 by
12% and 15% respectively. We remain positive on the stock
and reiterate our Buy recommendation with a revised
price target of Rs98 (earlier Rs78).
Given the significant outperformance by ALL as compared

with the industry, we have revised upwards our volume
estimates for FY2016 and FY2017. We have also factoredin higher operating margins due to soft commodity prices
Valuations
Particulars
Net sales (Rs cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
23,084
12,481
9,943
13,562
18,698
Growth (%)
-3.3
-20.3
36.4
37.9
23.5
EBITDA (Rs cr)
876
117
1,027
2,026
2,719
OPM (%)
7.0
1.2
7.6
10.8
11.8
PAT (Rs cr)
144
(476)
234
996
1,559
Growth (%)
-74.5
-430.4
n/a
326.0
56.5
FD EPS (Rs)
0.5
(1.8)
0.8
3.5
5.5
P/E (x)
163.3
n/a
104.1
25.3
16.1
P/B (x)
7.5
7.2
5.9
5.1
4.0
EV/EBITDA (x)
33.7
255.4
27.0
13.5
9.5
RoE (%)
3.3
(10.7)
4.9
18.0
23.6
RoCE (%)
7.6
(1.7)
8.8
21.2
29.2
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Sharekhan
August 13, 2015
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December 26, 2014
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investors eye

A strong operating performance; Buy maintained with revised PT of Rs98

August 13, 2015

Domestic MHCV market share

20% plus growth continues for CV industry

Operating margins beat estimates

ALL outperforms industry with a 41% volume growth YoY

Sales volume trend

Adjusted PAT at Rs159 crore

August 13, 2015

and increased operating leverage. As a result, we have

Given the significant outperformance by ALL as compared

EBITDA (Rs cr)

PAT (Rs cr)

August 13, 2015

December 26, 2014

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