Ashok Leyland
Will get back on growth track
Sales growth of commercial vehicle industry will revive from next year
| Buy | Ashok Leyland |
| BSE Code | 500477 |
| NSE Code | ASHOKLEY |
| Bloomberg | AL@IN |
| Reuter | ASOK.BO |
| 52-week High/Low | Rs 58 / 26 |
| Current Price | Rs 32 (as on 19th March 2008) |
Ashok Leyland (ALL) is a flagship company of the Hinduja group and is the second largest player in commercial vehicles (CVs) after Tata Motors. ALL offers wide range of products including buses - 18 seater to 82 seater double-decker buses, CVs - from 7.5 MT to 49 MT, numerous special application vehicles and diesel engines for industrial, marine and genset applications. ALL has 28% market share in domestic CV market and exports 8% of total sales volume to outside India. It has a network of 159 dealers and 149 authorised service centers.
During April-Feb.'08, ALL's M&HCV sales were down 3%. While sales of Goods M&HCVs were down 14%, sales of buses jumped 46%.
December 2007 quarter results-steady growth despite fall in vehicle sales
The commercial vehicle major reported insignificant growth of 1% to Rs 1800.08 crore in its net sales in quarter ended Dec ’07 largely due to degrowth in its total sales volume. Its total sales volume slipped by 5% to 18965 units in quarter ended Dec ’07. It is attributed to downfall in its total domestic volumes by 8% to 17134 units in quarter ended Dec ’07. Its domestic sales volume contributes 90% to the total sales volume. Its exports grew by healthy 27% to 1831 units in quarter ended Dec ’07. ALL was able to grow its revenues by 1% mainly because of improvement in net sales realisation of 7% y-o-y. ALL’s sales realisation improvement was backed by partial impact of price hike, higher sales volume from bus segment, higher contribution from sale of gensets and higher sales of spare parts during the quarter. The revenues were also boosted by higher proportion of fully built vehicles as also larger volumes in engines and spares sales.
Its operating profit margin (OPM) reduced by 120 bps to 9.2% largely on back of low net sales. However the reduction in its raw material cost (as % to sales net stock adjusted) by 170 bps to 74% significantly arrested the degrowth in its OPM. It led to decline by 10% to Rs 165.48 crore in its operating profit.
Its cost of traded goods grew by 40 bps to 2%. Its other expenditure rose by 30 bps to 7%. Its staff cost increased by 180 bps to 8%.
Its other income zoomed ahead by 588% to Rs 43.70 crore owing to the sale of its shares in IndusInd Bank. It lifted the PBDIT by 10% to Rs 209.18 crore. However its interest outgo surged by 494% to Rs 15.25 crore due to higher capex and working capital requirements. Also its depreciation cost rose by 23% to Rs 40.83 crore. It resulted in reduction by 1% to Rs 153.10 crore in its PBT. Its total tax provision declined by 33% to Rs 31.61 crore largely on account of notable 1000 bps reduction to 21% in its effective tax rate. It boosted the PAT before EO by 13% to Rs 121.49 crore.
For the nine months ended Dec ’07, the company’s net sales grew 6% to Rs 5167.12 crore. It is attributed to reduction by 2% to 55998 units in its total sales volume. Its total domestic sales, that contribute 91% to total sales volume, declined by 3% to 51180 units. However, its exports rose by 13% to 4818 units in the nine months ended Dec ’07.
Its OPM spurted by 90 bps to 9.8% owing to reduction in its raw material cost. Its raw material cost, as % to sales net stock adjusted, reduced by 160 bps to 74%. Also its other expenditure declined by 70 bps to 6%. Its cost of traded goods and staff cost rose by 40 bps and 110 bps to 2% and 8%.
Other income grew by 16% to Rs 62.39 crore. Its interest cost spurted significantly from Rs 3.45 crore in the nine months ended Dec ’06 to Rs 40.63 crore in the nine months ended Dec ’07. With increase by 26% to Rs 128.74 crore in its depreciation cost, its PBT stood at Rs 401.28 crore, up by 4%. Its tax provision reduced by 3% to Rs 106.31 crore largely on back of 180 bps fall to 27% in its effective tax rate. It lifted the PAT before EO by 7% to Rs 294.97 crore.
JV with Nissan will help penetrate LCV market
ALL has also disclosed about its future plans with Nissan JV to manufacture LCVs (in which segment the company is weak currently). The company is still in process of identifying the models along with its JV partner Nissan. In phase I, the JV will be having 100,000 units of installed capacity for LCVs which will be ramped up to 180,000-200000 units in phase II and ALL’s commitments towards the JV would be approximately Rs 500 crore over a period. Total capex estimated for the JV would be around Rs.20bn and the first commercial launch of the product is expected to be in FY09.
Beneficiary of 2008-09 budget
The company is a beneficiary of the latest budget wherein excise duty on buses have been reduced to 12%, and on trucks to 14%, from earlier 16%. The company is a major player in bus segment with market share rising to 47% in April-Feb.'08 from 41% in corresponding previous period. Domestic bus sales constituted 22% of overall sales for the company. Also the central sales tax has been reduced from 3% to 2%. Add to this, ALL had already increased its prices by around 2% before the budget. So even after passing on the benefit of lower duties, the company will still have headroom for absorbing higher raw material costs and improve its margins.
Capacity additions ensures enough headroom to grow faster
The company is undergoing capacity augmentation at existing plans. Work at the new plant at Uttarkhand is on course to create a capacity of 50,000 vehicles by 2010. These capacity additions will ensure enough headroom to grow faster than the industry in the domestic market and to support international operations that will see forays into new markets and consequently, significant year-on-year volume growth.
Outlook
Sustained GDP growth, increase in infrastructure spending, robust growth in freight generating sectors, ban on overloading of CVs have driven the sales volume for CV industry which reported robust growth during past few years. But during the current year, higher interest rates, rise in fuel prices and stable freight rates have impacted the sales volume of CV industry on a base which was inflated due to the sudden surge in demand due to the imposition of ban on overloading. However we believe FY 2008 is a consolidation period and sales growth of commercial vehicles will revive from next year as GDP growth, infrastructure investments, widening of road network, spread of organised retail and SEZs will continue to drive up demand and interest rates are likely to stabilise in the near term and go down in the medium term. Moreover, with elections next year, not much increase in diesel prices can be expected in spite of surging crude oil prices. In future, the company will also gain from new models launched recently such as the 4921, 3121 and 2214 Super which are already fielded and being well received by the market. Exports are also expected to add to the growth.
Valuation
In FY 2008 we expect the company to register sale and net profit of Rs 7610.31 crore and Rs 436.71 crore respectively. On equity of Rs 133.03 crore and face value of Re 1 per share, EPS works out to Rs 3.3. This is likely to rise to Rs 3.7 in FY 2009. The share price trades at Rs 32, discounting the projected FY 2009 EPS by 8.6 times. The company had paid dividend at the rate of 150% (Rs 1.5) for FY 2007. At that rate dividend yield on current price comes to healthy 4.7%.
| | 0603 (12) | 0703 (12) | 0803 (12P) | 0903 (12P) |
| Sales | 5329.81 | 7168.18 | 7610.31 | 8401.78 |
| OPM (%) | 10.0 | 9.8 | 9.8 | 10.2 |
| OP | 531.62 | 672.36 | 742.81 | 856.98 |
| Other inc. | 87.34 | 111.56 | 120.05 | 132.06 |
| PBDIT | 618.96 | 783.92 | 862.86 | 989.04 |
| Interest | 40.65 | 28.84 | 74.91 | 89.89 |
| PBDT | 578.31 | 755.08 | 787.95 | 899.15 |
| Dep. | 126.01 | 150.57 | 189.37 | 227.25 |
| PBT | 452.30 | 604.51 | 598.58 | 671.90 |
| Tax | 124.98 | 163.22 | 155.63 | 174.69 |
| PAT before EO | 327.32 | 441.29 | 442.94 | 497.21 |
| EO expense | 24.85 | 15.52 | 6.23 | 0.00 |
| PAT after EO | 302.47 | 425.77 | 436.71 | 497.21 |
| EPS * | 2.3 | 3.4 | 3.3 | 3.7 |
| * Annualized on current equity of Rs 133.03 crore; | ||||
| Ashok Leyland: Results |
| | 0712 (3) | 0612 (3) | Var. (%) | 0712 (9) | 0612 (9) | Var. (%) | 0703 (12) | 0603 (12) | Var. (%) |
| Sales | 1800.08 | 1777.59 | 1 | 5167.12 | 4877.18 | 6 | 7168.18 | 5247.65 | 37 |
| OPM (%) | 9.2 | 10.4 | | 9.8 | 9.0 | | 9.8 | 10.3 | |
| OP | 165.48 | 184.05 | -10 | 508.26 | 437.75 | 16 | 702.69 | 540.07 | 30 |
| Other inc. | 43.70 | 6.35 | 588 | 62.39 | 53.90 | 16 | 70.80 | 32.97 | 115 |
| PBDIT | 209.18 | 190.41 | 10 | 570.65 | 491.65 | 16 | 773.49 | 573.04 | 35 |
| Interest | 15.25 | 2.57 | 494 | 40.63 | 3.45 | 999 | 5.33 | 16.45 | -68 |
| PBDT | 193.93 | 187.84 | 3 | 530.02 | 488.20 | 9 | 768.16 | 556.59 | 38 |
| Dep. | 40.83 | 33.23 | 23 | 128.74 | 102.45 | 26 | 150.57 | 126.00 | 20 |
| PBT | 153.10 | 154.61 | -1 | 401.28 | 385.75 | 4 | 617.59 | 430.59 | 43 |
| Tax | 31.61 | 47.30 | -33 | 106.31 | 109.33 | -3 | 167.62 | 124.99 | 34 |
| PAT Before EO | 121.49 | 107.32 | 13 | 294.97 | 276.42 | 7 | 449.96 | 305.60 | 47 |
| EO expense | 1.28 | 2.06 | -38 | 6.23 | 6.66 | -6 | 8.68 | -21.71 | LP |
| Net profit | 120.22 | 105.26 | 14 | 288.74 | 269.77 | 7 | 441.29 | 327.31 | 35 |
| EPS * | 3.7 | 3.2 | | 3.0 | 2.8 | | 3.4 | 2.3 | |
| * Annualized on current equity of Rs 133.034 crore; | |||||||||
BigGains !!
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch format to Traditional
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe
__,_._,___
No comments:
Post a Comment