| Summary of Contents
| THEMATIC REPORT Ashok Leyland: LCVs boost volume growth LCVs decoupling from IIP slowdown and...
Against the dismal growth in the index of industrial production (IIP) of 3.5% between April-October 2011, the light commercial vehicle (LCV) segment has grown by 28.7% year on year (YoY) in the same period. The strong divergence reflects the decoupling of LCVs from the slowing broader economy. The LCV cargo segment grew at a robust pace of 31% between April-October 2011 while the LCV passenger segment grew by 12% in the same period. In the last six years, LCVs have overgrown the IIP by an average of 2.1x. However, the year till date (YTD) FY2012 chart shows that the ratio averaged 8.2x, reflecting a strong outperformance over the IIP.
...outgrew most automobile segments in YTDFY2012
Most automobile segments felt the impact of slowing economic growth, rising inflation and a deteriorating investment as well as consumption cycle. LCVs bucked the general trend of moderation and have emerged the strongest amongst most automobile segments. Passenger cars were the worst hit while many other segments managed to grow in mid double digits. LCVs took the lead with over 30% growth between April-November 2011.
Beta highest for ALL; Dost to provide essential diversification
We believe the ALL - Nissan joint venture (JV) would see the maximum benefit as FY2012 is the first year of diversification. The ALL - Nissan JV plans to sell around 12,000 units of the newly launched Dost in FY2012. Further in FY2013, the Dost platform would be expanded to passenger carriers also whereby volumes can grow multifold. The company is targeting 55,000 units in FY2013. We see the Nissan LCV JV to be significantly value accretive and provide ALL the new dimension of growth.
Ashok Leyland: Outlook and valuation
Our volume estimates for ALL in FY2012 and FY2013 are pegged at 98,405 units and 1,11,000 units respectively. Our earning per share (EPS) estimates for FY2012 and FY2013 remain unchanged at Rs2.5 and Rs2.9 respectively. ALL is the cheapest stock among the auto OEMs. We value the company at Rs31 per share which discounts FY2013E EPS by 9x at the lower price earning (PE) band. In addition to the PE multiple on core business we assign a Rs5 book value per share for subsidiaries. We recommend a Buy on ALL.
STOCK UPDATE GAIL India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs541
Current market price: Rs392 Long-term supply agreement improves growth visibility Event
GAIL has signed a 20-year sales and purchase agreement (SPA) with Sabine Pass Liquefaction LLC, a unit of Cheniere Energy Partners, for the supply of 3.5 million tonne per year of LNG. The SPA has a term of 20 years starting from the date of first commercial delivery in CY2017 with an option to extend for another ten years.
Impact
The SPA will help GAIL to ensure long term gas supply for the growing demand. Though execution of this SPA will be in 2017, which is five years ahead, we believe considering domestic demand supply assurance is certainly a positive for the stock.
View and valuation: Reiterate Buy
The impact of this event is likely to be felt only in the long term, ie post CY2017. It certainly is a positive development for GAIL as it provides better visibility of LNG supply in the long term. Moreover, it should act as a positive as GAIL's new pipeline network is likely to face low utilisation in the initial years considering the current gas supply condition. We retain our estimates and Buy rating on the stock with a target price of Rs541 (based on sum of the parts [SoTP] valuation).
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