Ashok Leyland - 1QFY2013 Result Update - Angel Broking

Ashok Leyland (AL) reported below par performance for 1QFY2013 primarily on account of lower-than-expected net average realization (discounts higher by Rs.10,000-Rs.15,000/vehicle and higher share of Dost), high other expenditure (led by increase in advertising spends, power cost (up by Rs.4cr) and forex loss of Rs.7cr and higher interest expense (due to increase in debt levels). While, we broadly maintain our volume and revenue estimates, we revise our EBITDA margin estimates downwards for FY2013E/14E to factor in increasing contribution of Dost in product-mix and higher discounts in MHCV segment. Nonetheless, on account of attractive valuations, we maintain our Buy rating on the stock.

Disappointing 1QFY2013 performance: Net sales registered a strong 19.7% yoy growth to Rs.3,007cr; however, it was below street expectations due to higher-thanexpected decline (15.4% yoy and 9.7% qoq) in net average realization. Net average realization declined largely on account of higher discounts and increasing contribution (26% of total volumes vs. 14% in 4QFY2012) from the lower priced LCV Dost. Total volumes grew 43.1% yoy led by 48.1% qoq growth in Dost sales. EBIDTA margins declined 173bp yoy (290bp qoq) to 8.0% led by 210bp yoy (140bp qoq) increase in other expenditure. Other expenditure jumped 50.0% yoy primarily due to higher advertising and power costs and forex loss of Rs.7cr. On the positiveside, raw-material expenses as a percentage of sales dipped 70bp yoy (160bp qoq) to 72.8%. Hence, operating profit declined 1.6% yoy (48.8% qoq) to Rs.241cr. However, bottom-line declined by 22.4% yoy (74.1% qoq) to Rs.67cr as interest expense surged 47.1% yoy (15.2% qoq) to Rs.83cr.

Outlook and valuation: While the near term outlook for the MHCV industry remains challenging due to postponement in purchases by fleet operators amid slowdown in the economy; we expect AL to perform relatively better driven by pick-up in demand in Southern part of the country. At Rs.23, AL is trading at attractive valuation of 8.2x its FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.30, valuing the stock at 11.0x its FY2014E EPS.

Source : Equity Bulls

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