Ashok Leyland - 4QFY2013 Result Review - Angel Broking

Ashok Leyland (AL) reported extremely weak performance for 4QFY2013, which was broadly on the expected lines, on account of significant contraction in operating margins (down sharply by 554bp yoy to 5.3%) owing to higher discounts in the medium and heavy commercial vehicle (MHCV) segment, inferior productmix and lower utilization levels. Additionally, higher interest cost due to higher working capital requirement also impacted the adjusted bottom-line. The company reported a net profit of Rs. 150cr primarily on account of an exceptional gain of Rs. 134cr (due to profit on sale of non-current investments). Adjusted for the exceptional gain, AL's bottom-line stood at Rs. 16cr which was broadly on the expected lines.

For 4QFY2013, net sales posted a significant decline of 14% yoy to Rs. 3,728cr; however, it was slightly ahead of our expectations of Rs. 3,520cr. The decline in the top-line was driven by an 11.2% yoy drop in net average realization following higher levels of discounts and adverse product-mix (higher proportion of Dost in the volume-mix at ~32% vs. ~14% in 4QFY2012). Total volumes too registered a decline of 2.9% yoy led by 23.3% yoy decline in MHCV volumes. However, Dost sales witnessed a substantial increase of 125.3% yoy (on a low base) and 38.1% qoq during the quarter. At the operating level, EBITDA margins registered a sharp contraction of 554bp yoy to 5.3% as against our estimates of 6.4%, largely on account of higher discounting and lower utilization levels. As a result, other expenditure and staff cost as a percentage of sales surged 210bp and 190bp yoy respectively. Further, raw-material expenditure as a percentage of sales too increased 170bp yoy during the quarter. Consequently, adjusted net profit stood at Rs. 16cr for the quarter. On a sequential basis, EBITDA margins improved 102bp driven by 52.8% and 1.4% growth in volumes and net average realization respectively. At Rs. 22, the stock is trading at 8.2x FY2015E earnings. We shall release a detailed result note post earnings conference call with the management which is scheduled today. Until then, the stock rating is under review.

Source : Equity Bulls

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