Ashok Leyland (BUY): High raw material costs impact margin - AMBIT

Ashok Leyland's 4QFY13 operating numbers were below our expectations, owing to a huge surge in raw material costs. EBITDA margins were nearly 420bps below our expectations and absolute EBITDA was around 45% lower than our estimates, owing to the significantly higher than expected raw material costs. However, interest expenses declined 23% QoQ and were 17% lower than our estimate. We would seek more clarity from the conference call scheduled at 11:00am IST today. For FY14, we expect the MHCV segment to record a positive YoY growth of 7%. A recovery in volumes should also bring down the discount levels and help margin. The company has made heavy investments over the past three years (total capex of US$350mn over FY10-12).

As the Indian economy recovers, the company is well poised to reap the benefits of this capex. We retain our BUY stance on the stock.

Source : Equity Bulls

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