Ashok Leyland - Q1FY2014 Result Review - Angel Broking

Ashok Leyland (AL) reported extremely disappointing performance for 1QFY2014 as EBITDA margins collapsed to 1% witnessing a severe decline of 697bp yoy (433bp qoq). The margin contraction was on account of a significant decline in volumes (21.3% yoy (37.2% qoq) leading to lower utilization levels and also due to higher discounts and inferior product-mix. Additionally, higher interest cost (up 20.8% yoy and 21.6% qoq) due to higher working capital requirement also impacted the bottom-line.

AL's top-line for the quarter registered a steep decline of 21.9% yoy (36.6% qoq) to Rs. 2,364cr which was broadly in-line with our estimates. The top-line declined primarily on account of a 21.3% yoy (37.3% qoq) decline in volumes following slowdown in the industrial activity. While medium and heavy commercial vehicle sales declined by 26.7% yoy (36.8% qoq); Dost sales too registered a drop of 5.8% yoy (38.1% qoq). At the operating level, EBITDA margins registered a sharp contraction of 697bp yoy (433bp qoq) to a meager 1% as against our estimates of 4.5%, largely on account of higher discounts and lower utilization levels. Consequently, other expenditure and staff cost as a %age of sales surged 170bp (120bp qoq) and 210bp yoy (330bp qoq) respectively. Further, raw-material expenditure as a %age of sales too increased 320bp yoy (flat qoq) to 75.5% although in value terms it declined 22.4% yoy (36.8% qoq). As a result, operating profit declined substantially by 90.3% yoy (88.3% qoq) to Rs. 23cr. Led by disappointing operating performance and a significant increase in interest expense; AL reported a net loss of Rs. 135cr as against our expectations of a loss of Rs. 74cr. 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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