Ashok Leyland Results Report - CV recovery priced in - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Ashok Leyland returned to profit after four quarters of loss, with a reported PAT of INR 2.4bn. The recovery in FY22 has been pushed out due to the impact of the second COVID wave, particularly for the passenger bus segment (which accounts for ~20% of aggregate demand). While management is hopeful of a CV recovery from here on, the long-awaited railways' dedicated freight corridor (DFC) between Palanpur in Gujarat and the NCR region (~650kms) has begun trial runs. We roll forward our target price timeframe to Jun-23 and set a revised target price of INR 115. We continue to value the stock at 11x EV/EBITDA and believe the stock is adequately factoring in the recovery ahead. Key risks: sharper-than-expected recovery and early implementation of a scrappage policy.

4QFY21 financials: Volumes came in at 44k units (vs. 33k units QoQ). MHCV/LCV volumes grew 58/6% QoQ. Realisation grew 10% QoQ to Rs 1.58mn due to higher share of MHCV in the mix and price hikes. EBITDA margin expanded 240bps QoQ to 7.6%. The company reported a profit of INR 2.4bn vs a loss of INR 194mn QoQ. APAT came in at INR 2bn.

Key highlights: (1) Recovery ahead: Management is optimistic of a recovery ahead due to the unlock as well as the government focus on ramping infrastructure spending. Fleet utilisation level has improved in Jun-21. (2) Input cost pressures: Gross margin in 4QFY21 was impacted by 250bps QoQ due to higher material costs, lockdowns, weak bus demand and the semi-conductor issue. (3) DFC: The management highlighted that the railways-based DFC will impact demand for certain CV categories (multi- axles) (4) Alternate technologies: While Ashok Leyland has set up a subsidiary for EVs, in the longer term, hydrogen-based technology will be essential for providing a sustainable solution, particularly for heavy commercial vehicles. EVs offer a viable solution for LCVS but the range is restricted to 300-400kms for HCVs. (5) Capex: The company is guiding for a capital expenditure spend of INR 7.5bn in FY22E.

Shares of ASHOK LEYLAND LTD. was last trading in BSE at Rs.124.75 as compared to the previous close of Rs. 123.35. The total number of shares traded during the day was 1268077 in over 7346 trades.

The stock hit an intraday high of Rs. 125.95 and intraday low of 122.8. The net turnover during the day was Rs. 158027997.

Source : Equity Bulls

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