Ashok Leyland - Growth Priced In - PINC Result Review

Ashok Leyland's (AL) Q1FY11 results were below our estimate as the company disappointed on the realisations front. With a 3.7% sequential drop in realisations, revenues were at Rs23.5bn as against our estimate of Rs25bn. In addition, higher employee expenses resulted in a 285bps QoQ drop in margins. Due to this net profits at Rs1.2bn were 14% below our estimates.

Outlook: We expect AL to clock volumes of 80k units in FY11 and 88k units in FY12. The company has guided for a volume of 85k units in FY11. Despite the lower margins of Q1FY11, we maintain our margin estimates for FY11 at 11.5%. We maintain our earnings estimates for FY11 and FY12 at Rs4.5 and Rs5.1 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 14x FY12E earnings and 9.2x FY12E EV/EBITDA. At the current valuations, we find the company to be fairly valued. Hence, we downgrade the stock to 'HOLD' while maintaining our price target of Rs67, discounting FY12E earnings 13x.

Source : Equity Bulls

Keywords