Ashok Leyland - Not Rated - Motilal Oswal

ASHOK LEYLAND 3QFY11: EBITDA margin down 400bp YoY; Maintains FY11 volume guidance of 95,000 units

Volumes grew ~14% YoY to 18,437 units, but declined ~25% QoQ given transition to BS-III emission norms. PAT decline of 59% YoY (~74% QoQ) to Rs434m.

Price hike (~2.5% in Oct-10) and product mix changes (higher defense sales which were negligible in 1HFY11) improved realizations by 9.5% QoQ (~7.2% YoY).

Net sales grew by 22.5% YoY (~18% QoQ decline) to Rs22.5b. EBITDA margins contracted ~380bp QoQ (~400bp YoY) to 7.5%, due to increase in fixed.

The management indicated that increase in both staff cost and other expenses is recurring. It has maintained its volume guidance of ~95,000 units for FY11. We expect more details in the conference call (Monday).

Our FY12 EPS estimates would see downgrade of 10-12%, at which stock would trade at ~10.4x FY12 EPS. Not Rated.

Source : Equity Bulls

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