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You are here : IndiaNotes >> Research & Analysis >> Companies >> Ashok Leyland Ltd. >> Research

Ashok Leyland Share Price Up, Revenue Ahead Of Estimates

Dynamic Equities Pvt Ltd | 09 Nov, 2016  | Follow Author | Add to my Favourites 
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In a quarter when volumes are cowed, the earnings expectation also tends to be hushed. But, what came from Ashok Leyland, commercial vehicle maker, was a surprise and, hence, the Dalal Street rewarded its stock with 2.5% gain in Tuesday’s trade. Revenues at Rs 4,912 crores dipped by 7% year-on-year, but were way ahead of analysts estimates at Rs 4,507 crores.


What came as a major shock was the operating profit margin of 11.6%, despite a 14% year-on-year dip in operating profit in Q2. Albeit operating margins were lower than the year ago level of 12.6 %, it exceeded analysts estimates at 11 %. The shock primarily came on the back of a steep enhancement in gross margin.


Gross margins (net revenues less cost of goods sold) at 32 % expanded by 190 basis points in Q2, thanks to a 9.5 % decline in raw material costs. Overall, the net profit expanded from Rs 172 crores a year ago, to Rs 294 crores in Q2 (an improvement of 71 % YoY). However, last year’s net profit was dented because of impairment losses amounting to Rs 157 crores. Meanwhile, Ashok Leyland share price was trading at Rs.87.30 on the NSE. 


One of the key reasons that could have come to Ashok Leyland’s rescue was the better-than-anticipated average selling price of commercial vehicles, stating that the recent price hike undertaken was yielding results. Price hike has also partly aided offset some of the pressure on account of lower volumes in the firm’s key segment. While the overall volumes declined by 10% year-on-year (YoY) to 33,440 units, sales volumes of medium and heavy commercial vehicles declined by 15% year-on-year (YoY) to 25,340 units in Q2, while that of light commercial vehicles grew 9% year-on-year to 8,100 units.


However, the question is whether Ashok Leyland can sustain the current margins?


An analyst said that margins are expected to be better in the second half of the fiscal as volumes are expected to pick-up leading to possibility of pre-buying in March quarter. However, he added, further clarity from the management was required to be sure on this aspect. The post-results call with the investors is to be held on Wednesday. But for now, with Q2 being better-than-anticipated, analysts are confident of a reasonable upside (8-12%) in the medium term for the stock if this performance is sustained in the third quarter (Q3) also. Ashok Leyland’s stock has corrected by 13% in the past 6 months.



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About Dynamic Equities Pvt Ltd

Dynamic Equities Pvt. Ltd. is a a SEBI Registered Investment Advisor and Stock Broker, a leading financial services provider, and one of the major players in the Equity markets in India. With an experience of over 15+ years in Stock Markets and Equity Research, they provide daily updated Support & Resistance of 4200 instruments across 93 exchanges and 56 countries globally. They have an in-house team of over 25 analysts. Under the guidance and mentorship of Mr. Shailesh Saraf, MD of Dynamic Equities Pvt. Ltd., these analysts are dedicately involved in guiding their clients and users of the website www.dynamiclevels.com for trading in the market. Mr. Shailesh Saraf has an experience of over 24 years in the financial market, especially in capital & derivatives market operations, trading, research and management related areas. Dynamic Levels is a website owned by Dynamic Equities Pvt. Ltd. The website can be reached at www.dynamiclevels.com.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




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