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Ashok Leyland reports healthy operating performance in Q2FY17; maintain Accumulate

Prabhudas Lilladher | 11 Nov, 2016  | Follow Author | Add to my Favourites 
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Ashok Leyland (AL) reported a healthy operating performance in Q2FY17, which was boosted by higher contribution from non‐India CV segments (exports, defence, and aftermarket). While AL’s sales decline was 6.9% YoY, EBITDA margin was a healthy  11.6%  and  adjusted  profit  was  Rs2.9bn  (better  than  expectation  of Rs2.4bn).

While volume decline was 10.4% YoY, realisations grew by 3.9% YoY, which led to income decline of 6.9% YoY to Rs46.2bn. M&HCV decline during Q2FY17 was 15.1% YoY, while LCV growth was at 8% YoY. Management expects annual long‐term CV industry growth at 12‐15%. We expect 10.3% volume CAGR for AL over FY16‐18e. Growth estimate for AL in H2 is 20%. 

EBITDA margin in Q2FY17 was 11.6% (lower 100bps YoY), as EBITDA fell 14% YoY to Rs5.37bn. Interest cost reduction continued the trend from Q1FY17. This helped arrest  the  adjusted  profit  decline  (adjusted  for  exchange  gain  and  exceptional expenses) to Rs2.9bn, a fall of 10% YoY.


While growth in CV demand is expected to continue, with the higher base, the pace will be lower in FY17 and FY18 (from the 25.4% CAGR over FY14‐16). An improving  balance  sheet  position  and  benefits  of  operating  leverage  provide financial  stability.  However,  the  merger  of  Hinduja  Foundries  with  AL  will  be negative  for  the  latter  from  an  earnings  perspective  initially.  We  maintain ‘Accumulate’, with a price target of Rs94, based upon a PE of 18x FY18 EPS.


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About Prabhudas Lilladher

Prabhudas Lilladher has a nationwide distribution network, consisting of branches, franchisees and associates, providing a comprehensive gamut of financial services in the Institutional and Retail domain. Their services includes Equity, derivatives; margin funding, mutual funds, PMS, IPOs and online trading.


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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 accept any liability whatsoever arising from the use of any of the above contents.

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