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MOSL: ASHOK LEYLAND (Buy)-Positive CV demand outlook for FY19 and FY20-Pricing power returning, with discounts reducing from January 2018

Ashok Leyland: Positive CV demand outlook for FY19 and FY20; Pricing power returning, with discounts reducing from January 2018

(AL IN, Mkt Cap USD6.6b, CMP INR145, TP INR179, 23% Upside, Buy)

 

We met the senior management of Ashok Leyland (AL) to get an update on (a) the CV industry, and (b) AL’s strategic initiatives in the truck business and newer businesses to reduce earnings cyclicality. We came back positive on (a) the outlook for the CV industry over the next two years, (b) potential triggers to dilute the impact of pre-buying in FY21, and (c) AL’s initiatives in newer segments. Our key takeaways: 

 M&HCV truck segment tonnage grew over 30% in FY18 v/s 20% growth in units sold

• M&HCV industry volumes grew by 12% in FY18, driven largely by strict implementation of rated load capacity in markets of UP, Rajasthan and Haryana. While truck volumes grew 20%, bus volumes declined 25% in FY18.
• Truck segment tonnage grew over 30% due to mix improvement towards higher tonnage vehicle. MAV/Tractor trailer grew over 35% whereas haulage segment was down 21%. Tippers grew 6%, whereas ICVs grew 28%.
• This is reflected in strong growth in the North, East and Central markets, but muted growth in the South and West.

 AL’s tonnage grew over 40%, market share improved 50bp in FY18

• AL’s tonnage grew at a rate higher than the industry rate, volume market share grew 50bp to 34%.
• AL gained/maintained market share in all regions. AL's overall market share could have been better but for weaker growth in its key markets – the West and South.
• In line with its expectations, it is yet to see any significant negative impact of GST-driven improvement in fleet efficiency. On the contrary, it is seeing fleet operators investing efficiency gains back in the business.