MOSL: ASHOK LEYLAND (Buy)-Above est.-reasonable performance despite sharp volume decline
ASHOK LEYLAND: Above est.; reasonable performance despite sharp volume decline
(AL IN, Mkt Cap USD3.3b, CMP INR79, TP INR95, 20% Upside, Buy)
- High discounts, mix impact realizations: AL's volumes declined 44% YoY in 2QFY20, whereas realizations dropped 7.4% YoY to INR1.4m (in-line) due to lower M&HCV contribution and higher discounts. Net revenue fell 48% YoY to INR39.3b. For 1HFY20, revenue/EBITDA/PAT declined 31%/49%/66% YoY.
- Margins exceed estimate led by lower RM costs: Gross margin improved 90bp QoQ (+310bp YoY) to 31% (our estimate: 30%), benefiting from a better mix (higher share of LCVs) and lower RM costs. EBITDA margin shrank 360bp QoQ (-510bp YoY) to 5.8% (our estimate: 5.2%), but the beat was driven by better gross margins. Adj. PAT declined ~84% YoY to ~INR862m (our estimate: ~INR795m). AL is continuing with the old corporate tax regime. For 1HFY20, CFO was negative at ~INR12.8b (1HFY19: ~INR8.8b) due to high working capital. The increase in capex to ~INR5.4b (1HFY19: ~INR3b) resulted in negative FCF of INR18.7b (1HFY19: -INR12.1b).
- Key concall takeaways: (a) AL is focused on reducing inventory in the system, which stood at 13.2k units in Oct'19 v/s 18.2k in Sep'19 and 27.5k in Jun'19. (b) At industry level, inventory has bottomed out and thus realizations should strengthen. (c) New CEO appointment would happen before FY-end. (d) AL maintained its cost-saving target of ~INR5b in FY20, of which INR2-2.3b is already achieved in 1H. (e) FY20 capex guided at ~INR18b (prior guidance: ~INR23b); it is looking for further reduction by ~INR2-2.5b. It is investing for regulatory changes and new capabilities.
Ashok Leyland Limited is a holding company. The Company is engaged in Commercial vehicles and related components. Through its subsidiaries, it is engaged in manufacturing and trading in Medium and Heavy Commercial Vehicle, Light Commercial Vehicles, Passenger vehicles, automotive aggregates, vehicle financing and engineering design services. It offers a range of 18 to 80-seater buses under categories, such as city application and electric buses. It offers a range of trucks, which include long haul trucks, mining and construction trucks, and distribution trucks. It designs, develops and manufactures defense vehicles for armed forces. It offers Light Vehicles, which include DOST, PARTNER, STiLE and MiTR. It offers power solutions for electric power generation, agricultural harvester combines, earth moving and construction equipment, and marine and other non-automotive applications. It has operations in India, Sri Lanka, Bangladesh, Mauritius, the Middle East and Africa.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.