MOSL: ASHOK LEYLAND (Buy)-Above estimate-Regulatory change clouds strong operating performance
Ashok Leyland: Above estimate; Regulatory change clouds strong operating performance
(AL IN, Mkt Cap USD4.7b, CMP INR111, TP INR149, 35% Upside, Buy)
- Volume growth drives revenues: AL’s volumes grew ~47% YoY (-28.8% QoQ). Realization fell 0.6% QoQ (-0.7% YoY) to INR1.48m/unit (est. of ~INR1.5m). AL took a price hike of ~2% in Apr’18 to pass on RM inflation. Revenues grew 46.8% YoY (-28.8% QoQ) to INR62.5b (est. of INR63.2b).
- EBITDA margin exceeds estimate: Gross margin of 30.4% (+230bp QoQ, -50bp YoY) exceeded our estimate of 28.2%, led by full benefits of cumulative price hikes of ~5% over Jan-Apr’18, ~28% increase in after-market revenue and ~24% growth in exports. EBITDA grew 112% YoY (-37% QoQ) to INR6.5b (est. of INR5.9b), resulting in an EBITDA margin of 10.4% (est. of 9.3%). Adj. PAT grew 3.2x YoY to INR3.8b (est. of INR3.3b).
- Key takeaways from the call: (a) 50-60% of volumes will not get impacted by an increase in axle norms. No clarity yet if the new norms are applicable retrospectively or prospectively. (b) M&HCV industry is likely to grow 8-10% in FY19 (v/s prior expectation of +10-12%). (c) Confident of recovering lost market share in the remaining months of FY19. (d) Gross margin in LCV business are better than that in M&HCV, while margins are almost at par with S/A business. (e) FY19 capex + investment at INR10b.
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.
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