MOSL: ASHOK LEYLAND (Buy)-Product mix, operating leverage and higher exports drive margins
Ashok Leyland: Product mix, operating leverage and higher exports drive margins
(AL IN, Mkt Cap USD5.6b, CMP INR122, TP INR158, 29% Upside, Buy)
- Volume and realization drive revenues: AL’s revenues grew 47.3% YoY to INR71.1b (est. of INR69.5b), driven by volume growth of 47.3% YoY (+17.6% QoQ) and realizations growth of 3.8% YoY (+3.4% QoQ) to INR1.52m (est. of INR1.49m). AL took marginal price increase in November, and then further by 1-2% in Jan-18, which helped realizations in 3QFY18.
- Favorable product mix, operating leverage drive EBITDA margin: EBITDA margin expanded 170bp YoY (+100bp QoQ) to 11.1% (est. of 10.3%) due to a favorable product mix, an increase in exports and operating leverage benefits. However, heavy discounting continues to prevail in the CV industry. EBITDA grew 73.6% YoY (+28.9% QoQ) to INR7.9b (est. of INR7.1b). On the back of the healthy operating performance, PAT grew 178% YoY to INR4.5b (est. of INR4b).
- Key concall takeaways: a) Outlook: CV industry growth of ~10% for FY18E. Expects AL to grow in line with industry. FY19-20 to be growth years. b) Price increase of 1% from Nov-17 in some models and another 1-2% from Jan-18. c) RM cost inflation impact of INR1.5b in 9MFY18. d) LCV business turned PAT positive, with gross margins similar to domestic M&HCV business. e) Aftermarket business averaging turnover of INR1b/month. Current after-market penetration is 20% and expected to go up to 50% in 4-5 years. f) AL has supply chain constraints, which impacted volumes in Jan’18.
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.
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