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MOSL: Morning India (11/October/18)-1. Ashok Leyland; 2. Larsen & Toubro (The Monitorable Troika); 3. Zee Entertainment (Stellar earnings growth, Zee5 making strong inroads)

MOrning India (11/October/18): 1. Ashok Leyland (Broadening horizons); 2. Larsen & Toubro (The Monitorable Troika); 3. Zee Entertainment (Stellar earnings growth, Zee5 making strong inroads)

 

Today’s top research idea

Ashok Leyland: Broadening horizons; Focus on expanding and creating new profit/revenue pools

• Over FY18-21E, domestic M&HCV volumes to grow ~8% CAGR (base case) driven by economic recovery, proliferation of hub & spoke model, and overload restrictions.
• The growth rate could be even higher (~18% CAGR) if the proposed scrappage policy (for vehicles over 20 years old) is implemented in FY21.
• We estimate low risk of substantial volume decline in FY21, considering factors including state of economic cycle and possibility of scrappage policy from Apr-20.
• The competitive environment is benign, as reflected in the consistent price increases taken by OEMs and the stability in gross margins.
• After gaining market share profitably over FY15-18, Ashok Leyland (AL) is now shifting its focus toward expanding and creating new revenue/profit pools.
• This should likely drive revenue/EBITDA/PAT CAGR of 12%/15%/16% over FY18-22. A sharp improvement in the key performance indicators would be key driver of further re-rating.

Piping hot news

Govt is stepping up efforts to ease liquidity

• A dedicated liquidity window is among the suggestions Indian non-banking finance companies (NBFC) have made to the Centre, which is talking to the industry to ensure uninterrupted funds flow to a sector that has helped expand consumption demand beyond the cities. Officials at the finance ministry met representatives from mutual funds, the housing bank, home financiers and NBFCs, and sought suggestions on measures that would enhance liquidity for the sector, four people with direct knowledge of the matter told ET.