Feb 2, 2018 - Reduction in capex guidance may negate the reducing positives from the PN plant. Reduction in debt may add
February 2, 2018
Outperformer
Ashok Leyland Industry: Auto and Auto Components | Industry View: Positive
Result Update
Multiple macro levers to act as drivers Significantly higher than expected set of numbers
Stock Data Current Market Price (₹)
122
Ashok Leyland (ALL) reported 60.5% yoy and 17.6% qoq growth in the topline. Volume
Target Price (₹)
144
growth was at 42% yoy and the realizations were up by 7% yoy. The company reported a slight
Potential upside (%)
0.3% cut in market share as there was a supply chain constraint across the industry. Margins
Reuters
however, came in at 11.1%, 80 bps higher yoy, and 80 bps higher qoq despite heavy discounts
18 ASOK.BO
Bloomberg
AL.IN 1
FV (₹)
prevailed in the quarter. A better product mix and operating leverage led to the margin
Market Cap Full (₹ bn)
outperformance. RM prices went up during the same time along with employee costs. Below
52-Week Range (₹)
364 133 / 81
the operating level, other income fell qoq, while depreciation expenses grew 13% yoy. Due to reduction in tax sops in Pantnagar with application of CGST, the tax rate moved up to 31.7%. Net profits surged by 80% yoy on adjusted basis at ₹4.5 bn. MHCV cycle revival becomes starker, macro positives to augment well..
What’s Changed FY2018E EPS (₹)
From 4.15 to 5.13
FY2019E EPS (₹)
From 5.90 to 7.30
FY2020E EPS (₹)
9.63
Ashok Leyland (ALL)’s volumes grew by 42% on good monsoon and macro-economic
..
development catching speed. The discounting was also high in this quarter as competition
Shareholding Pattern
implemented huge discounts, which made ALL to go without taking any price hikes Additionally, strict anti-loading laws implemented in UP and Rajasthan led to higher demand for trucks in these two states. Demand shift towards higher tonnage trucks (>37 T) led to some supply constraints in the quarter across the industry. But management mentioned that going forward, this will become smooth as there is flexibility in the assembly lines. In some of the
From 127 to 144
12 month Price Target (₹)
Insurance 1.2%
Others 14.7%
FI's / Banks 4.7%
northern states like UP and NCR region road building activity has picked up pace, due to which
Promoter 51.3%
FPI 22.6%
MHCV demand is increasing. Some of the companies in the FMCG, chemical, oil sectors have
MF's 5.5%
asked the MHCV players to upgrade their fleet, which would stimulate demand. There has been a pick up in the mining activities too in the country which is driving tipper demand. Going forward, new launches may help volumes to recover along with GOI’s planned initiatives regarding various infrastructure projects such as the Bharat Mala project and good monsoon leading to higher agricultural produce. On the LCV side of the business, the new launch of
Fiscal YE YE Mar
FY17
Revenues (₹bn)
FY19E
FY20E
11.0%
9.8%
10.8%
11.4%
Dost+ along the existing LCVs Boss and Guru are elevating the LCV business (market share of
PAT (%)
6.1%
5.5%
6.3%
7.0%
28-29% up from 13-14% a year ago). On the exports front the company targets to increase its
Adj EPS (₹)
4.75
5.13
7.30
9.63
12.7%
7.9%
42.3%
32.0%
contribution from current 10% to 15% in the next 3-5 years by anchoring strongly in Africa, CIS
EBITDA (%)
FY18E
200.19 265.24 327.72 391.60
EPS growth (%) P/E (x)
25.7
23.8
16.7
12.7
countries, Middle East and Latam and entering new markets like Far East. Through further
P/B(x)
5.7
5.0
4.2
3.5
expansion of network the Aftermarket revenues (20% market share, which the company
EV/EBITDA (x)
16.0
13.5
9.8
7.6
ROCE (%)
22.1%
24.9%
32.4%
37.0%
ROE (%)
20.0%
20.8%
25.2%
27.7%
1.4%
1.7%
2.4%
3.2%
expects to take upto 50% in a year or two) are also targeted well by the company now. In the defense business, the company has secured government tender under which ALL will add ₹500-600 cr to the topline. While Q4 may lead to some uncertainty considering high base of last year when BS IV related prebuying had taken place. However, with the kind of momentum taking place currently, we expect this to have a little impact on the volumes. In line with the strong Q3, we have increased our volume outlook at 17.2%/15.9%/13.8% for FY18E/19E/20E. Margins picture looks lucrative on product mix and operating leverage The company’s transition to IEGR engines post BS IV implementation led to price hike to the tune of 10-14% in Q1. But in Q2 and Q3, the industry discount level moved up leading to arrest of any price hikes. However, there was a steep growth in volumes as the CV cycle started moving up from August and operating leverage led to a surge in margins by about 100 bps
Ashwin Patil ashwin_patil@lkpsec.com +91 22 6635 1271
Dividend yield (%)
Relative Price Performance 150 140 130 120 110 100 90 80 70 60 Feb-17
Jun-17 Ashok Leyland
Oct-17 S&P Bse Sensex
Ashok Leyland
qoq and 80 bps yoy. This was despite input costs tightening. The company is done with disposing off the BS III vehicles which are just 500-600 to be exported as compared to 10,000 at the start of FY 18. This would minimize negative impact on margins. Higher volumes going forward may lead to better product mix (demand shift towards >37T trucks, tippers and MAVs). Increasing RM prices may have a lesser bearing on the margins as volumes are expected to surge on low base. High margin vehicle demand from defense sector may further bolster margins. Defying the industry trend, ALL has taken a price hike of 1-1.5% in January, which would further assist margin growth. Reduction in capex guidance may negate the reducing positives from the PN plant. Reduction in debt may add to this and augur well at the bottomline. Financial Highlights Q3 FY18
Q2 FY18
% qoq
Q3 FY17
% yoy
Total income
71,132
60,469
17.6%
44,309
60.5%
Raw Material Cost
50,818
43,074
18.0%
31,338
62.2%
4,918
4,825
1.9%
3,616
36.0%
All fig in ₹ mn
Staff Cost Other Expenses
7,518
6,452
16.5%
4,813
56.2%
Total Expenses
63,254
54,351
16.4%
39,767
59.1%
EBITDA
7,877
6,118
28.8%
4,542
73.4%
EBITDA margin (%)
11.1%
10.1%
100 bps
10.3%
80 bps
380
556
-31.7%
235
61.4%
1,350
1,411
-4.3%
1,193
13.2%
335
410
-18.3%
311
7.6%
PBT
6,572
4,853
35.4%
3,274
100.8%
Total tax
2,080
1,484
N/A
778
N/A
Adjusted PAT
4,492
3,369
33.3%
2,496
80.0%
-
(26)
N/A
(637)
NA
4,492
3,342
34.4%
1,858
141.7%
Other Income Depreciation Interest
Exceptional items Reported PAT
Outlook and valuation Volume growth gained pace in Q3 as several structural positives came into action. Ban on overloading in the country’s two big states of UP and Rajasthan, demand from various corporates to improve the fleet, mining activity gathering momentum and defense order from government will keep driving MHCV growth. In occurrence of implementation of cash for clunkers scheme, the MHCV business may get even higher benefit. LCV business has been a star performer for ALL. Now with a 28-29% market share the company with its strong product portfolio targets to capture bigger pie of the high demand market. On the margin front, better product mix in the form of higher tonnage vehicles, price hikes and operating leverage may reduce the impact of higher input costs. At the bottomline, reducing benefits from the PN plant may get offset by lower capex and debt. We remain positive on the stock while introducing FY 20E estimates and increasing FY18E and FY19E estimates. We now have a target of ₹144 valued at 15x FY20E earnings (PE of 12.7x at current levels). Q3 FY18
Q2 FY18
Q1 FY18
Q4 FY17
Q3 FY17
Q2 FY17
Q1 FY17
Q4 FY16
Avg Price Realisation (net)
1,412,660
1,479,398
1,494,175
1,398,569
1,320,243
1,346,722
1,663,838
1,727,454
Material cost / unit (₹)
All figs in ₹
1,092,653
1,053,819
1,037,455
1,006,013
954,373
937,155
1,192,945
1,232,766
Staff cost / unit (₹)
105,743
118,046
154,302
87,031
110,117
110,413
96,211
148,933
Other Expn / unit (₹)
161,646
157,856
194,482
151,271
146,583
174,364
179,509
189,317
1,360,042
1,329,721
1,386,239
1,244,315
1,211,073
1,221,933
1,468,665
1,571,015
169,374
149,677
107,937
154,254
138,330
160,449
212,618
192,609
96,577
82,419
44,616
132,179
75,999
86,091
128,820
94,470
Total Expn / unit (₹) EBITDA per unit PAT per unit
LKP Research
2
Ashok Leyland
Financials Income statement
Balance sheet FY17
FY18E
FY19E
FY20E
Total Revenues
200,186
265,243
327,718
391,600
EQUITY AND LIABILITIES
Raw Material Cost
139,572
188,323
229,403
272,162
Shareholder's funds
Employee Cost
15,309
21,750
27,856
32,503
Share capital
7,536
7,536
7,536
7,536
Other Exp
23,279
29,177
35,066
42,293
Reserves and surplus
50,879
59,634
72,092
88,539
EBITDA
22,025
25,994
35,394
44,642
Total networth
61,261
70,097
82,555
99,002
11.0%
9.8%
10.8%
11.4%
Non current liabilities Long term borrowings and provisions Deferred tax liabilities
12,788
10,988
9,188
6,888
1269
1269
1269
1269
YE Mar (₹.mn)
EBITDA Margin(%) Other income
1363
1650
1775
1900
Depreciation
5,179
5,249
4,971
4,681
Interest
1554
1400
1207
950
16,655
20,995
30,991
40,912
8.3%
7.9%
9.5%
10.4%
3,137
6,403
10,227
13,501
13,518
14,592
20,764
27,411
6.8%
5.5%
6.3%
7.0%
PBT PBT Margin(%) Tax Adj PAT Adj PAT Margins (%) Exceptional items
(1,287)
0.0
0.0
0.0
PAT
12,231
14,592
20,764
27,411
6.1%
5.5%
6.3%
7.0%
PAT Margin (%)
YE Mar (₹. mn)
FY17
FY18E
FY19E
FY20E
Current liabilities Short term borrowings
1986
2186
2286
2786
Current liabilities and provisions
35,365
46,791
56,519
67,543
Other current liabilities
24,460
34,155
43,995
54,717
Total equity and liabilities
137,994 166,351 196,677 233,069
ASSETS Net block
46,562
51,313
53,342
55,661
Capital work in progress
1,576
3,076
4,076
5,076
Intangible assets
3,630
5,130
6,630
7,130
Non current investments
Key Ratios
Long term loans and advances
627
427
327
177
YE Mar
Long term investments
27,006
30,506
34,506
39,406
Total non current assets
79,400
90,451
98,880 107,450
FY17
FY18E
FY19E
FY20E
4.75
5.13
7.30
9.63
Current assets
6.6
7.0
9.0
11.3
Inventories
25,011
28,377
37,710
47,722
34.8
Trade receivables
8,599
13,807
17,957
23,603
Cash and cash bank
9,119
9,624
11,710
17,757
Per Share Data (₹) Adj. EPS CEPS BVPS DPS
21.5 1.7
24.6 2.1
29.0 2.9
3.9
Growth Ratios(%)
Short term loans and advances
Total revenues
5.7%
32.5%
23.6%
19.5%
Other current assets
EBITDA
-2.3%
18.0%
36.2%
26.1%
Total current assets Total Assets
35
145
180
100
7,060
10,174
13,468
17,166
58,595
75,899
97,796 125,619
137,994 166,351 196,677 233,069
PAT
12.7%
7.9%
42.3%
32.0%
EPS Growth
12.7%
7.9%
42.3%
32.0%
PE
25.7
23.8
16.7
12.7
YE Mar (₹. mn)
P/CEPS
18.6
17.5
13.5
10.8
PBT
P/BV
5.7
5.0
4.2
3.5
Depreciation
EV/Sales
1.8
1.3
1.1
0.9
Interest
16.0
13.5
9.8
7.6
Inventory days
45.6
55.0
60.0
64.0
Other operating activities
Recievable Days
15.7
19.0
20.0
22.0
Payables day
55.7
58.0
58.0
59.0
ROCE
22.1%
24.9%
32.4%
37.0%
Other investing activities
ROE
20.0%
20.8%
25.2%
27.7%
Cash flow from investing (b)
Dividend payout
40.0%
40.0%
40.0%
40.0%
Inc/dec in borrowings
(9,842)
(1,800)
(1,800)
1.4%
1.7%
2.4%
3.2%
Dividend paid (incl. tax)
(4,893)
(5,837)
(8,305) (10,964)
(1,400)
(1,207)
Valuation Ratios (x)
EV/EBITDA
Cash Flow
Operating Ratios (Days)
Profitability Ratios (%)
Dividend yield Source: Company, LKP Research
FY17
FY18E
FY19E
FY20E
12,231
14,592
20,764
27,411
5,179
5,249
4,971
4,681
1,554
1,400
1,207
950
Chng in working capital
(2,328)
1,446
12,636
6,151
Tax paid
(1,070)
20,350
481
10,352
Cash flow from operations (a)
21,547
36,634
29,832
36,044
Capital expenditure
(3,783) (11,500)
(8,000)
(8,000)
Chng in investments
Other financing activities Cash flow from financing (c) Net chng in cash (a+b+c) Closing cash & cash equivalents
LKP Research
(6,403) (10,227) (13,501)
5,981
(10,959)
(3,000)
(3,500)
(3,500)
(249)
(6,833)
(4,933)
(4,283)
(14,991) (21,333) (16,433) (15,783)
(1,554) (16,288)
(2,300) (950)
(9,037) (11,313) (14,214)
(9,732)
6,264
2,086
6,047
3,360
9,624
11,710
17,757
3
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