>ASHOK LEYLAND

Results in-line; Maintain Neutral


Ashok Leyland’s (ALL) 1QFY13 operating results were largely in line with our expectations with EBITDA margins at 8.0%, identical to our estimate. Revenues at Rs.30.1bn (our est. Rs.9.3bn) registered a YoY growth of 21% and sequential drop of 30%. PAT stood at Rs.669mn, in line with our estimate of Rs.665mn but significantly lower than street estimate of Rs840mn. Though we continue to see macro headwinds impacting volume growth in CVs which can surprise on the downside, we believe that at these valuations (post correction in the stock price), it factors in the macro concerns. As a result, we maintain our Neutral
rating on the stock with a revised target price of Rs23.7.


Operating performance in line: Revenues stood at Rs.30.1bn compared to our estimate of Rs.29.3bn. The drop in NSR was lower than our expectations (down 10% QoQ v.s Est. 12%) resulting in better than expected revenue growth by 2.5%. Lower realization was expected due to higher contribution from Dost to overall volumes at 36% in 1QFY13 compared to 16% in 4QFY13. Also, increase in discounts largely neutralized the positive impact of price hikes. As expected, interest burden was on the higher side due to increase in borrowings to support the higher working capital requirement.


Conference call highlights: 1) the management expects overall M&HCV industry growth to remain flattish for FY13E. However, overall volume growth for AL will be around 7-8% for M&HCV segment. 2.) Overall borrowings increased to Rs.47.5bn in 1QFY13E largely on account of short term borrowing increasing by Rs.13bn due to higher working capital needs. 3.) Inventory as on 1QFY13E stood at 10,000 units; the management indicated about 25% cut in production in July and expects the inventory to correct to 6,000-7,000 units. 4.) The company incurred a capex of Rs.1.6bn in 1QFY13E and has scaled down overall capex for FY13E to Rs4.5bn from Rs.6.5bn earlier 5.) Discount has gone up by Rs.10-15k QoQ and now stands at Rs60-65k per vehicle.



Valuations and Recommendations: At the CMP of Rs22.6, the stock trades at 11.7x FY13E EPS of Rs1.9 and 9.2x FY13E EPS of Rs2.4. We continue to maintain Neutral rating on the stock with a revised target price of Rs23.7 (based on 6.0x FY13E EV/EBITDA and Rs2.7 per share as value of investments in JVs at 50% discount).

RISH TRADER