CMP: Rs. 27.10; Buy at Rs.26.50 - 27.00 levels.
Short term Target: Rs. 30.00; 6 month Target – Rs. 55; STOP LOSS – Rs. 24.95; Market Cap: Rs. 7,210.43 Cr; 52 Week High/Low: Rs. 33.50 / Rs. 18.75
Short term Target: Rs. 30.00; 6 month Target – Rs. 55; STOP LOSS – Rs. 24.95; Market Cap: Rs. 7,210.43 Cr; 52 Week High/Low: Rs. 33.50 / Rs. 18.75
Total Shares: 266,06,76,634
shares; Promoters : 102,72,37,424 shares –38.61 %; Total Public holding :
163,34,39,210 shares – 61.39 %; Book Value:
Rs. 10.89; Face Value: Rs. 1.00; EPS: Rs. 2.01; Div: 100 % ; P/E: 13.46 times; Ind. P/E: 40.50;
EV/EBITDA: 8.22.
Total Debt: 2,395.53 Cr; Enterprise Value: Rs. 9,605.96 Cr.
ASHOK LEYLAND LTD: The Company was founded in 1948 and is based in Chennai, India. Ashok Leyland limited is a subsidiary of Hinduja Automotive Ltd. It was named after the founder Raghunandan Saran’s son Ashok, the company was renamed ‘ASHOK LEYLAND’ with equity participation from Leyland Motors Ltd in 1955. Ashok Leyland ltd engages in the manufacture and sale of commercial vehicles and related components in India and internationally. India’s first inland made double decker was launched by Ashok Leyland in 1967. The Company's products include Buses – double decker and vestibule buses, CNG buses, Trucks – including multi axle trucks & tractor trailers, diesel engines, defense and special vehicles for Indian army. From 18 seater to 82 seater double-decker buses, from 7.5 ton to 49 ton in haulage vehicles, from numerous special application vehicles to diesel engines for industrial, marine and genset applications, Ashok Leyland offers a range of products. In the year 2006 Ashok Leyland acquired AVIA the Czech Republic based truck manufacturer. In 2007 the company formed a JV with Nissan Motor Company, Japan for the manufacture and marketing of light commercial vehicles, same year Ashok Leyland signed another JV with Continental AG, Germany – for the development of automotive Infotronics. In 2010, the Company acquired 26% stake in Optare plc. a bus manufacturer in the United Kingdom. Ashok Leyland Ltd is compared to: Bajaj Auto Limited, Motherson Sumi Systems Limited in India and Xiamen King Long Motor Company Limited globally.
Investment Rationale:
Ashok Leyland management expects
M&HCV industry volumes to revive in H2 mostly back ended but still decline
5 – 10 % in FY13. Ashok Lay land with the launch of new products believes to
achieve market share of 26 % in FY13. While Ashok Lay land was able to maintain
its leadership in South, it was able to increase its market share in West to 25%
from 22% earlier, East to 14% from 10% earlier and Central to 24% from 20%
earlier. The company’s Export environment remains challenging as both Sri Lanka
and Bangladesh which accounted for 70% of export volumes have seen demand
contraction and targets 10,000 unit exports in FY13. Ashok Lay land’s new
launch LCV Dost has very well received good response and the current
order book stands at 2 months and management expects volumes of around 36,000
to 50,000 units in FY13/FY14 & expects that 70% of volumes sales to be from
outside Tamil Nadu in H1FY13. Other segments have seen strong growth in Q2/H1 –
like spare part sales were up to 27% in H1, Engines were up at 25% in H1 and
defense continues to see steady growth as well. Company targets to have spare part
revenues of Rs 1,000 Cr in FY13. Ashok lay Land has increased its customer
touch points to 425 by Sep end with relatively more additions in North and West
regions. Company’s input costs have remained largely flattish in H1 and is
expected to have a marginal reduction in selected pockets like steel and tyres due
to Subdued demand environment pushing up discounts to Rs 80,000 per vehicle in Q2
against 50,000 – 60,000 earlier. This has effectively neutralized all price
hikes taken from the beginning of the year. The production from Pantnagar plant
stood at 7,607 units in Q2 and should comfortably reach 40,000 units in FY13.
This should benefit margins as the plant enjoys excise savings of Rs 60,000 per
vehicle – the company plans to further increase this benefit to Rs. 65,000 led
by higher localisation and increased sourcing. Due to High warranty charges
(AMC) margins in H1 were impacted, company has suspended all its AMC contracts
currently and this is under review. The company’s working capital has decreased
by Rs. 700 Cr to Rs. 1700 Cr QoQ and maintains its target of lowering this to Rs. 1,000 Cr by FY13 end. Ashok Layland has incurred a capex of Rs. 350 Cr in H1 and
targets capex of Rs. 650 Cr in FY13. Most of this is to be utilized for
optimization of facilities, engines and on Pantnagar plant for next-gen cab. It
also plans to spend another Rs. 150 Cr on product development expense. The
company has new products in pipeline which is very healthy and which includes
10X2 5 axle 37 ton truck, entire MAV series with Neptune engine, 5 new
models in ICV and the Jan-bus. Ashok Lay land targets to increase its investments
to Rs. 7oo Cr primarily due to a Rs. 350 Cr investment in Hinduja Foundries. John
Deere is expected to come out with a backhoe loader variant and a new wheel
loader. Company’s debt levels are expected to increase by Rs. 700 Cr by FY13 to
take care of the capex and investment plans. Management also plans to
restructure investment companies and come out with the consolidated financials
for FY13
Outlook and Valuation:
| KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
|---|---|---|---|---|
| SALES (Rs. Crs) | 12,842.00 | 13,476.70 | 14,836.40 | 17,156.20 |
| NET PROFIT (Rs. Crs) | 566.00 | 530.50 | 606.90 | 754.40 |
| EPS (Rs.) | 2.12 | 1.99 | 2.28 | 2.84 |
| PE (x) | 12.10 | 12.90 | 11.30 | 9.10 |
| P/BV (x) | 1.60 | 1.50 | 1.40 | 1.40 |
| EV/EBITDA (x) | 7.80 | 7.90 | 7.10 | 6.30 |
| ROE (%) | 13.90 | 12.20 | 13.00 | 15.30 |
| ROCE (%) | 8.20 | 8.00 | 8.40 | 9.30 |
I would buy ASHOK LEYLAND with a price target of Rs. 30.00 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 24.95 on your every purchase.
