Q3FY17 RESULT UPDATE GEOJIT Research RETAIL EQUITY RESEARCH Ashok Leyland Ltd Auto Commercial Vehicle BSE CODE:500477 NSE CODE: ASHOKLEY Bloomberg CODE: AL IN SENSEX: 27,882 Accumulate Rating as per Large Cap 12months investment period CMP Rs92 TARGET Rs102 RETURN 11% 30 th January 2017 Demand Scenario in FY18E is key... Ashok Leyland (AL) is the second largest commercial vehicle (CV) manufacturer in India. It has a strong presence in the M&HCV (Medium & Heavy Commercial Vehicle) segment with a domestic market share of ~32.7% as on FY16. Q3FY17 revenue grew by 8%YoY on the back of a 9%YoY growth in M&HCV unit s sales. Adj PAT grew by 13.2%YoY. EBITDA margin declined by 130bpsYoY due to rising raw material cost and discounting owing to demonetization impact. We marginally lower our revenue & PAT estimate for FY18 by 4.1% & 5.7% respectively. We expect AL s revenue to grow at 10% CAGR over FY16-19E along with the implementation of the BS-IV emission norms by FY17. We roll over our valuation to FY19E EPS and value at a P/E 17x with revised target price of Rs102 and downgrade from Buy to Accumulate. De-monetisation impact will be temporary. Q3FY17 revenue grew by 8%YoY to Rs4723cr on the back of 9%YoY volume growth in M&HCV units sales. Revenue from M&HCV (Medium & Heavy Commercial Vehicle) accounts for 80% of AL s volume is likely to get impacted due to temporary slowdown in the logistics operator s business model. AL s management is confident on pre buying happening in Feb-Mar with BS-IV implementation from April 2017. We are keeping our volume estimate unchanged with M&HCV volume CAGR 13% over FY17-19E. Rising defense mix and after market mix expected to cushion margin partly in FY18 against raw material inflation. Direct beneficiary on demand recovery M&HCV industry has shown improvement after a gap of three years led by the government initiatives towards de-bottlenecking the stalled infra projects. AL, the largest supplier of logistic vehicles to Indian Army (5% of revenue), will see higher traction from the new defence procurement policy. AL s 100% Acquisition on its 3 JV with Nissan Corporation of the LCV business will give positive impetus for the business and also allowing to use the Nissan technology on a 1% royalty basis for 5 years. We expect the AL s revenue to grow at 14% CAGR over FY17-19E by factoring 12% volume growth in our estimate for the same period. Export volume to pick up AL continues to increase its market share by expanding its distribution network and increasing its global footprints. During 1HFY17 M&HCV export have grown by 24% and expect to register 30% growth by FY17. AL plans to improve its export market share through new launches in electric variant. Valuations Considering the near term headwinds on earning due to demonetisation and higher raw material price we lower our FY18E revenue & PAT estimates by 4.1% & 5.7% respectively. We roll over our valuation to FY19E EPS and value at a P/E 17x with a revised target price of Rs102 and downgrade our rating from Buy to Accumulate. Company Data Market Cap (cr) Enterprise Value (cr) Rs26,324 Rs26,524 Outstanding Shares (cr) 285 Free Float 50% Dividend Yield 1.2% 52 week high Rs113 52 week low Rs74 6m average volume (cr) 0.13 Beta 1.1 Face value Rs1 Shareholding % Q1FY17 Q2FY17 Q3FY17 Promoters 50.4 50.4 50.4 FII s 28.0 26.6 25.0 MFs/Insti 8.2 7.4 8.9 Public 10.1 11.8 11.9 Others 3.3 3.8 3.8 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return 2.5% -3.1% 4.9% Absolute Sensex -0.2% -0.6% 13.9% Relative Return* 2.7% -2.5% -9.1% *over or under performance to benchmark index 140 AL Sensex Rebased 100 60 20 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Y.E Mar (Rs cr) FY17E FY18E FY19E Sales 19,286 22,004 25,012 Growth (%) 2.5 14.1 13.7 EBITDA 1,998 2,402 2,907 Margin (%) 10.4 10.9 11.6 PAT Adj 1,053 1,364 1,696 Growth (%) (5.3) 29.6 24.4 Adj.EPS 3.7 4.8 6.0 Growth (%) (2.5) 29.6 24.4 P/E 25.0 19.3 15.5 P/B 2.1 1.8 1.5 EV/EBITDA 13.3 11.0 9.1 RoE (%) 18.0 20.5 21.6 D/E 0.1 0.1 0.1 Saji John Analyst
Quarterly Financials (Standalone) Profit & Loss Account (Rs cr) Q3FY17 Q3FY16 YoY Growth (%) Q2FY17 QoQ Growth (%) Sales 4,431 4,114 7.7 4,622 (4.1) EBITDA 454 449 0.6 537 (13.9) EBITDA Margin (%) 10.3 10.9 (60bps) 11.6 (130bps) Depreciation 119 119-126 (5.6) EBIT 335 330 1.5 410 (18.3) Interest 31 60 (48.0) 34 (8.8) Other Income 301 270 11.5 377 (20.2) Exceptional Items - - - - PBT 264 293 (9.9) 415 (36.4) Tax 78 79 (1.3) 120 (35.0) Reported PAT 186 214 (13.0) 294 (36.9) Adjustment 63.7 6.7 - (6.6) - Adj PAT 250 220 13.2 288 (13.3) No. of shares (cr) 285 285 285 EPS (Rs) 0.9 0.8 13.2 1.0 (13.3) Change in Estimates Old estimates New estimates Change % Year / Rs cr FY17E FY18E FY17E FY18E FY17E FY18E Revenue 19,619 22,954 19,286 22,004 (1.7) (4.1) EBITDA 2,099 2,631 1,998 2,402 (4.8) (8.7) Margins (%) 10.7 11.5 10.4 10.9 (30bps) (60bps) PAT 1,083 1,452 1,053 1,364 (2.7) (5.7) EPS 3.8 5.1 3.7 4.8 (2.7) (5.7)
Standalone Financials Profit & Loss Account Sales 13562 18822 19286 22004 25012 % change 36.4 38.8 2.5 14.1 13.7 EBITDA 1027 2166 1998 2402 2907 % change 516.4 111.0 (7.8) 20.2 21.0 Depreciation 416 444 492 470 506 EBIT 610 1722 1506 1931 2401 Interest 394 274 148 123 105 Other Income 124 110 174 220 250 PBT 217 1449 1358 1801 2282 % change (584.8) 164.4 26.1 37.1 25.3 Tax 107 447 479 657 836 Tax Rate (%) 0 0 0 0 0 Reported PAT 335 722 995 1364 1696 Adj* 101-389 -57 0 0 Adj PAT 234 1111 1053 1369 1696 % change - 375.1 (5.3) 29.6 24.4 No. of shares (cr) 285 285 285 285 285 Adj EPS (Rs) 1 4 3.7 4.8 6.0 % change -145.9 375.1 (5.3) 29.6 24.6 DPS (Rs) 1 1 1 1 1 Balance Sheet Cash 705 1538 1820 1900 2837 Accounts Receivable 1258 1251 1215 1326 1508 Inventories 1399 1731 1876 1956 2198 Other Cur. Assets 374 161 185 241 274 Investments 4201 3576 3753 4156 4687 Gross Fixed Assets 8555 8747 8957 9467 9977 Net Fixed Assets 4882 4716 4499 4597 4654 CWIP 120 76 95 135 165 Intangible Assets 373 338 273 207 140 Def. Tax (Net) (510) (536) (543) (553) (578) Other Assets 0 0 0 0 0 Total Assets 12801 12850 13173 13964 15883 Current Liabilities 1926 2131 2100 2164 2432 Provisions 335 647 528 603 685 Debt Funds 2593 1995 1793 1493 1295 Other Liabilities 2828 2563 2575 2496 2899 Equity Capital 285 285 285 285 285 Rsrvs and Surplus 4834 5230 5892 6923 8287 Shareholder s Fund 5119 5514 6177 7208 8572 Total Liabilities 12801 12850 13173 13964 15883 BVPS (Rs) 38 41 46 54 64 Cash flow Net inc. + Depn. 859 1,613 1,967 2,499 3,052 Non-cash adj. 263 631 155 133 130 Changes in W.C 695 (128) (198) (290) 66 C.F.O 1,767 1,676 1,444 1,685 2,413 Capital exp. (211) (147) (209) (550) (540) Change in inv. 221 584 (250) (300) (300) Other invest.cf 102 (,499) 0 0 0 C.F - investing 112 388 (459) (850) (840) Issue of equity 667 0 0 0 0 Issue/repay debt (1,440) (784) (202) (300) (198) Dividends paid (406) (450) (481) (456) (437) Other finance.cf (872) (9,679) 0 0 0 C.F - Financing (1,179) (1,233) (683) (756) (635) Chg. in cash 699 830 303 79 937 Closing cash 705 1,538 1,840 1,900 2,837 Ratios Y.E March FY15A FY16A FY17E FY18E FY19E Profitab. & Return EBITDA margin (%) 7.6 11.5 10.4 10.9 11.6 EBIT margin (%) 4.5 9.2 7.8 8.7 9.5 Net profit mgn.(%) 1.7 5.9 5.5 6.2 6.8 ROE (%) 4.9 20.9 18.0 20.4 21.5 ROCE (%) 3.9 9.0 8.0 9.8 11.0 W.C & Liquidity Receivables (days) 34.4 24.3 23.3 21.1 20.7 Inventory (days) 47.4 43.1 49.0 46.0 44.4 Payables (days) 66.4 55.8 57.5 51.2 49.1 Current ratio (x) 2.3 2.3 2.5 2.6 2.8 Quick ratio (x) 1.0 1.3 1.4 1.5 1.8 Turnover &Levg. Gross asset T.O (x) 1.7 2.4 2.4 2.6 2.8 Total asset T.O (x) 1.1 1.5 1.5 1.6 1.7 Int. covge. ratio (x) 1.6 6.3 10.2 15.6 22.8 Adj. debt/equity (x) 0.2 0.2 0.1 0.1 0.1 Valuation ratios EV/Sales (x) 2.0 1.4 1.4 1.2 1.1 EV/EBITDA (x) 25.9 12.2 13.3 11.0 9.1 P/E (x) 112.6 23.7 25.0 19.3 15.5 P/BV (x) 2.6 2.4 2.1 1.8 1.5
Recommendation Summary (last 3 years) Dates Rating Target 22 nd July 2016 Buy 116 140 1 st December 2016 Buy 92 120 30 th January 2017 Accumulate 102 100 80 60 40 20 0 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. 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