May 25, 2019 Ashok Leyland - Nalanda Securities€¦ · Q4FY19 – e May 25, 2019 Ashok Leyland...

Q4

FY1

9 –

Re

sult

Up

dat

e

May 25, 2019

Ashok LeylandDownside

Scenario

Current

Price

Price

Target

10511.9%

Upside

Scenario

BUY*

94Volume Performance to remain RobustThe company’s volume performance was subdued, however, was above the industrygrowth. Hence, able to gain market share during the quarter. For the quarter, it hasreported a volume growth of 1.3% YoY to 59,521 units, while for the year it remains robustwith a growth of 12.9% YoY to 1,97,366 units. The company’s LCV turnaround wasspectacular, which supported the volume growth for the year.With stable Government in place, India can see more economic reforms, focus oninfrastructure and the expectation of the announcement of the new scrappage policy, this,along with the pre-buy before the BS6 implementation would lift the volumes higher in thelow double digit in FY20E. We expect some dullness in Q1FY21E volumes post pre-buy,however, the management has already begun working on cost reduction to retain doubledigit margins.

Scrappage Policy Announcement to Boost Volumes in FY21E.We expect a scrappage policy announcement in FY21E, which will offset the CV down cycleimpact. The Government has spoken about it in the past. The details are not available,however, the demand is expected to be robust. Expect with the initiatives taken by GoI,with the introduction of EV, the concerns on the environment, the scrappage policy shouldcome. This will be beneficial for consumers as they get some incentives and for OEMs asvolume demand will be huge. The company doesn’t have any capacity constraints in case ofheavy lifting of demand & the management looks optimistic on this policy.

Focus on Turning Around ExportsThe export volumes for the quarter remains subdued as it reported a de-growth of 11% YoYto 3,115 units in Q4FY19. While for the year, the de-growth was higher at about 24.4% YoYto 12,301 units. This was majorly due to recessionary issues in its major markets and wasnot focused on the left hand drive markets. However, the company has taken strategicsteps to review the exports with the launch of left hand drive vehicles, increasing numberof target countries, expansion of LCVs and by launching newer products. The managementsees a lot of tractions in the African markets and expects the growth to be about 15% inFY20E, however, we have conservatively estimated at ~6.8% in FY20E till we see somedemand improvement in the export markets.

Consistently Maintaining High Double Digit MarginSince the past 15 quarters, the company has been posting double digit EBITDA Margin. Thisis despite of tough market environment, where the discounting levels are extremely high atabout 15% & at sometimes goes up to 20% as well. With the focus on stringent costrationalization efforts, to get operating leverage benefits led by pre-buy and thecommodity prices have turned favourable for the company since the start of FY20E. Hence,we expect margins to improve in the next year.

Attractive ValuationsWe have factored in the CV down cycle play without considering the benefits ofexpectation of scrappage policy and adjusted the margins accordingly. Inspite of this, thevaluations remain very attractive for the company. The company on a forward basis hasbeen trading at 9.1x and we have assigned similar earnings multiple to arrive at a fair valueof Rs. 105. We thus maintain buy by looking at various factors viz. 1) the revived focus onexports, 2) gaining market share in the domestic markets, 3) de-risking business bylaunching LCVs range of vehicles, 4) opportunities in the Defence, 5) reviving economy witha stable government and 6) expectation of the announcement of scrappage policy. All thisshould uplift the overall performance.

Ashok Leyland vs SENSEX

* Read last page for disclaimer & rating rationale

Market Data

Industry Automotive

Sensex 39,435

Nifty 11,844

Eq. Cap. (INR. Crs.) 294

Face Value (INR.) 1

52-w H/L 152/78

Market Cap (INR. Crs.) 27,491

Valuation Data FY19 FY20E FY21E

OPM 10.8% 11.1% 9.5%

NPM 6.8% 6.3% 5.1%

P/E (x) 13.9 13.4 16.9

EV/EBITDA (x) 8.6 7.0 8.0

Shareholding Pattern (%)

Mar-18 Dec-18 Mar-19

Promoters 51.3% 51.1% 51.1%

FII 23.3% 21.9% 19.1%

DII 11.2% 9.2% 10.1%

Others 14.3% 17.8% 19.7%

Total 100% 100% 100%

(INR Crores) FY17 FY18 FY19 FY20E FY21E

Revenue 20,140 26,248 29,055 32,596 32,116

Growth (%) 6.4% 30.3% 10.7% 12.2% -1.5%

EBITDA 2,203 2,739 3,136 3,625 3,057

Growth (%) -2.3% 24.4% 14.5% 15.6% -15.7%

EBITDA Margin (%) 10.9% 10.4% 10.8% 11.1% 9.5%

PAT 1,223 1,563 1,983 2,054 1,630

Growth (%) 213.9% 27.8% 26.9% 3.6% -20.6%

EPS (INR) 4.2 5.3 6.8 7.0 5.6

P/E (x) 20.3 20.3 13.9 13.4 16.9

EV/EBITDA (x) 11.7 11.6 8.6 7.0 8.0

Source: Company, NSPL Research

Institutional Research

Head of ResearchVaibhav Chowdhry vaibhav.chowdhry@ nalandasecurities.com

NALANDA SECURITIES PRIVATE LIMITED310-311 Hubtown Solaris, NS Phadke Marg, Opp Teli Gali, Andheri East, Mumbai 69+91-22-6281-9649 | [email protected] | www.nalandasecurities.com

AnalystAmit Hiranandani amit.hiranandani@ nalandasecurities.com

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Ashok Leyland SENSEX

mailto:[email protected]


Ashok Leyland | Q4FY19 - Result Update |

Q4FY19 Result Analysis

Other Key Highlights1. Ashok Leyland has spent Rs. 950 crores as capital expenditure in FY19 and expects to clock Rs. 1,000-1,500 crores of capex in

FY20E.2. The company is net cash positive at Rs. 715 crores.3. The management expects strong pre-buy in the 2nd and 3rd quarter of FY20, however, we believe the prebuying is going to

happen only in the 4th quarter.4. The company has guided for standard effective tax rate in FY20E.5. Ashok Leyland has been working on the development of electric vehicles and would be successful in rolling out BS6 within

time.6. The spare parts business has grown by ~20% and expect the same run rate to continue in the coming years.7. Hinduja Finance performance was satisfactory as the company has been doing well in all fronts. The book size is about Rs.

26,000 crores with an improvement in the asset quality.8. The search for the new CEO is on and the BoD is engaged on it. The Board has been doing a worldwide search and this process

involves grooming internal candidates as well. The management has not disclosed any timeline for the same.

(INR Crores) Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%) FY19 FY18 YoY (%)

Volumes (Nos) 59,521 58,734 1.3% 43,758 36.0% 1,97,366 1,74,873 12.9%

Realization (Rs) 14,86,186 14,94,891 -0.6% 14,45,505 2.8% 14,72,136 15,07,174 -2.3%

Net sales 8,846 8,780 0.7% 6,325 39.9% 29,055 26,356 10.2%

COGS 6,429 6,248 2.9% 4,436 44.9% 20,680 18,431 12.2%

Employee Expenses 573 459 25.0% 500 14.7% 2,099 1,838 14.2%

Other Expenses 858 948 -9.5% 740 15.9% 3,141 3,124 0.5%

EBITDA 985 1,126 -12.5% 650 51.7% 3,136 2,964 5.8%

D&A 160 157 1.5% 161 -0.6% 621 598 3.8%

Other income 9 59 -84.7% 21 -56.3% 110 197 -44.1%

EBIT 835 1,028 -18.8% 510 63.8% 2,625 2,562 2.5%

Interest Expense 17 24 -31.9% 19 -13.4% 70 147 -52.2%

PBT 806 1,006 -19.8% 484 66.8% 2,497 2,386 4.7%

Tax 153 263 -41.5% 103 49.4% 514 668 -23.1%

PAT 653 743 -12.1% 381 71.5% 1,983 1,718 15.5%

EPS in INR 2.2 2.5 -12.6% 1.3 70.8% 6.8 5.9 15.2%

Margin Analysis Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%) FY19 FY18 YoY (%)

Material Expenses % Net Sales 72.7% 71.2% 1.5% 70.1% 2.6% 71.2% 69.9% 1.2%

Gross Margin 27.3% 28.8% -1.5% 29.9% -2.6% 28.8% 30.1% -1.2%

Employee Expenses % Net Sales 6.5% 5.2% 1.3% 7.9% -1.4% 7.2% 7.0% 0.3%

Other Expenses % Net Sales 9.7% 10.8% -1.1% 11.7% -2.0% 10.8% 11.9% -1.0%

EBITDA Margin (%) 11.1% 12.8% -1.7% 10.3% 0.9% 10.8% 11.2% -0.5%

Tax Rate (%) 19.0% 26.1% -7.1% 21.2% -2.2% 20.6% 28.0% -7.4%

PAT Margin (%) 7.4% 8.5% -1.1% 6.0% 1.4% 6.8% 6.5% 0.3%








Volume Projections





Ashok Leyland Volume Projections FY16 FY17 FY18 FY19 FY20E FY21E

Domestic Volumes 1,38,356 1,33,264 1,58,612 1,85,065 2,06,191 1,89,522

YoY Growth (%) -3.7% 19.0% 16.7% 11.4% -8.1%

%tage of total volumes 91.3% 91.9% 90.7% 93.8% 94.0% 93.0%

Export Volumes 13,133 11,802 16,261 12,301 13,137 14,236

YoY Growth (%) -10.1% 37.8% -24.4% 6.8% 8.4%

%tage of total volumes 8.7% 8.1% 9.3% 6.2% 6.0% 7.0%

Total Volumes 1,51,489 1,45,066 1,74,873 1,97,366 2,19,328 2,03,758

YoY Growth (%) -4.2% 20.5% 12.9% 11.1% -7.1%

Realization (INR) 12,50,078 13,88,343 15,00,970 14,72,136 14,86,192 15,76,181

YoY Growth (%) 11.1% 8.1% -1.9% 1.0% 6.1%

Net Revenues 18,937 20,140 26,248 29,055 32,596 32,116

YoY Growth (%) 6.4% 30.3% 10.7% 12.2% -1.5%

7% 31% 32% 25% 21% 22% 24% 27% 27.7% 28.4%

1%

1% 0%

0%1% 0%

1%1% 0.8% 0.9%

66%

49% 46% 54%61%

63%64% 62% 61.6% 60.5%

25% 20% 21% 20% 18% 16% 12% 10% 9.9% 10.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

%tage of total volume sales

LCVs-Goods Carriers LCVs-Passenger Carriers M&HCVs-Goods Carriers M&HCVs-Passenger Carriers




Source: Company, LME, Cogencis, NSPL Research

Story in Charts




8.5

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Ashok Leyland's LCV Market Share (%)

LCVs-Goods Carriers

29.8

27.7

30.1

30.5

31.0

30.9

31.2

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32.8

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34.4

38

.4

35

.5

36

.0

35

.9

37

.3

37

.8

37

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38

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.5

37

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36

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34

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Ashok Leyland's MHCV Market Share (%)

M&HCVs-Goods Carriers M&HCVs-Passenger Carriers

10.6

%

-10.

5%

-21.

7%

8.2%

-8.6

%

22.6

%

42.1

%

23.3

%

47.8

%

26.8

%

-6.2

%

1.3%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Q1

FY1

7

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Ashok Leyland's Volume Growth

Volumes (No) Volume Growth YoY (%)

0.0%

31.5

%

59.2

%

32.0

% 46.8

%

25.4

%

-12.

0% 0.7%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Topline Performance

Revenue Revenue Growth YoY (%)

-7.6

%

9.3%

7.2

%

12.1

%

7.0%

-0.7

%

-1.1

%

-6.2

%

-0.6

%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

13,00,000

13,50,000

14,00,000

14,50,000

15,00,000

15,50,000

16,00,000

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Realization Trend

Realization (Rs) Realization Growth YoY (%)

9.8%

8.5% 8.9

%

5.7

%

8.9%

4.0%

7.0%

9.1%

12.8

%

7.8

% 8.7%

7.4

%

11.

1%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

0

200

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1,000

1,200

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FY1

6

Q1

FY1

7

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FY1

7

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FY1

7

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FY1

7

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FY1

8

Q2

FY1

8

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FY1

8

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FY1

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FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

EBITDA Margin Performance

EBITDA EBITDA Margin (%)




Profit & Loss (INR Crores) FY17 FY18 FY19 FY20E FY21E

Net sales 20,140 26,248 29,055 32,596 32,116

COGS 13,973 18,621 20,680 23,127 23,204

Employee Expenses 1,480 1,812 2,099 2,357 2,500

Other Expenses 2,484 3,076 3,141 3,487 3,355

EBITDA 2,203 2,739 3,136 3,625 3,057

D&A 518 555 621 713 768

Other income 136 190 110 123 122

EBIT 1,685 2,184 2,515 2,912 2,289

Interest Expense 155 131 70 56 45

PBT 1,330 2,231 2,497 2,977 2,363

Tax 107 668 514 923 732

PAT 1,223 1,563 1,983 2,054 1,630

EPS in INR 4.2 5.3 6.8 7.0 5.6

Balance Sheet (INR Crores) FY17 FY18 FY19 FY20E FY21E

Share Capital 285 293 294 294 294

Net Worth 6,126 7,165 8,332 9,446 10,329

Financial Liabilities 1,194 417 333 305 251

Provisions 133 255 250 279 278

Deferred Tax Liabilities (net) 127 298 250 449 356

Other Non-current Liabilities 39 204 271 304 299

Total Non Current Liabilities 1,492 1,174 1,103 1,336 1,184

Financial Liabilities 5,289 6,407 6,719 7,220 7,155

Other Current Liabilities 614 1,213 1,267 1,421 1,407

Provisions 518 616 803 893 838

Current tax liabilities (net) 0 12 0 0 0

Total Current Liabilities 6,422 8,247 8,789 9,534 9,401

Total Equity and Liabilities 14,040 16,586 18,224 20,316 20,914

Property, Plant and Equipment 4,656 4,688 4,806 5,180 5,106

Capital Work-in-Progress 158 213 275 296 292

Intangibles 363 475 1,192 328 274

Financial Assets 2,184 2,805 2,710 3,041 2,991

Advance tax assets (net) 111 60 102 184 146

Other Non-Current Assets 468 475 954 1,028 1,013

Total Non-Current Assets 7,940 8,716 10,038 10,058 9,823

Inventories 2,631 1,710 2,685 3,002 3,012

Investments 877 3,055 0 0 0

Trade Receivables 1,064 980 2,506 2,811 2,769

Cash and Bank Balances 912 1,004 1,394 2,624 3,519

Loans 21 24 22 26 22

Other Current Assets 471 1,096 1,600 1,795 1,769

Total Current Assets 5,977 7,870 8,186 10,258 11,091

Total Assets 14,040 16,586 18,224 20,316 20,914








Cash Flow (INR Crores) FY17 FY18 FY19 FY20E FY21E

Profit for the Year 1,223 1,563 1,983 2,054 1,630

Operating Profit before Changes in Working Capital 2,325 2,871 3,132 3,682 3,113

Cash Generated from Operations 2,502 5,833 183 3,741 3,015

Less: Direct Taxes Paid -348 -415 -514 -923 -732

Net Cash Flow from Operating Activities 2,155 5,418 -330 2,819 2,282

(Increase)/ Decrease in PP&E -378 -537 -1,518 -155 -636

Free Cash Flows 1,777 4,881 -1,848 2,663 1,646

Net Cash Flow from Investing Activities -1,477 -3,332 1,706 -412 -529

(Decrease)/Increase in Debt

Finance Costs -164 -146 -70 -56 -45

Dividend Paid (including DDT) -325 -549 -812 -1,037 -747

Net Cash Flow from Financing Activities -1,372 -1,961 -984 -1,176 -858

Net Increase/(decrease) in cash and cash equivalents -694 125 391 1,230 895

Cash at the Start of the Year 1,563 869 994 1,385 2,615

Cash at the End of the Year 869 994 1,385 2,615 3,510

RATIOS FY17 FY18 FY19 FY20E FY21E

Profitability

RoE (%) 20.0% 21.8% 23.8% 21.7% 15.8%

RoCE (%) 20.4% 26.7% 27.5% 28.9% 21.1%

Margin Trend

EBITDA Margin (%) 10.9% 10.4% 10.8% 11.1% 9.5%

Net Profit Margin (%) 6.1% 6.0% 6.8% 6.3% 5.1%

Solvency

D/E (x) 0.4 0.1 0.1 0.1 0.0

Net D/E (x) 0.2 0.0 -0.1 -0.2 -0.3

Valuation Ratios

P/E 20.3 20.3 13.9 13.4 16.9

EV/EBITDA 11.7 11.6 8.6 7.0 8.0

P/B 4.0 4.4 3.3 2.9 2.7

Source: Company, NSPL ResearchFY17 & FY18 financials is taken from annual report FY18.






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Disclaimer:This report has been prepared by Nalanda Securities Pvt. Ltd(“NSPL”) and published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India(Research Analysts) Regulations, 2014, for use by the recipient as information only and is not for circulation or public distribution. NSPL includes subsidiaries, group and associatecompanies, promoters, directors, employees and affiliates. This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or made available toothers, in any form, in whole or in part, for any purpose without prior written permission from NSPL. The projections and the forecasts described in this report are based upon anumber of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and itcan be expected that one or more of the estimates on which the projections are forecasts were based will not materialize or will vary significantly from actual results and suchvariations will likely increase over the period of time. All the projections and forecasts described in this report have been prepared solely by authors of this report independently.None of the forecasts were prepared with a view towards compliance with published guidelines or generally accepted accounting principles.This report should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this report nor anything containedtherein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. It does not constitute a personal recommendation or take into accountthe particular investment objective, financial situation or needs of individual clients. The research analysts of NSPL have adhered to the code of conduct under Regulation 24 (2) ofthe Securities and Exchange Board of India (Research Analysts) Regulations, 2014. The recipients of this report must make their own investment decisions, based on their owninvestment objectives, financial situation or needs and other factors. The recipients should consider and independently evaluate whether it is suitable for its/ his/ her/their particularcircumstances and if necessary, seek professional / financial advice as there is substantial risk of loss. NSPL does not take any responsibility thereof. Any such recipient shall beresponsible for conducting his/her/its/their own investigation and analysis of the information contained or referred to in this report and of evaluating the merits and risks involved insecurities forming the subject matter of this report. The price and value of the investment referred to in this report and income from them may go up as well as down, and investorsmay realize profit/loss on their investments. Past performance is not a guide for future performance. Actual results may differ materially from those set forth in the projection.Except for the historical information contained herein, statements in this report, which contain words such as ‘will’, ‘would’, etc., and similar expressions or variations of such wordsmay constitute ‘forward‐looking statements’. These forward‐looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differmaterially from those suggested by the forward‐looking statements. Forward‐looking statements are not predictions and may be subject to change without notice. NSPL undertakesno obligation to update forward‐looking statements to reflect events or circumstances after the date thereof. NSPL accepts no liabilities for any loss or damage of any kind arising outof use of this report.This report has been prepared by NSPL based upon the information available in the public domain and other public sources believed to be reliable. Though utmost care has beentaken to ensure its accuracy and completeness, no representation or warranty, express or implied is made by NSPL that such information is accurate or complete and/or isindependently verified. The contents of this report represent the assumptions and projections of NSPL and NSPL does not guarantee the accuracy or reliability of any projection,assurances or advice made herein. Nothing in this report constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable orappropriate to recipients’ specific circumstances. This report is based / focused on fundamentals of the Company and forward‐looking statements as such, may not match with areport on a company’s technical analysis report. This report may not be followed by any specific event update/ follow‐up.

Following table contains the disclosure of interest in order to adhere to utmost transparency in the matter;

Disclosure of Interest Statement

Details of Nalanda Securities Pvt. Limited (NSPL)

• NSPL is a Stock Broker registered with BSE, NSE and MCX ‐ SX in all the major

segments viz. Cash, F & O and CDS segments. Further, NSPL is a Registered

Portfolio Manager and is registered with SEBI

• SEBI Registration Number: INH000004617

Details of Disciplinary History of NSPL No disciplinary action is / was running / initiated against NSPL

Research analyst or NSPL or its relatives'/associates' financial interest in

the subject company and nature of such financial interest

No (except to the extent of shares held by Research analyst or NSPL or its

relatives'/associates')

Whether Research analyst or NSPL or its relatives'/associates' is holding

the securities of the subject companyNO

Research analyst or NSPL or its relatives'/associates' actual/beneficial

ownership of 1% or more in securities of the subject company, at the

end of the month immediately preceding the date of publication of the

document

NO

Research analyst or NSPL or its relatives'/associates' any other material

conflict of interest at the time of publication of the documentNO

Has research analyst or NSPL or its associates received any compensation

from the subject company in the past 12 monthsNO

Has research analyst or NSPL or its associates managed or co‐managed

public offering of securities for the subject company in the past 12 monthNO


for investment banking or merchant banking or brokerage services from

the subject company in the past 12 months

NO


for products or services other than investment banking or merchant

banking or brokerage services from the subject company in the past 12

months

NO


or other benefits from the subject company or third party in connection

with the document.

NO

Has research analyst served as an officer, director or employee of the

subject companyNO

Has research analyst or NSPL engaged in market making activity for the

subject companyNO

Other disclosures NO

Rating Legend

Strong Buy More than 15%

Buy 5% - 15%

Hold 0 – 5%

Reduce -5% - 0

Sell Less than -5%

Ashok Leyland

Date CMP (INR) Target Price (INR) Recommendation

May 25, 2019 94 105 Buy







May 25, 2019 Ashok Leyland - Nalanda Securities€¦ · Q4FY19 – e May 25, 2019 Ashok Leyland...

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