Ashok Leyland – Development outlook stays constructive – ICICI Securities


Ashok Leyland (AL) working efficiency in Q4FY21 exceeded consensus estimates, with EBITDA margin standing at 7.6%. The decision for outcomes supplied a greater understanding of administration’s development prospects, some key ideas are: a) give attention to market share positive aspects led by the LCV section (new product launches below the Bada Dost model), b) margins have robust levers: i) higher combine (increased LCV share), ii) decrease mounted prices, iii) increased provide efficiencies because of the AVTR platform, c) exports stay a site of key intervention led by the Africa and MENA area; growth of latest distributors (6-7) is prone to drive development in FY 22E, d) Devoted freight hall is unlikely to have a serious affect on trade volumes. AL stays a great proxy for a cyclical restoration within the automotive trade. The valuations are cheap (FY23: FCF yield: 6%). Keep BUY.

Major highlights of the earnings name:

– AL’s M & HCV Q4FY21 volumes grew 111% yoy to achieve 28.9% market share vs. 27.6% yoy (FY21 market share elevated 0.8 % to twenty-eight.9%). Greater TCO and higher fluid effectivity led to the success of the AVTR platform. LCV demand is pushed by e-commerce and the expansion of the agricultural financial system, LCV volumes are up 7% with the launch of Bada Dost (4.5k items bought in This fall).

– On the margins, the LCV exercise is clearly extra worthwhile in comparison with MHCVs. Business value conduct in M ​​& HCV remained weak within the fourth quarter; nevertheless, administration expects the identical to enhance as demand improves. Fastened price discount workout routines proceed in varied packages (eg spare elements procurement, design), which might enhance margins within the occasion of rising commodity value prices.

– For export, the AVTR and Phoenix platforms have robust export capacities; AL is increasing its distribution community in key areas comparable to Africa (6-7 new distributors added within the Africa / MENA area in fiscal 12 months 21).

– Investments in FY21 have been 6.2 billion rupees (FY20: ~ 13 billion rupees) whereas investments amounted to about 3.7 billion rupees (FY20: ~ 4, 5 billion rupees). Web debt in FY21: Rs26bn (0.37x). Investments for FY22 are anticipated to quantity to 7.5 billion rupees as AL has no plans for main brownfield or new growth. Funding in associates is predicted to achieve Rs 2-2.5 billion (together with HLFL).

– Stock ranges on the plant stood at 3.4k items. AL took benefit of value will increase in Q3 and This fall to partially offset continued will increase in commodity costs.

– Devoted Freight Hall (DFC) is unlikely to affect AL gross sales as the present load from the present passenger line is predicted to be shifted to DFC.

– AL has skilled stable efficiency within the area of energy options with a dominant share in building engines. Within the protection section, the stallion and tremendous stallion vary are robust manufacturers; AL plans to develop its armored automobile providing in FY 22/23.

Outlook and valuations

We imagine that S2FY22E may mark the beginning of a multi-year bullish cycle in M ​​& HCV demand. We assess the principle exercise at 14x FY23E EV / EBITDA on bettering CV cycle outlook and add Rs6 / share for investments to reach at a SoTP based mostly goal value of Rs143. We’re sustaining our PURCHASE score on the inventory.

Dangers on the rise: scrapping coverage with a powerful incentive, quicker CV valuation cycle.

Draw back dangers: Slower-than-expected enchancment in margins, lack of market share.

ASHOK LEYLAND LTD. Final traded on BSE at Rs.123.35 from the earlier shut of Rs. 118.2. The whole variety of shares traded in the course of the day was 6,280,898 in additional than 26,328 transactions.

The inventory hit an intraday excessive of Rs. 129.35 and an intraday low of 122. Web turnover in the course of the day was Rs. 786,427,665.


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