Fundamental Result Update

Ashok Leyland Ltd Q2FY20 Result Update



Ashok Leyland (AL) reported weak performance in Q2FY20 with decline in topline by - 48% YoY / -31% QoQ at Rs. 39.3bn (vs est Rs.Rs.41.2bn). This was mainly due to plunge in realisation -41% YoY / -14% QoQ. Gross margins were 31%, YoY expansion of 309bps on account of better mix and lower raw material cost (69% of sales vs. 72% last year). EBITDA stood at Rs.2.3bn, de-growth of -72% YoY / -57% QoQ (vs est Rs.3.0bn). EBITDA margin at 5.8%, contracted by -506bps YoY / -363bps QoQ. Interest expenses at Rs.301mn, rose by 48% YoY / 140% QoQ. Other income rose +65% YoY at Rs.455mn. The company posted normalised PAT of Rs.1.04bn (vs est Rs.1.2bn), -81% YoY / -59% QoQ. PAT adjusted for exceptional loss was at Rs. 648mn which includes Rs.447mn of provision towards voluntary retirement scheme & Rs.175mn of obligation towards LCV subsidiary. The management highlighted on the call that the volume decline was in line with industry volume decline. There is no clarity about the industry revival but the company is hopeful to see some improvement in volumes in Q1FY21 onwards due to good range of product offerings & BS VI products.

 

Outlook: We believe, presently the industry is under-going through a tough downcycle due to weak sentiments, economic slow-down, cost escalation related to BS VI norms etc. The slowdown in the Indian truck industry has intensified in recent months, which can be seen in AL’s H1FY20 volume nos. However, we believe, AL would do better in FY21 onwards on the back of new product/platform launches, improvement in exports. At CMP of Rs 79, stock is trading at a P/E of 19x FY21E. We cut our topline estimate by -21% / -13% for FY20/FY21E to factor in the current down-cycle. We assign PE multiple of 15x (expecting new launch & increase in exports) FY21E and downgrade rating to SELL for a TP of Rs 63 (-20% downside).


Tags: FundamentalResult Update


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