Buy Ashok Leyland; target Rs 20: Dolat Capital
Dolat Capital is bullish on Ashok Leyland and has recommended 'Buy' rating on the stock with a price target of Rs 20 in its July 16, 2013 research report.
Dolat Capital's research report on Ashok Leyland
Ashok Leyland reported top-line revenue at Rs 23.6bn, down 21 percent YoY. The volumes were down 21 percent YoY. The company sold 14,897 M&HCV versus 20,239 vehicles in 1QFY14. Even the growing LCV segment recorded a negative growth. We had assumed ~8 percent growth in volumes for FY14 but looking at this performance and the current economic scenario, we are downgrading our volume growth estimate to 2 percent for FY14. Even the LCV growth for FY14 has been tapered down to 8 percent (from the previously assumed 12 percent).
The raw material costs in the quarter continued to be higher due to high cost inventory and lower volumes. Lower volumes resulted in lower recovery of the fixed costs and added pressure on margins. The company’s operating margins declined by just 430bps QoQ to 1.0 percent
EBIDTA for the quarter was Rs 233mn, down 90 percent YoY.
Market share at 19 percent in M&HCV, down 350bps YoY
Its M&HCV sales volumes were down 30 percent in the domestic market and its M&HCV market share declined from 22.6 percent in 1QFY13 to 19.2 percent in 1QFY14. In the LCV segment, it sold ~6,400 nos of its newly launched ‘Dost’ in 1QFY14 compared to ~7,300 units sold in 1QFY13.
Net loss reported at Rs 1,417mn
The company reported its net loss at Rs 1,417mn. Interest costs were higher due to higher working capital, increased borrowings for product development, investments in joint ventures and Pantnagar facilities. The company has targeted to reduce its working capital debt by Rs 7.5bn in FY14.
View and valuation: "Macro headwinds continue to affect the demand in the commercial vehicle segment. Even the demand in the light commercial vehicle is now feeling the heat of uncertainties. Our new volume assumption estimates revenue growth for FY13-15 at ~9 percent (compared to 13 percent earlier). The stock has seen a significant correction in its price. In the last one month, the stock has corrected ~30 percent vs the broad markets growth of ~ 3 percent. It currently trades at a P/E of 10.2x FY15E. We believe valuations price in all the negative impact and maintain Buy with a revised price target of 20/- (from the earlier 26/-)," says Dolat Capital research report.
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