Buy Ashok Leyland; target of Rs 32: Angel Broking

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Buy Ashok Leyland; target of Rs 32: Angel Broking

Angel Broking is bullish on Ashok Leyland and has recommended buy rating on the stock with a target of Rs 32 in its February 3, 2012 research report.

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Angel Broking is bullish on Ashok Leyland and has recommended buy rating on the stock with a target of Rs 32 in its February 3, 2012 research report.

"Ashok Leyland's (AL) 3QFY2012 results were significantly below our (as well as consensus) estimates at the EBITDA and net profit level led by steep increase in other expenditure and higher employee costs. Further increasing contribution from the recently launched Dost vehicles too impacted net average realization and hence profitability. We revise upwards our volume and revenue estimates for FY2012/13 as we factor in the sales of Dost into our volume estimates (5,900/33,000 units of Dost in FY2012/13) and expect overall demand scenario to improve with likely easing of interest rates from 1QFY2013. We lower our EBITDA margin estimates due to inclusion of Dost volumes which is a lower margin product. Consequently our EPS estimates are revised to Rs2.2/Rs2.7 for FY2012/13. As AL is currently trading at attractive valuations we maintain our Buy rating on the stock."

"AL reported robust 29.3% yoy (down 6.9% qoq) growth in net sales to Rs2,880cr aided by a strong 25.9% yoy (down 1.7% qoq) growth in total volumes which benefitted from the sales of recently launched LCV - Dost. Average net realization however grew by a moderate 2.7% yoy (down 5.3% qoq) on account of higher discounts and change in product mix led by introduction of lower priced Dost. EBITDA margin contracted sharply by 340bp qoq due to a substantial surge in other expenditure (annual maintenance charge of Rs20cr, forex loss of Rs15cr and increase in marketing spends mainly on Dost at Rs7cr) and employee costs (Rs16cr towards bonus payouts and Rs8cr due to increase in manpower at Pantnagar). Hence net profit declined 56.6% qoq to Rs67cr; significantly below our estimates."

"At Rs26, AL is trading at attractive valuations of 9.7x its FY2013E earnings. We maintain our Buy rating on the stock with a target price of Rs32, valuing the stock at 12x its FY2013E earnings," says Angel Broking research report.

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