Hold Ashok Leyland; target Rs 28: KRChoksey

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Hold Ashok Leyland; target Rs 28: KRChoksey

KRChoksey has recommended hold rating on Ashok Leyland with a target price of Rs 28, in its February 3, 2012 research report.

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KRChoksey has recommended hold rating on Ashok Leyland with a target price of Rs 28, in its February 3, 2012 research report.

"Ashok Leyland reported strong topline growth of 29% y-o-y(down 6.9% q-o-q) driven by 26.8% y-o-y volume growth (on account of 2700 units of LCV 'Dost') and ~2% y-o-y growth in net realizations. However realizations dropped ~6% q-o-q on account of contribution from low margin LCV volumes (Dost).Management expects industry growth to remain subdued at 4-6% for FY13 & expects to achieve market share of ~25%.For the newly launched Dost LCV, management has guided volume of ~8000 for FY12 and 35000-40000 for FY13E.We expect Ashok Leyland's volumes to grow at a CAGR of 15-16% over FY11-13E."

"ALL's EBITDA growth was lower at 26.7% y-o-y to Rs 210 crores (down 36.5% q-o-q) on the back of higher other expenses and RM cost. Sequentially EBITDA declined significantly on the back of increase in purchase of traded goods, Other expenses (higher marketing expenses due to launch of Dost LCV, higher charge of annual maintenance) and employee cost (one time bonus of Rs 16 crore). Consequently margins declined by 340 bps q-o-q to 7.3% for Q3FY12. With increased contribution from low margin LCV segment we expect margins to remain in the range of 9.5-10% going forward. Ashok Leyland's PAT was up by 54.3% y-o-y(down 57% q-o-q) to Rs 66.9 crores impacted by high interest costs (increase in working capital),Depreciation expenses and lower effective tax rate( on account of higher MAT credit). Capex for FY12 is expected to be ~Rs 600 crore (YTD capex ~Rs 350 crore)."

"We expect the ALL's volumes to remain under pressure on the back of subdued growth for the CV industry. This coupled with higher LCV contribution to offset pantnagar benefits resulting in flattish margins going ahead. Any improvement in southern markets & mining sector can result in market share improvement for ALL. We recommend a "HOLD" on the stock with a target price at Rs 28, using target multiple of 10x FY13E EPS of Rs 2.8, giving an upside of 8%," says KRChoksey research report.

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To read the full report click on the attachment