Hinduja group company Ashok Leyland is back in black after reporting a net profit of Rs 32 crore in the quarter ended December (Q3) against a loss of Rs 167.2 crore in the year-ago period. However, according to a CNBC-TV18 poll, the new profit was slightly lower than estimates of Rs 35.8 crore.
In an interview to CNBC-TV18, Prayesh Jain of IIFL shares his reaction on Q3 earnings and his outlook on the performance of the company.Below is verbatim transcript of the interview:
Q: The management in its note to the media says, we believe this growth momentum will continue. We should close this fiscal on a good note. Total industry volume has grown 10 percent year-on-year, a more stable optimistic business environment, improvement in profitability of fleet owners. Pre-buying ahead of the excise duty hike has contributed to the increase in sales this quarter that we are reporting. What do you make of the big beat on the revenue front?
A: The revenue is slightly higher than our expectation; unfortunately the discount levels would have gone down this quarter. Possibly that could be one of the reasons and compared to the previous quarters, so that could be the reason why its been a beat on the top line front, while in terms of margins we were expecting it to be around 7.3 percent, so it’s not something very upbeat. While even on PAT trend we were expecting around Rs 41 crore, they have delivered less than that, much lower than what we were expecting, so al slight disappointment there.
Q: What do you do with the stock now because clearly the company is on a turnaround path and the management in their repeated reactions with us indicated that they hope to see double digit margins by the end of this year, if not by the first quarter of next year? Given that there is an improving performance, would you give the stock, or would you ascribe a higher value to the stock or do you think a lot of it has already been priced in?
A: A lot of that has already been factored in and it actually boils down to what assumptions you take. For the volume growth in the previous Bull Runs or in the previous up cycle of the economy, the MNC volumes used to jump by 30 percent those times.
Currently, we have been building around 18 percent Compound Annual Growth Rate (CAGR) in the next couple of years. If the volumes can actually beat and can go back actually to the previous Bull Run kind of volume growth numbers then we have further upside from here but at the 18-20 percent CAGR of volumes over the next couple of years and margins expanding to 10.5-11 percent. Q: The other income is higher this time around, close to Rs 20 crore versus Rs 15.5 crore earlier and there is a big fall that they have seen in interest cost. The management also says that this marks a significant turnaround for the company and talk about how export orders from Sri Lanka and Africa picking up. Just wanted your view on that because the management has indicated that they hope to continue growing exports by the end of this year it will be a 30 percent jump in exports. How much do you think that segment could contribute to blended margins, say in the next year?
A: Not something very material, more focus has to be on the domestic market and what kind of orders from the state transport and the fleet operators and one interesting point could be from the fact that or a medium term lot of urbanisation activities are expected from the govt.
Smart cities and building of 100 cities, what the government seems to be promising, and in that terms, lot of public transport would be required. In that sense, the passenger side of the business which can be a good driving force over the medium term
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