Accumulate Ashok Leyland; target Rs 25: Angel Broking
Brokerage house Angel Broking is bullish on Ashok Leyland (AL) and has recommended 'Accumulate' rating on the stock with a price target of Rs 25 in its research report dated May 13, 2013.
Angel Broking's research report on Ashok Leyland (AL)
"Ashok Leyland (AL) reported extremely weak performance for 4QFY2013, broadly in-line with our estimates, owing to sharp contraction in operating margins (down by 554bp yoy to 5.3 percent) on account of record discounts in the medium and heavy commercial vehicle (MHCV) segment, inferior product-mix and higher other expenditure. Additionally, higher interest cost due to higher working capital requirements also impacted the performance, leading to a modest adjusted bottom-line profit of Rs 16cr. We broadly maintain our volume and revenue estimates for FY2014/15; however, we lower our EBITDA margin estimates by 210bp/115bp for FY2014/15 to account for continued margin pressures due to higher discounts and increasing share of Dost in the overall product-mix. Consequently, our earnings estimates are revised downwards by 48.1 percent/22.4 percent. While we believe that expected easing of interest rates in CY2013 will lead to revival in industrial activity and thus the demand for MHCVs; increasing share of Dost in the overall product-mix will restrict the expansion in operating margins.For 4QFY2013, net sales posted a significant decline of 13.9 percent yoy to Rs 3,728cr; however, it was slightly ahead of our expectations of Rs 3,520cr. The decline in the top-line was led by an 11.2 percent yoy drop in net average realization following record levels of discounting (average discounts at Rs 130,000/vehicle vs. Rs 110,000/vehicle in 3QFY2013) and adverse product-mix (higher proportion of Dost in the volume-mix at ~32 percent vs. ~14 percent in 4QFY2012). Total volumes too registered a decline of 2.9 percent yoy led by 23.3 percent yoy decline in MHCV volumes. The EBITDA margin registered a sharp contraction of 554bp yoy to 5.3 percent as against our estimates of 6.4 percent, due to raw-material cost pressures (hiked vendor compensation), increase in average discounts, higher marketing spends and a consultancy charge of Rs 15cr. Consequently, adjusted net profit stood at Rs 16cr for the quarter, which was in-line with our estimates. At Rs 22, AL is trading at 10.7x FY2015E earnings. We recommend an accumulate rating on the stock with a target price of Rs 25," says Angel Broking research report.Also Read: Exit Ashok Leyland: Jagannadham ThununguntlaDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
