AL’s 2QFY21 results were operationally better as EBITDA beat at Rs804mn (PLe of Rs99mn) led by higher gross margins at 28.8% (PLe 27%). With increased inquiries from large fleet operators and financing situation improving, M&HCV segment to see gradual volume recovery from 3Q/4Q. Going in FY22 with improved economic activity and a low base, we expect M&HCV volume to see healthy recovery. The management envisages continuing cost savings in FY21 (v/s Rs5.5bn in FY20). This should partially offset negative operating leverage. We cut/upgrade FY22/23 EPS by 7.6%/4.7% respectively to factor in mix impact (higher LCVs), higher interest cost and RM inflation.
OutlookWe maintain BUY with price target of Rs100 (v/s Rs95 at FY23 12x EV/EBITDA and Rs16 to NBFC, unchanged). Current valuations at 14.8x/12.3x FY22/23 EV/EBITDA reflect early recovery cycle and do not fully capture AL’s de-risking strategy of reducing M&HCV dependence.
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