SPA Securities' report on Ashok Leyland
Ashok Leyland (AL) Standalone revenue declined 89% YoY at INR 6.5 bn. Realizations improved ~19% YoY at INR 1.7 mn led by higher spare sales. Volume declined ~90% YoY/ 85% QoQ to 3.8k units. Share of MHCV sales declined to 27% (v/s 67.5% in Q1FY20). Better gross margins at 35.9% (+580 bps YoY) were offset by higher other cost at INR 2.1 bn resulting in higher EBITDA loss at INR 3.3 bn (INR +5.4 bn in Q1FY20). Adjusted loss for the quarter came higher at INR 3.9 bn (+INR 2.4 bn in Q1FY20) led by higher interest cost at INR 768 mn. The domestic MHCV industry has been in a downturn since Nov'18, and FY20 has been the worst year in the past 20 years. M&HCV sub-segment, in particular, continued to remain subdued during last couple of months. With manufacturing and economic activity still muted in the 'unlock' phase, freight movement remains well below previous levels (fleet utilisation at ~50-55%) thereby impacting truck demand. Closure of schools and offices along with concerns around public transport are weighing on bus demand. We expect a revival by FY21 end, led by a low base, replacement demand and gradual pickup in economic activity.
Considering bottoming out in the domestic M&HCV sales volume, we value ASHLEY's standalone business at 11x FY22 EV/EBITDA and assign INR 6/sh for HLFL stake and recommend BUY on the stock with a target of INR 87.
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