Systematix research report on Ashok Leyland
AL’s 3QFY17 results were slightly below our expectations due to higher discounting. Revenue increased 8% yoy to Rs 44.3bn, as volumes rose by 6% yoy and realisation increased by 2% yoy. EBITDA at Rs 4.5bn was flat yoy, while margin was 70bps lower yoy at 10.3% due to discountingled realisation decline and raw material cost inflation. We believe the company has managed well amid demonetisation, as CV segment suffered haulage drop due to a cash crunch and deferring purchases.
OutlookRealisation would also improve in the coming quarter, as AL has taken a 4% price increase in the current quarter along with better export and defense shares in overall business. However, we would be watchful for further growth levers in FY18, post GST and BSIV roll-out, as we expect a muted 1HFY18 for the industry. Likely union budget proposal on ‘Cash for clunker’ policy for 15-year-old M&HCVs can be a potential growth lever in FY18, if announced. We maintain a Buy rating on AL, with a target price of Rs 125.
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