Sell SML ISUZU; target of Rs316: Dolat Capital

Dolat Capital's research report on SML ISUZU

SML Isuzu reported a dismal performance in Q4FY20. Revenue stood at Rs 2.7bn (-37% YoY) attributed 42% decrease in volume (2.47k units) offset by 9% increase in net ASP because of better product mix. Bus to Truck volume mix was in ratio of 69:31 with market share of 7.4% in the bus segment. EBITDA stood at Rs 86mn with margin of 3.2% (-635bps YoY) attributable to high RM costs and negative operating leverage. The company reported net loss of Rs 20mn due to poor operating performance. We continue to maintain negative view as FY21 could be tough year as challenges persist in the form of regulatory changes (cost rise due to the move from BS-IV to BS-VI) and negative economic impact of Covid-19. As schools and colleges remain shut, we do not see any revival in demand in the bus segment in FY21. The increasing penetration of EVs in bus segment and rising competitive intensity are key threats for the company.

Outlook

We roll forward our numbers from FY22 to FY23E and continue to maintain Sell, with a target price of Rs 316 (18x FY23E EPS).

SML ISUZU 25072020-dolat

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