Swaraj Baggonkar Moneycontrol News
Gaining from a continued surge in demand across categories, and last year's lower base, domestic commercial vehicle manufacturer Ashok Leyland will likely post a threefold rise in its bottom line for the June quarter.
According a Reuters poll of 15 analysts, the Chennai-based truck and bus maker's net profit is seen rising 220 percent year on year to Rs 356.3 crore for the quarter under review.
The company's financials for the June quarter included those of Hinduja Foundaries, which merged with Ashok Leyland during the December quarter last year.
The company's performance in that quarter was also hit by some weakness in demand after it switched to Bharat Stage IV (BS-IV) emission norms for all its vehicles.
Ashok Leyland, like other manufacturers, was forced to liquidate its BS-III stock in March, 2017, at heavy discounts after the Supreme Court ordered all sales of BS-III grade vehicles to be halted after March 31, 2017. This created a demand vacuum in the first quarter of the previous fiscal year.
Ashok Leyland's revenue for Q1FY19 is expected to come in at around Rs 6,359 crore, 41 percent higher than the Rs 4,514 crore reported in the corresponding quarter last year.
The company will announce its results for the June quarter on July 17.
Sales push
Ashok Leyland, which makes and sells trucks and buses under the Dost, Captain, Ecomet and Janbus brands, ended the June quarter with sales of 42,128 units, 48 percent more than what it sold in the same quarter last year.
Sales in the domestic market grew 51 percent to 38,119 units, while exports rose 22 percent to 4,009 units, according to data provided by the Society of Indian Automobile Manufacturers (SIAM).
Ashok Leyland is India's third largest commercial vehicle manufacturer after Tata Motors and Mahindra & Mahindra.
"We believe that concerns on slowdown in the medium and heavy commercial vehicles (MHCV) industry are unwarranted; tonnage growth continues to outpace volume growth, which reflects healthy demand environment and positive freight growth outlook. We expect MHCV industry volumes to grow at 13 percent CAGR over FY2018-20E led by freight growth, pick-up in road construction and mining activity and regulatory factors (overloading ban, implementation of BS-VI emission norms, etc.)," Kotak Institutional Equities said in a report.
Brokerage IIFL pointed out in a report that the company's market share in the medium and heavy commercial vehicles space improved by 50 bps to 34.3 percent, which is an all-time high.
"Although gross margin was under pressure due to high discounting and rise in input costs, it was partially offset by operating leverage on strong volumes. Management is also bullish on growth in exports as well as on non-truck revenue streams such as LCV, Defence and spare-part sales," IIFL said.
However, Ambit believes that the company is likely to face several pressures in the coming quarters, which could impact its performance.
"Increase in permissible axle load carrying capacity by 20-25 percent amid rising systemic inventory, risk of rising discounts given systemic overcapacity, raw material inflation amid weakening pricing power, reversal in inventory days to 36-40 from 24 in FY18 (mean 37 days; FY14-18); and start of the next capex cycle would hit Ashok Leyland’s free cash flow generating ability in FY19," Ambit said in a report.
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