LKP Research's research report on Ashok Leyland
Ashok Leyland (ALL) reported 0.8% yoy and 40% qoq growth in the topline. Volume dip was at 1% yoy while growing at 32% qoq. The realizations were up by about 2.2% yoy and 6% qoq. The company’s market share rose by 180 bps to 36.9% by the end of the quarter and this year. Margins came in at 11.1%, 70 bps down yoy and 80 bps up qoq as RM costs were up, high margin defense business narrowed, exports were weak and discounting went up. However, they were broadly in line with market expectations. Below the operating profits level, other income dropped, while depreciation moved up by 9% yoy and 14.1% qoq. On account of lower other income and lower tax rate, net profits adjusted for an exceptional item came in at ₹6.53 bn, which was up by 71%qoq and down by 2.2% yoy.
Outlook
On the margin front, softening on price hikes, LCV merger, Modular program, cost cutting initiatives, price hikes etc will drive margins, however, increasingly strong discounting may steal the steam. Reduction in inventories and limited capex growth (₹ 10-15 bn in FY 20 v/s 9.5 bn in FY 19) will lead to maintenance of near 20-25% return ratios. With strong prospects for LCV business and increased focus from management, we still remain sanguine on the stock. We maintain BUY rating with a reduced target of ₹ 104 on uncertain volume outlook.
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