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1
Ashok Leyland Limited
HOLD Target Price: Rs.60.00
CMP: Rs.51.05 Market Cap. : Rs.67913.86mn.
Date: February 03rd
, 2010
Key Ratios:
Particulars FY09
(12 m)
FY10E
(12 m)
FY11E
(12 m)
OPM (%) 8 11 11
NPM (%) 3 5 6
ROE (%) 9 14 14
ROCE (%) 8 11 11
P/BV(x) 3.22 2.77 2.38
P/E(x) 35.74 20.05 16.68
EV/EBDITA(x) 3.67 10.83 10.51
Debt-Equity ratio 0.93 0.88 0.83
Key Data:
Sector Automobile
Face Value Rs.1.00
52 wk. High/Low Rs.56.80/13.80
Volume (2 wk. Avg.) 770000
BSE Code 500477
SYNOPSIS • Ashok Leyland, the flag ship company of Hinduja Group, is
the second largest commercial vehicle manufacturer of
the country.
• The company has reported a whopping 164% surge in its
December sales numbers. The company sold total 6,099
vehicles during the month under review against 2,307
vehicles in the year ago period.
• The company has inked a Memorandum of Understanding
(MoU) with Cisco for developing solutions as per the
requirements of different sectors, which will facilitate
Vehicle-to-Infrastructure (V2I) communication.
• The company unveiled India's first plug-in hybrid bus --
Hybus -- at the Auto Expo 2010.
• The company launched the new, innovative U-Truck
platform with the unveiling of the U-4936 (6x4) Tractor
and the U-2523 (6x4) Tipper.
• The company would start delivery of the first 50 ultra low
entry (ULE) buses to the Delhi Transport Corporation
(DTC) as part of its Rs 11.9 billion contract to supply 875
buses this fiscal.
• Belgium-based Wabco has entered into a supply
agreement with Ashok Leyland.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
vsrsastry@firstcallindiaequity.com
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
drsastry@firstcallindia.com
2
Table of Content
Content Page No.
1. Investment Highlights 03
2. Peer Group Comparison 07
3. Key Concerns 07
4. Financials 08
5. Charts & Graph 10
6. Outlook and Conclusion 12
7. Industry Overview 13
3
Investment Highlights
• Result Updates (Q3FY10)
For the third quarter, the top line of the company increased 81%YoY and stood at
Rs.18155.34mn against Rs.10008.48mn of the same period of the last year. The bottom
line of the company for the quarter stood at Rs.1046.33mn from Rs.188.68mn of the
corresponding period of the previous year i.e., an increase of 455%YoY.
EPS of the company for the quarter stood at Rs.0.79 for equity share of Rs.1.00 each.
4
Expenditure for the quarter stood at Rs.16102.79mn, which is around 75% higher than the
corresponding period of the previous year. Raw material cost of the company for the
quarter accounts for 82% of the sales of the company and stood at Rs.14849.92mn from
Rs.5674.65mn of the corresponding period of the previous year i.e., an increase of
162%YoY. Employee cost increased 42%YoY to Rs.1736.17mn from Rs.1225.27mn. and
accounts for 10% of the revenue of the company for the quarter.
OPM and NPM for the quarter stood at 11% and 6% respectively from 9% and 2%
respectively of the same period of the last year.
5
• December Sales
The company has reported a whopping 164% surge in its December sales numbers. The
company sold total 6,099 vehicles during the month under review against 2,307 vehicles
in the year ago period.
On the flip side, the exports of the leading truck maker of the country witnessed a decline
of 37.51% in December 2009 to 563 units as compared to 901 units in the corresponding
month of 2008.
• MoU
The company has inked a Memorandum of Understanding (MoU) with Cisco for
developing solutions as per the requirements of different sectors, which will facilitate
Vehicle-to-Infrastructure (V2I) communication.
The company also showcased the vehicle with wireless connectivity -- iBus2 -- at the Auto
Expo 2010, as part of this MoU.
• Ashok Leyland unveils Hybus at Auto Expo 2010
The company unveiled India's first plug-in hybrid bus -- Hybus -- at the Auto Expo 2010.
The latest in green technology for urban mass transportation, Hybus is more eco-friendly
than a CNG-powered bus, because of integration of hybrid technology. Compared to a
conventional bus powered by IC engine, Hybus offers significant fuel saving of 20-30%.
The Hybus combines conventional CNG engine with electric propulsion system. The
engine is operated at an optimal efficiency to drive the generator for charging the on-
board battery. The lithium ion battery that powers the electrical drive system provides the
propulsion.
The company is plans to approach the government for subsidies on lithium ion batteries.
At present, the duty on lithium ion batteries, that powers the drive system of a vehicle, is
18%. And also plans to use these buses during the Commonwealth Games to be held in
Delhi in October.
• New launches
The company launched the new, innovative U-Truck platform with the unveiling of the U-
4936 (6x4) Tractor and the U-2523 (6x4) Tipper.
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The U-Truck platform will straddle the entire range of tractors, tippers and haulage trucks
in the 16 – 49 tonne segment, with over 25 models and a host of variants to roll out in 18
months starting April 2010. The range will be powered by BS III and BS IV engines that are
also protected for BS V norms, ranging from 160 to 380 hp.
• Ashok Leyland to supply 875 buses to DTC this fiscal
The company would start delivery of the first 50 ultra low entry (ULE) buses to the Delhi
Transport Corporation (DTC) soon as part of its Rs 11.9 billion contract to supply 875
buses this fiscal.
The company also fulfills its contract to deliver 5,000 buses to various state and local
transport bodies under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
in 2009-10.
The delivery which was originally meant to have started in March got delayed because of
changes in specifications of the vehicles. The company had secured Rs 4.8 billion contract
for supply of the ULE buses from DTC earlier this year. The two parties had also signed Rs
7.1 billion contract for maintenance of the buses over a period of 12 years.
• Ashok Leyland inks pact with Belgian company
Belgium-based Wabco has entered into a supply agreement with Ashok Leyland. The
agreement is for development of transmission automation technology and the long term
supply of automated manual transmission systems from 2010 through 2015.
Wabco will supply its new OptiDrive modular AMT system, an automation technology, to
Ashok Leyland. The company will be the first manufacturer of commercial vehicles in India
to adopt OptiDrive system in volume production.
• Ashok Leyland to roll out four new outlets in Punjab
The company would open three more outlets in Punjab including, one in Chandigarh in
the current fiscal to expand its network.
The company is currently present in eight locations in the state. Its service network is set
to grow further with four more dealer locations at Ludhiana, Moga, Chandigarh and
Bathinda to be opened this fiscal. It inaugurated its new outlet; spread over 10,000 square
feet at Patiala.
It is learnt that the new plant, which will be an integrated manufacturing facility, will bring
the company closer to the north Indian market where operations are expanding. Also the
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company is readying itself for the launch of new products and that these vehicles will be
tailor made for specific applications and are designed for better profitability.
Peer Group Comparison
Name of the
company
CMP(Rs.)
(As on
February
03,2010)
Market Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E (x) P/BV
(x)
Dividend
(%)
Ashok Leyland 51.05 67913.86 1.91 27.38 3.30 100.00
Tats Motors 724.10 372302.00 43.46 16.66 3.01 125.00
M & M ltd 1046.95 292958.90 69.17 15.14 5.59 100.00
Swaraj Mazda 308.00 3229.90 14.96 20.59 3.35 15.00
Key Concerns
� Recession in global economy
� Fluctuations in exchange rates
� High competition from global players
� Adverse Govt. policies
� Increasing number of models in domestic market.
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Financials
Results Update
12 months ended Profit and Loss A/C (Standalone):
Value(Rs in million) FY08A FY09A FY10E FY11E
Description 12m 12m 12m 12m
Net Sales 77291.23 59810.74 63935.34 73525.64
Other Income 739.99 496.23 703.81 809.38
Total Income 78031.22 60306.97 64639.15 74335.02
Expenditure -69251.34 -55251.28 -57614.22 -66256.36
Operating Profit 8779.88 5055.69 7024.92 8078.66
Interest -497.40 -1187.09 -755.57 -831.13
Gross Profit 8282.48 3868.60 6269.35 7247.53
Depreciation -1773.61 -1784.14 -1976.52 -2095.12
Profit before Tax 6508.87 2084.46 4292.85 5152.42
Tax -1731.69 -184.50 -905.18 -1082.01
Profit after Tax 4777.18 1899.96 3387.67 4070.41
Extraordinary Items -84.08 - - -
Net Profit 4693.10 1899.96 3387.67 4070.41
Equity Capital 1330.34 1330.34 1330.34 1330.34
Reserves 19935.71 19760.00 23147.67 27218.08
Face Value 1.00 1.00 1.00 1.00
Total No. of Shares 1330.34 1330.34 1330.34 1330.34
EPS 3.53 1.43 2.55 3.06
9
Quarterly ended Profit and Loss A/C (Standalone):
Value(Rs. in million) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E
Description 3m 3m 3m 3m
Net Sales 9124.51 15776.85 18155.34 20878.64
Other Income 606.24 55.60 19.52 22.45
Total Income 9730.75 15832.45 18174.86 20901.09
Expenditure -9013.20 -14125.03 -16102.79 -18373.20
Operating Profit 717.55 1707.42 2072.07 2527.88
Interest -258.03 -170.04 -162.13 -165.37
Gross Profit 459.52 1537.38 1909.94 2362.51
Depreciation -435.01 -505.82 -512.72 -522.97
Profit before Tax 24.52 1031.56 1397.23 1839.54
Tax 53.20 -145.50 -350.90 -461.98
Net Profit 77.72 886.06 1046.33 1377.56
Equity Capital 1330.34 1330.34 1330.34 1330.34
Face Value 1.00 1.00 1.00 1.00
Total No. of Shares 1330.34 1330.34 1330.34 1330.34
EPS 0.06 0.67 0.79 1.04
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1 Year Comparative Graph
Outlook and Conclusion
• At the market price of Rs.51.05, the stock is trading at 20.05 x and 16.68 x for FY10E and
FY11E respectively.
• On the basis of EV/EBDITA, the stock trades at 10.83 x for FY10E and 10.51 x for FY11E.
• Price to book value of the company is expected to be at 2.77 x for FY10E and 2.38 x for FY11E
respectively.
• EPS of the company is expected to be at Rs.2.55 and Rs.3.06 for the earnings of FY10E and
FY11E respectively.
• The company has reported a whopping 164% surge in its December sales numbers. The
company sold total 6,099 vehicles during the month under review against 2,307 vehicles in
the year ago period.
• The company has inked a Memorandum of Understanding (MoU) with Cisco for developing
solutions as per the requirements of different sectors, which will facilitate Vehicle-to-
Infrastructure (V2I) communication.
Ashok Leyland ltd BSE SENSEX
13
• The company unveiled India's first plug-in hybrid bus -- Hybus -- at the Auto Expo 2010. The
latest in green technology for urban mass transportation, Hybus is more eco-friendly than a
CNG-powered bus, because of integration of hybrid technology. Compared to a conventional
bus powered by IC engine, Hybus offers significant fuel saving of 20-30%.
• In January the company launched the new, innovative U-Truck platform with the unveiling of
the U-4936 (6x4) Tractor and the U-2523 (6x4) Tipper.
• Belgium-based Wabco has entered into a supply agreement with Ashok Leyland. The
agreement is for development of transmission automation technology and the long term
supply of automated manual transmission systems from 2010 through 2015.
• The company has entered into an initial agreement to form a joint venture (JV) with Nissan
Motor Company, for the development, manufacture and distribution of Light Commercial
Vehicle (LCV) products. The company has a negligible presence in the LCV space, this
partnership would be positive for it in the long run.
• The company has completed the formation of a joint venture (JV) with the US-based
agriculture equipment maker John Deere for manufacturing and marketing construction
equipment.
• The JNNURM programme for urban fleet modernization calls for the mobilization of 14,000
vehicles. Out of this, the company has bagged orders for around 5,000 buses, of which the
company has supplied around 700 vehicles. The remainder of the order is scheduled to
spillover into 3QFY2010 and 4QFY2010.
• The domestic Commercial Vehicle (CV) industry is extremely positive and the company
expects to exit this fiscal with a 20%yoy volume growth. A majority of the factors that drive
freight demand and, consequently, M&HCV demand have turned positive and we expect the
CV manufacturers to benefit from the expected economic recovery in 2HFY2010E.
• We recommend ‘HOLD’ with a target price of Rs.60.00 for long term.
Industry Overview
The growth of the Indian middle class along with the growth of the economy over the past few
years has attracted global auto majors to the Indian market. Moreover, India provides trained
manpower at competitive costs making India a favored global manufacturing hub. The
attractiveness of the Indian markets on one hand and the stagnation of the auto sector in
markets such as Europe, US and Japan on the other have resulted in shifting of new capacities
and flow of capital to the Indian automobile industry.
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The midas touch of India is clearly visible on the financials of global auto majors. Be it Japanese
auto majors Suzuki and Honda, or Korean car giant Hyundai, all are increasingly banking on their
Indian operations for adding weight to their businesses as numbers stay uncertain in developed
markets due to economic recession and slowdown.
Hyundai’s Indian subsidiary contributes between 15 per cent and 20 per cent to Hyundai's global
turnover. According to the International Yearbook of Industrial Statistics 2008 released by United
Nations Industrial Development Organization (UNIDO), India ranks 12th in the list of the world’s
top 15 automakers.
Moreover, according to a new study released by global consultancy firm Deloitte, at least one
Indian company will be among the top six carmakers that would dominate the global auto
industry by 2020. According to the study, the car industry would see a massive capacity building
in low-cost locations like India and China as manufacturers shift base from developed regions.
Production
Although the sector was hit by economic slowdown, overall production (passenger vehicles,
commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in
2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77
million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million.
In recent times, India has emerged as one of the favorite investment destinations for automotive
manufacturers.
• Japanese major Nissan has decided to shift the entire production of its small car, Micra,
from the UK to India. After production of the Micra begins here, Nissan plans to
manufacture four more models in India, involving a total investment of over US$ 412.2
million.
• Toyota Motors (TMC) plans to utilize the proposed Indo-Thai free trade agreement (FTA)
to make India a hub for small cars to be exported to its global markets. Toyota has
earmarked US$ 657.1 million for 2008-11 to set up a second plant in Bangalore to make
200,000 cars from the current 80,000 units. The company is also keen to set up a
transmission and engine unit at the second plant.
• Suzuki Motorcycle India (SMIPL), a wholly-owned subsidiary of Japanese auto major
Suzuki Motor Corporation, plans to double production capacity of its two-wheelers to
300,000 units by the end of the current fiscal year. The company will invest Rs 125 crore
(US$ 26.77 million).
• Ford Motor Company is investing US$ 500 million on transforming its India business into a
volume manufacturing and export hub and a regional centre of excellence for small car
development and production.
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• Volkswagen has set a target to localize production in India to about 80 per cent in 2-3
years from the current levels of almost 50 per cent as it seeks to offer cars at more
competitive prices.
Domestic Market
In spite of global economic slowdown, there was a marginal increase in the number of vehicles
sold in 2008-09 as compared to 2007-08. Total number of vehicles sold including passenger
vehicles, commercial vehicles, two-wheelers and three-wheelers in 2008-09 was 9.72 million as
compared to 9.65 million in 2007-08.
Further, the sales also picked up in 2009-10. On the back of strong festive demand and easier
availability of finance, passenger car sales in the country during October registered the highest
growth in more than two years. According to the Society of Indian Automobile Manufacturers
(SIAM), sales of passenger cars increased by 34 per cent at 132,615 units in October against
99,052 units during the same month last year. While this is the ninth consecutive month of
positive growth for passenger cars, the double-digit growth registered across other auto
segments may actually result in the highest-ever growth of the industry this fiscal at a time when
markets like Europe and the US are struggling with single digit growth.
Sales of trucks and buses in India, a key barometer of industrial activity, rose 52 per cent at
42,562 units in October, the fourth straight rise and the strongest expansion since April 2007.
Total two-wheeler sales went up 10.6 per cent at 750,229 units from 678,245 units in the same
period last year.
According to a survey by Credit Analysis and Research (CARE) Ratings, the domestic passenger
vehicle sales will accelerate at a CAGR of 13.9 per cent from 1.55 million units in FY 09 to 2.98
million units in FY 14. Passenger vehicle exports are likely to grow at a CAGR of 22 per cent from
335,739 units in FY 09 to 909,000 units by the end of FY 14.
Exports
According to SIAM, automobile sales (including passenger vehicles, commercial vehicles, two-
wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09
from 1.23 million units in 2007-08.
Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.
Moreover, growth continued during the first half of the current year. India exported a total of
230,000 cars, vans, SUVs and trucks between January and July 2009, posting a growth of 18 per
cent.
India has become the second-largest maker of small cars, overtaking Brazil. Small cars account for
80 per cent of the domestic market (up from 75 per cent last year) and exports are growing at top
speed. According to SIAM, small car exports rose 53 per cent between April and September to
16
197,249 units against 129,090 units a year ago. India Yamaha Motor Ltd (IYML) plans to double
its exports from India to 140,000 units by 2010.
Maruti Suzuki India expects to export 120,000 cars during 2009-10. Of this, 100,000 will be the A-
Star, its newest hatchback.
Policy
In order to make India a power to reckon with in the automotive sector the government launched
the Automotive Mission Plan (AMP) 2006-2016.
The vision of the AMP is "to emerge as the destination of choice in the world for design and
manufacture of automobiles and auto components with output reaching a level of US$ 145 billion
accounting for more than 10 per cent of the GDP and providing additional employment to 25
million people by 2016."
As per the AMP, it is estimated that the total turnover of the automotive industry in India would
be in the order of US$ 122 billion - US$ 159 billion in 2016. It is expected that in real terms, India
would continue to enjoy its eminent position of being the largest tractor and three-wheeler
manufacturers in the world and the world's second largest two-wheeler manufacturer. By 2016,
India will emerge as the world's seventh largest car producer (as compared to the eleventh
largest currently) and retain the fourth largest position in world truck manufacturing sector.
Further, by 2016, the automotive sector would double its contribution to the country's GDP from
current levels of five per cent to 10 per cent.
____________________________________________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other sources
believed to be reliable but we do not represent that it is accurate or complete and it should
not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any
inadvertent error in the information contained in this report. This document is provide for
assistance only and is not intended to be and must not alone be taken as the basis for an
investment decision.
17
Firstcall India Equity Research: Email – info@firstcallindia.com
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