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ICICI Securities – Retail Equity Research Result Update February 17, 2020 CMP: | 80 Target: | 85 (6%) Target Period: 12 months HOLD Ashok Leyland (ASHLEY) Core demand weak, hopes rest on scrappage policy… Ashok Leyland (ALL) reported a dismal Q3FY20 performance. Revenues came in at | 4,016 crore, down 36.5% YoY courtesy lower than anticipated ASPs (| 12.9 lakh/unit). Total CV sales volumes in Q3FY20 were at 31,200 units (down 29% YoY; M&HCV down 39%, LCV down 3.8%; LCV to MHCV mix at 42:58 i.e. unchanged QoQ). Reported EBITDA margins were at 5.6% (down 20 bps QoQ), with a decline led by disproportionate increase in raw material costs (up 450 bps QoQ), which was partially compensated by a decline in employee costs (down 420 bps QoQ). Consequently, reported PAT came in at | 28 crore vs. | 162 crore in Q3FY19. Demand, margin challenges in store For 10MFY20, volumes of ALL’s core product i.e. truck (~41% of revenue mix) are down 55.8% YoY (production basis) – with industry truck volumes down 47.5% YoY in the same time frame. Being a barometer of overall economic activity, the sharp downturn reflects the scale of challenges facing the industry amid both demand (poor freight movement, tight financing) and supply side (idle capacity, high installed base) issues. Upcoming switchover to BS-VI emission norms from April 2020 and associated increase in product prices are set to further strain existing weak pricing environment (average discounts at | 5.25 lakh/unit). Encouragingly for ALL, it has gained market share in LCV and bus segments thus far. However, with overall CV revival still some time away and dependent upon improvement in economic activity and settling of BS-VI regime, tough business conditions appear set to stay. Accordingly, we build 6.3% volume CAGR in FY20E-22E with margins expected to inch upwards to 10.8% by that time gradually. Industry awaits firm scrappage policy Historical global precedents show that scrappage policy success is often tied to clear definition of end-of-life vehicles and attractive scrappage incentives. Details of upcoming vehicular scrappage policy as regards these parameters are as yet uncertain. However, the implementation of an affirmative, mandatory nationwide scrappage policy along with development of associated ecosystem (scrappage centres) holds the key to boost demand prospects for the CV industry in particular over next few years. Valuation & Outlook Sales are seen growing at 13.7% CAGR over FY20E-22E, with operating leverage benefits aiding profitability on a low base. Muted demand prospects are a substantial overhang pending an affirmative scrappage policy. Ongoing focus on costs, capex is key to navigating margin challenges and remains a key monitorable. We maintain HOLD, valuing ALL at | 85 (SOTP; 7.2x FY22E CV EV/EBITDA, 2x P/B for long term investments). Key Financials FY18 FY19 FY20E FY21E FY22E CAGR (FY20E-22E) Net Sales 26,356.4 29,055.0 19,025.4 20,925.4 24,608.5 13.7% EBITDA 2,963.5 3,135.7 1,371.6 1,970.4 2,658.1 39.2% EBITDA Margins (%) 11.2 10.8 7.2 9.4 10.8 Net Profit 1,717.7 1,983.2 454.3 920.8 1,443.5 78.2% EPS (|) 5.9 6.8 1.5 3.1 4.9 P/E 13.6 11.8 51.7 25.5 16.3 RoNW (%) 24.0 24.3 6.1 10.3 15.2 RoCE (%) 27.8 26.9 7.6 11.7 17.0 Key Financial Summary Source: ICICI Direct Research, Company Particulars Particular Amount Market Capitalization (| Crore) 23,416.8 Total Debt (FY19) (| Crore) 667.0 Cash & Investments (FY19) (| Crore) 1,479.4 EV (| Crore) 22,604.4 52 week H/L (|) 98 / 57 Equity capital (| crore) 293.6 Face value (|) | 1 Key Highlights Q3FY20 revenues fell 37% YoY tracking 29% decline in overall CV volumes and lower ASPs Margins at 5.6% were down 20 bps QoQ on the back of 450 bps sequential gross margin contraction Demand on truck side a significant overhang, with margin profile also challenged. Affirmative scrappage policy key to revive fortunes Maintain HOLD with revised target price of | 85 Research Analyst Shashank Kanodia, CFA [email protected] Jaimin Desai [email protected]

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Page 1: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICIC

I S

ecurit

ies –

Retail E

quit

y R

esearch

Result

Update

February 17, 2020

CMP: | 80 Target: | 85 (6%) Target Period: 12 months HOLD

Ashok Leyland (ASHLEY)

Core demand weak, hopes rest on scrappage policy…

Ashok Leyland (ALL) reported a dismal Q3FY20 performance. Revenues

came in at | 4,016 crore, down 36.5% YoY courtesy lower than anticipated

ASPs (| 12.9 lakh/unit). Total CV sales volumes in Q3FY20 were at 31,200

units (down 29% YoY; M&HCV down 39%, LCV down 3.8%; LCV to MHCV

mix at 42:58 i.e. unchanged QoQ). Reported EBITDA margins were at 5.6%

(down 20 bps QoQ), with a decline led by disproportionate increase in raw

material costs (up 450 bps QoQ), which was partially compensated by a

decline in employee costs (down 420 bps QoQ). Consequently, reported

PAT came in at | 28 crore vs. | 162 crore in Q3FY19.

Demand, margin challenges in store

For 10MFY20, volumes of ALL’s core product i.e. truck (~41% of revenue

mix) are down 55.8% YoY (production basis) – with industry truck volumes

down 47.5% YoY in the same time frame. Being a barometer of overall

economic activity, the sharp downturn reflects the scale of challenges facing

the industry amid both demand (poor freight movement, tight financing) and

supply side (idle capacity, high installed base) issues. Upcoming switchover

to BS-VI emission norms from April 2020 and associated increase in product

prices are set to further strain existing weak pricing environment (average

discounts at | 5.25 lakh/unit). Encouragingly for ALL, it has gained market

share in LCV and bus segments thus far. However, with overall CV revival

still some time away and dependent upon improvement in economic activity

and settling of BS-VI regime, tough business conditions appear set to stay.

Accordingly, we build 6.3% volume CAGR in FY20E-22E with margins

expected to inch upwards to 10.8% by that time gradually.

Industry awaits firm scrappage policy

Historical global precedents show that scrappage policy success is often tied

to clear definition of end-of-life vehicles and attractive scrappage incentives.

Details of upcoming vehicular scrappage policy as regards these parameters

are as yet uncertain. However, the implementation of an affirmative,

mandatory nationwide scrappage policy along with development of

associated ecosystem (scrappage centres) holds the key to boost demand

prospects for the CV industry in particular over next few years.

Valuation & Outlook

Sales are seen growing at 13.7% CAGR over FY20E-22E, with operating

leverage benefits aiding profitability on a low base. Muted demand

prospects are a substantial overhang pending an affirmative scrappage

policy. Ongoing focus on costs, capex is key to navigating margin challenges

and remains a key monitorable. We maintain HOLD, valuing ALL at | 85

(SOTP; 7.2x FY22E CV EV/EBITDA, 2x P/B for long term investments).

Key Financials FY18 FY19 FY20E FY21E FY22E CAGR (FY20E-22E)

Net Sales 26,356.4 29,055.0 19,025.4 20,925.4 24,608.5 13.7%

EBITDA 2,963.5 3,135.7 1,371.6 1,970.4 2,658.1 39.2%

EBITDA Margins (%) 11.2 10.8 7.2 9.4 10.8

Net Profit 1,717.7 1,983.2 454.3 920.8 1,443.5 78.2%

EPS (|) 5.9 6.8 1.5 3.1 4.9

P/E 13.6 11.8 51.7 25.5 16.3

RoNW (%) 24.0 24.3 6.1 10.3 15.2

RoCE (%) 27.8 26.9 7.6 11.7 17.0

Key Financial Summary

Source: ICICI Direct Research, Company

Particulars

Particular Amount

Market Capitalization (| Crore) 23,416.8

Total Debt (FY19) (| Crore) 667.0

Cash & Investments (FY19) (| Crore) 1,479.4

EV (| Crore) 22,604.4

52 week H/L (|) 98 / 57

Equity capital (| crore) 293.6

Face value (|) | 1

Key Highlights

Q3FY20 revenues fell 37% YoY

tracking 29% decline in overall CV

volumes and lower ASPs

Margins at 5.6% were down 20 bps

QoQ on the back of 450 bps

sequential gross margin contraction

Demand on truck side a significant

overhang, with margin profile also

challenged. Affirmative scrappage

policy key to revive fortunes

Maintain HOLD with revised target

price of | 85

Research Analyst

Shashank Kanodia, CFA

[email protected]

Jaimin Desai

[email protected]

Page 2: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 2

ICICI Direct Research

Result Update | Ashok Leyland

Exhibit 1: Variance Analysis

Q3FY20 Q3FY20E Q3FY19 YoY (%) Q2FY20 QoQ (%) Comments

Total Operating Income 4,015.7 4,120.0 6,325.2 -36.5 3,929.5 2.2Topline came in below our estimates primarily tracking lower

than anticipated ASPs

Raw Material Expenses 2,953.2 2,787.0 4,435.7 -33.4 2,713.3 8.8

Employee Expenses 272.8 432.6 500.1 -45.4 432.1 -36.9

Lower RM costs for the quarter partially attributable to write-

back of employee variable pay provisions given muted

financial performance at the company

Other expenses 564.5 556.2 739.8 -23.7 555.5 1.6

EBITDA 225.1 344.2 649.7 -65.3 228.6 -1.5

EBITDA Margin (%) 5.6 8.4 10.3 -480 bps 5.8 -360 bps

Margins came in lower tracking higher RM costs, which

came in elevated due to inventory rationalisation wherein all

other overheads get included under finished goods inventory

price

Other Income 22.3 58.6 20.8 7.4 45.5 -50.9

Depreciation 157.5 157.5 160.7 -2.0 160.0 -1.6

Interest 33.7 43.3 19.2 75.4 30.1 11.8

Tax 26.4 40.4 102.7 -74.3 -19.8 -233.7

Reported PAT 27.7 161.5 380.8 -92.7 38.9 -28.7Lower PAT primarily tracking lower ASPs and muted EBITDA

margin profile

EPS 0.1 0.6 1.3 -92.7 0.1 -28.7

Key Metrics

ASPs (| '000s) 1,287 1321 1,446 -11.0 1,362 -5.5

ASPs came in lower tracking high discounting in the

marketplace coupled with inventory rationalisation measured

undertaken by the company amid BS-6 transition

Average discount M&HCV (|) 525,000 325,000 380,000 38.2 525,000 0.0 Discount in marketplace still remains at elevated levels

Source: Company, ICICI Direct Research

Exhibit 2: Change in estimates

FY22E

(| Crore) Old New % Change Old New % Change Introduced Comments

Revenue 23,462 19025 -18.9 26114 20925 -19.9 24608

Given the prolonged slowdown in the domestic CV

space, we downward revise our sales estimates for

FY20-21E. Introduce FY22E numbers. Expect sales

CAGR of 14% over FY20-22E, post a decline of ~35%

in FY20E

EBITDA 2,261 1372 -39.3 2390 1970 -17.6 2658

EBITDA Margin (%) 9.6 7.2 -243 bps 9.2 9.4 26 bps 10.8

High discounting in the marketplace coupled with

inventory rationalisation at the company's end leads to

sharp reduction in EBITDA margin estimates for FY20E.

Broadly maintain FY21E numbers while introducing

FY22E EBITDA margins at 10.8%

PAT 1,157 454 -60.7 1190 921 -22.6 1444

EPS (|) 3.9 1.5 -60.7 4.1 3.1 -22.6 4.9 Introduce FY22E EPS at | 4.9/share

FY20E FY21E

Source: Company, ICICI Direct Research

Exhibit 3: Assumptions

Comments

FY19 FY20E FY21E FY22E FY20E FY21E

M&HCV Passenger volumes 19,871 25,709 26,371 29,436 20,928 21,116

M&HCV Goods volumes 122,987 62,210 62,738 70,005 85,991 87,516

MHCV:LCV mix is largely expected to be stable at

~64:36. Over FY20-22E M&HCV volumes are expected to

grow 6.4% over FY20-22E while LCV volumes are

expected to grow at a CAGR of 6.2% over FY20-22E

LCV volumes 54,508 50,513 51,209 57,018 53,680 55,027

Total Sales Volume 197366 138432 140318.2 156459.5 160599 163659

Going forward, we expect total sales volume to grow at a

CAGR of 6.3% over FY20-22E, albeit post declining ~30%

in FY20E. We expect volumes to grow 1.4% in FY21E

followed by meaningful recovery (up 11.5% YoY) in FY22E

ASPs (| '000s) 1,439.6 1,285.6 1,491.3 1,572.8 1,387.6 1,595.6

RMC/Unit (| '000s) 1,051.1 982.7 1,053.3 1,110.9 1,015.6 1,138.3

Current Earlier

Source: ICICI Direct Research

Page 3: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 3

ICICI Direct Research

Result Update | Ashok Leyland

Conference Call Highlights

Demand and management guidance/outlook

The company said that demand sentiment remains at an all-time low with economic growth slowing for several

consecutive quarters. It expects Q1FY21E to be weak, followed by a flattish Q2FY21E after which H2FY21E is seen

registering some growth

ALL outlined the need for upcoming scrappage policy to have proper incentives and be mandatory in nature to

possess teeth. Network of scrapping centres would also be required for effective execution

Total industry volumes (TIV) for Q3FY20 were at 53,681 units, down 39% YoY. For QMFY20, TIV at 1.76 lakh units

represented 37% YoY decline. Against the industry, ALL’s Q3FY20 volumes at 16,260 units were down 42%

On YTD basis, ALL’s overall market share has dipped 0.6%. The company attributed this to a conscious decision

taken for clearing inventory

Additionally, ALL said it walked away from certain deals, which were EBITDA decretive. Its production shutdowns

during the year so far were partly on account of this

Total system inventory on M&HCV side (ALL plants plus dealers) was at 27,500 units as of June 2019. Currently,

it stands reduced to ~ 6,500 units (3,100 at ALL, 3,400 at dealers). LCV inventory is <10 days

Discounting levels remain very high at ~| 5.25 lakh/unit on average, and as high as ~| 7 lakh/unit in some cases

Longer term strategy

ALL’s thrust on traversing current sharp slowdown is centred around – (1) resizing operations to three year-ago

level to enhance sustainability, (2) aggressive internal targets on costs and capex front and (3) sharpened focus

on LCV, defence and exports to structurally reduce dependence on CVs

The LCV portfolio is expected to grow to 50% of overall volumes in the next six to seven years (1.8-2.0 lakh units

per annum) as part of the company’s vision to grow into top 10 manufacturers globally

Modular programme is expected to be a strategic advantage in the medium term and deliver enhanced efficiencies

through commonisation of parts, reduction in cost of production

Parts business is growing at 10%. The company aims to increase it to 15%, going forward. ALL is targeting 20%

growth in exports business for next year, with Africa, Bangladesh and Sri Lanka expected to lead the way

Growth in the defence business remains sluggish amid slow ordering at government level. The company has won

34 orders thus far, and is looking at broadening the portfolio of defence products, going forward

Sales, costs and margins

Q3FY20 revenue mix – 41% domestic trucks, 20% domestic bus, 14% LCV, 9% exports, 9% spares, 1% defence

Spike in material costs during Q3FY20 was attributable to – (1) inventory reduction resulting in release of absorbed

overheads into P&L (~| 260 crore) and (2) deterioration in product mix – higher sales of lower margin products

like ICVs and STU buses.

Cost savings programme is set to deliver | 500 crore of benefits this year and is targeting ~| 650 crore next year

The company has let go of ~250 people thus far to reduce employee overheads. Manpower costs are also lower

in Q3FY20 due to reversal of provision for bonus payouts

BS-VI transition

Testing of BS-VI products is under way but dispatching activity would be fairly limited till March. ALL’s BS-IV front

end structures will continue to be produced till end-February while complete structures including bus bodies will

remain in production till end-March

ALL has indirect exposure to Chinese supply chains for BS-IV and BS-VI products like fuel injection pumps

Others

The company has spent ~| 960 crore in capex thus far in FY20, with full year spending pegged at ~| 1,200-1,300

crore against earlier guidance of ~| 2,000 crore. In coming years, maintenance capex will be to the tune of

~| 500 crore annually

Page 4: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 4

ICICI Direct Research

Result Update | Ashok Leyland

Debt was at ~| 1,900 crore as of Q3FY20 (down from | 2,736 crore in Q2FY20). Of this, long term debt amounted

to ~| 1,300 crore and short-term debt was at | 522 crore. The company has no major repayment obligations over

the next two years

Hinduja Leyland Finance (HLF) will need some cash infusion towards growing loan book (~ | 27,000 crore by end-

FY20E, up ~15% YoY). HLF is seeing increased instances of repossessions during ongoing CV downturn but

profitability strain is not alarming at present. HLF currently has 7% market share in ALL truck financing

The company is spending ~£10 million on subsidiary Optare every year for its turnaround efforts. While not

profitable still, it is getting orders

Investment spend for 9MFY20 was at | 58 crore, with further ~£7 million to be spent in Q4FY20E

Page 5: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 5

ICICI Direct Research

Result Update | Ashok Leyland

Financial story in charts

Exhibit 4: Topline trend

20,019

26,356

29,055

19,025

20,925

24,608

5.7

31.7

10.2

(34.5)

10.0

17.6

(40)

(30)

(20)

(10)

-

10

20

30

40

0

3500

7000

10500

14000

17500

21000

24500

28000

31500

FY17 FY18 FY19 FY20E FY21E FY22E

(%

)

(| crore)

Net Sales Growth

Source: Company, ICICI Direct Research

Exhibit 5: EBITDA and EBITDA margin trend

2,203

2,964

3,136

167

1,970

2,658

11.0 11.2

10.8

7.2

9.4

10.8

-

2

4

6

8

10

12

0

500

1000

1500

2000

2500

3000

3500

FY17 FY18 FY19 FY20E FY21E FY22E

(%

)

(| crore)

EBITDA EBITDA Margin (%)

Source: Company, ICICI Direct Research

Exhibit 6: Profitability trend

1,223

1,718

1,983

454

921

1,444

6.1

6.5

6.8

2.4

4.4

5.9

0

1

2

3

4

5

6

7

8

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

FY17 FY18 FY19 FY20E FY21E FY22E

(%

)

(| crore)

Reported PAT Adjusted PAT Margin (%)

Source: Company, ICICI Direct Research

Expect sales to grow at 13.7% CAGR over FY20E-

22E to | 24,608 crore amid 6.3% volume CAGR

Margins seen growing to 10.8% by FY22E on the

back of settling down of BS-VI pricing regime and

incremental operating leverage benefits

PAT expected to grow to | 1,444 crore by FY22E

Page 6: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 6

ICICI Direct Research

Result Update | Ashok Leyland

Exhibit 7: Product mix and realisation trend

21.9

24.8

27.6 36.5 36.5

36.4

12.8

14.8

14.4 12.9

14.9

15.7

8

9

10

11

12

13

14

15

16

17

10

20

30

40

50

60

70

FY17 FY18 FY19 FY20E FY21E FY22E

(| in

la

khs)

(%

)

LCV/MHCV (%) Blended ASP (|)

Source: Company, ICICI Direct Research

Exhibit 8: Segment wise volume break-up

22602 20221 19871 25709 26371 29436

90690111212

122987

6221062738 70005

31774

43419

54508

50513 51209

57018

-

40,000

80,000

120,000

160,000

200,000

FY17 FY18 FY19 FY20E FY21E FY22E

(units)

M&HCV Passenger M&HCV Goods LCV

Source: Company, ICICI Direct Research

Exhibit 9: Return ratio profile

23.3

27.8 26.9

7.6

11.7

17.0

25.0

24.0

24.3

6.1

10.3

15.2

5

10

15

20

25

30

FY17 FY18 FY19 FY20E FY21E FY22E

(%

)

RoCE RoE

Source: Company, ICICI Direct Research

LCV share of overall CV volumes is seen staying

around the 36% mark in coming years given

increased strategic focus on the segment and efforts

to reduce dependence on M&HCV business

Despite gradual improvement in return ratios over

FY20E-22E, they are still seen to be some way of

historical highs

Page 7: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 7

ICICI Direct Research

Result Update | Ashok Leyland

Exhibit 10: SOTP based target price calculation

SOTP

Target EV/EBITDA (x, ~10% discount to industry leader) 7.2

EBITDA (FY22E) 2,658.1

Net Debt 430.0

Enterprise Value (| Crore) 19,138.4

Target Market cap Core business (| crore) 18,708.4

Value/Share (A) 63

Strategic Investments FY22E (| crore) 3,286.5

P/BV(x) 2.0

Total Value/Share (B) 22

Price target (|, A+B) 85

Source: ICICI Direct Research

Exhibit 11: Key valuation metrics

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) (x) (%) (%)

FY18 26,356 31.7 5.9 36.6 13.6 6.9 24.0 27.8

FY19 29,055 10.2 6.8 15.1 11.8 7.2 24.3 26.9

FY20E 19,025 (34.5) 1.5 (77.1) 51.7 17.5 6.1 7.6

FY21E 20,925 10.0 3.1 102.7 25.5 12.3 10.3 11.7

FY22E 24,608 17.6 4.9 56.8 16.3 9.0 15.2 17.0

Source: Bloomberg, ICICI Direct Research

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ICICI Securities | Retail Research 8

ICICI Direct Research

Result Update | Ashok Leyland

Exhibit 12: Recommendation history vs. consensus

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

20

40

60

80

100

120

140

160

180

200

Feb-20

Jan-20

Dec-19

Nov-19

Oct-19

Sep-1

9

Aug-19

Jul-19

Jun-19

May-19

Apr-19

Mar-19

Feb-19

Jan-19

Dec-18

Nov-18

Oct-18

Sep-1

8

Aug-18

Jul-18

Jun-18

Jun-18

May-18

Apr-18

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-1

7

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

Feb-17

(%)

(|)

Price Idirect target Consensus Target Mean % Consensus with HOLD

Source: Bloomberg, ICICI Direct Research

Exhibit 13: Top 10 shareholders

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 HINDUJA AUTOMOTIVE L 30-06-2019 34.73 1,019.43M 0

2 HINDUJA BANK SWITZER 30-06-2019 4.94 144.90M 0

3 JPMORGAN CHASE & CO 30-06-2019 4.30 126.12M +84.93M

4 RELIANCE CAPITAL TRU 31-12-2019 4.12 120.82M +0.75M

5 ICICI PRUDENTIAL LIF 30-06-2019 1.72 50.55M +6.50M

6 STATE OF KUWAIT 30-06-2019 1.70 49.81M -0.56M

7 NORGES BANK 31-12-2018 1.63 47.71M 0

8 GOVERNMENT PENSION F 30-06-2019 1.47 43.25M -4.50M

9 BLACKROCK 06-02-2020 1.45 42.45M +0.10M

10 VANGUARD GROUP 31-12-2019 1.43 41.95M -0.92M

Source: Bloomberg, ICICI Direct Research

Exhibit 14: Shareholding pattern

(in %) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Promoter 51.1 51.1 51.1 51.1 51.1

FII 21.9 19.1 18.8 17.1 19.2

DII 9.1 10.0 10.9 13.0 12.3

Others 17.9 19.8 19.2 18.9 17.3

Source: Bloomberg, ICICI Direct Research

Page 9: Ashok Leyland ASHLEY) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_AshokLeyland_Q3FY20.pdf · | Ashok Leyland ICICI Direct ResearchResult Update Conference Call Highlights

ICICI Securities | Retail Research 9

ICICI Direct Research

Result Update | Ashok Leyland

Financial Summary

Exhibit 15: Profit and loss statement | crore

(Year-end March) FY19 FY20E FY21E FY22E

Total operating Income 29,055.0 19,025.4 20,925.4 24,608.5

Growth (%) 10.2 -34.5 10.0 17.6

Raw Material Expenses 20,679.6 13,603.4 14,780.1 17,381.5

Employee Expenses 2,098.8 1,610.1 1,669.0 1,750.9

Other Expenses 3,140.9 2,440.3 2,506.0 2,818.0

Total Operating Expenditure 25,919.3 17,653.8 18,955.0 21,950.4

EBITDA 3135.7 1371.6 1970.4 2658.1

Growth (%) 5.8 -56.3 43.7 34.9

Depreciation 621.0 637.4 680.1 701.3

Interest 70.4 116.7 170.0 134.2

Other Income 109.9 114.1 110.7 107.2

PBT 2554.2 731.7 1231.0 1929.8

Others 0.0 0.0 0.0 0.0

Total Tax 513.6 190.3 310.2 486.3

PAT 1983.2 454.3 920.8 1443.5

Growth (%) 15.5 -77.1 102.7 56.8

EPS (|) 6.8 1.5 3.1 4.9

Source: Company, ICICI Direct Research

Exhibit 16: Cash flow statement | crore

(Year-end March) FY19 FY20E FY21E FY22E

Profit after Tax 1,983.2 454.3 920.8 1,443.5

Add: Depreciation 621.0 637.4 680.1 701.3

(Inc)/dec in Current Assets -2,988.0 2,707.5 -1,274.1 -954.1

Inc/(dec) in CL and Provisions 354.1 -3,175.9 882.6 1,084.5

CF from operating activities 40.7 739.9 1379.4 2409.4

(Inc)/dec in Investments 3,155.2 0.0 0.0 0.0

(Inc)/dec in Fixed Assets -850.6 -1,200.0 -750.0 -750.0

Others -337.5 -314.1 -277.1 -279.0

CF from investing activities 1967.0 -1514.1 -1027.1 -1029.0

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds -560.7 1,350.0 250.0 -350.0

Dividend paid & dividend tax -1,095.6 -353.4 -440.3 -880.7

Others -20.0 -116.7 -170.0 -134.2

CF from financing activities -1676.4 879.9 -360.3 -1364.8

Net Cash flow 331.4 105.8 -8.0 15.6

Opening Cash 1,042.2 1,373.6 1,479.4 1,471.4

Closing Cash 1373.6 1479.4 1471.4 1487.0

Source: Company, ICICI Direct Research

Exhibit 17: Balance Sheet | crore

(Year-end March) FY19 FY20E FY21E FY22E

Liabilities

Equity Capital 293.6 293.6 293.6 293.6

Reserve and Surplus 8,039.0 8,139.9 8,620.3 9,183.2

Total Shareholders funds 8332.5 8433.4 8913.9 9476.7

Total Debt 667.0 2,017.0 2,267.0 1,917.0

Deferred Tax Liability 249.7 249.7 249.7 249.7

Other non-current liabilities 270.7 270.7 270.7 270.7

Total Liabilities 9769.5 11220.4 11950.9 12163.7

Assets

Gross Block 6,496.0 7,603.6 8,853.6 9,703.6

Less: Acc Depreciation 1,690.0 2,327.4 3,007.4 3,708.8

Net Block 4806.0 5276.3 5846.2 5994.9

Capital WIP 657.6 750.0 250.0 150.0

Total Fixed Assets 5,463.6 6,026.3 6,096.2 6,144.9

Investments 2,636.5 2,886.5 3,086.5 3,286.5

Inventory 2,684.7 1,563.7 2,293.2 2,696.8

Debtors 2,505.5 1,303.1 1,719.9 2,022.6

Loans and Advances 22.5 14.7 16.2 19.0

Other current assets 0.0 0.0 0.0 0.0

Cash 1373.6 1479.4 1471.4 1487.0

Total Current Assets 6,586.3 4,360.9 5,500.7 6,225.4

Creditors 5,018.9 2,866.8 3,439.8 4,045.2

Provisions 802.8 687.9 825.4 970.6

Other current Liabilties 1,266.9 829.6 912.4 1,073.0

Total Current Liabilities 5,821.7 3,554.7 4,265.2 5,015.9

Net Current Assets 764.6 806.2 1,235.5 1,209.5

Application of Funds 9769.5 11220.4 11950.9 12163.7

Source: Company, ICICI Direct Research

Exhibit 18: Key ratios

(Year-end March) FY19 FY20E FY21E FY22E

Per share data (|)

EPS 6.8 1.5 3.1 4.9

Cash EPS 8.9 3.7 5.5 7.3

BV 28.4 28.7 30.4 32.3

DPS 3.1 1.0 1.5 3.0

Cash Per Share 4.7 5.0 5.0 5.1

Operating Ratios (%)

EBITDA Margin 10.8 7.2 9.4 10.8

PBT / Net sales 8.8 3.8 5.9 7.8

PAT Margin 6.8 2.4 4.4 5.9

Inventory days 33.7 30.0 40.0 40.0

Debtor days 31.5 25.0 30.0 30.0

Creditor days 63.0 55.0 60.0 60.0

Return Ratios (%)

RoE 24.3 6.1 10.3 15.2

RoCE 26.9 7.6 11.7 17.0

RoIC 34.9 9.3 14.1 20.5

Valuation Ratios (x)

P/E 11.6 45.5 25.5 16.3

EV / EBITDA 7.2 17.5 12.3 9.0

EV / Net Sales 0.8 1.3 1.2 1.0

Market Cap / Sales 0.8 1.2 1.1 1.0

Price to Book Value 2.8 2.8 2.6 2.5

Solvency Ratios

Debt/Equity 0.1 0.2 0.3 0.2

Current Ratio 1.0 0.9 1.0 1.0

Quick Ratio 0.6 0.6 0.6 0.6

Source: Company, ICICI Direct Research

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Exhibit 19: ICICI Direct coverage universe (Auto & Auto Ancillary)

Sector / Company CMP M Cap

(|) TP(|) Rating (| Cr) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E

Apollo Tyre (APOTYR) 166 165 Hold 9725 11.9 8.0 10.2 14.0 20.8 16.3 8.1 8.1 6.6 8.0 4.7 6.4 8.3 4.4 5.5

Ashok Leyland (ASHLEY) 80 85 Hold 23417 6.8 1.5 3.1 11.8 51.7 25.5 7.2 17.5 12.3 26.9 7.6 11.7 24.3 6.1 10.3

Bajaj Auto (BAAUTO) 3144 3300 Hold 91528 161.6 171.3 175.0 19.5 18.4 18.0 14.9 13.8 12.8 21.0 19.7 24.4 19.9 20.3 18.7

Bharat Forge (BHAFOR) 485 465 Hold 22580 22.2 17.9 17.4 21.9 27.2 27.9 12.7 16.3 15.8 17.9 12.8 12.7 19.1 14.0 13.3

Eicher Motors (EICMOT) 19000 19750 Hold 55665 808.1 756.0 798.2 23.5 25.1 23.8 18.1 21.6 19.3 32.5 23.4 22.2 24.8 19.6 17.7

Escorts (ESCORT) 888 810 Hold 10481 39.6 39.5 43.3 22.5 22.5 20.5 12.6 12.8 11.5 21.7 18.1 17.4 15.6 14.2 13.4

Exide Industries (EXIIND) 179 220 Buy 15725 9.9 9.6 10.3 18.6 19.3 17.9 10.9 10.8 9.9 18.4 16.3 16.2 12.9 12.8 12.3

Hero Moto (HERHON) 2350 2800 Buy 48427 169.5 191.4 176.7 13.9 12.3 13.3 8.9 9.8 8.8 37.1 29.1 28.8 26.3 23.7 22.3

M&M (MAHMAH) 530 680 Buy 65268 38.6 38.8 32.7 13.7 13.7 16.2 9.2 9.7 9.6 16.7 13.7 12.4 14.1 11.3 10.0

Maruti Suzuki (MARUTI) 6913 5850 Sell 212604 248.3 201.4 227.7 27.8 34.3 30.4 16.0 21.8 19.0 16.3 8.7 9.7 16.3 12.3 12.9

Tata Motors (TATMOT) 170 200 Hold 65790 -84.6 4.0 21.3 -2.0 42.4 8.0 4.4 4.1 3.2 5.4 8.1 12.0 7.1 6.1 14.7

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)

Source: Bloomberg, ICICI Direct Research

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RATING RATIONALE

ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,

Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined

as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]

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ANALYST CERTIFICATION

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