Ashok Leyland Rating ‘Buy’: A very good closing quarter for the business

1092 Ashok Leyland bused grounded in the DTC bus depot for servicing and inspection checks, in Money on Monday. Convey Photo BY PRAVEEN KHANNA DELHI 15 04 2013.

AL’s Q4 EBITDA rose 110% q-o-q, 18% higher than JEFe. The next wave of Covid has impacted truck demand from customers and delayed the up-cycle nevertheless financial system is recovering perfectly and June e-way charges rose 2% vs 2019. We slash FY22e EPS by 57% but broadly keep FY23 estimates. We keep Obtain but also our view that buyers should average return anticipations right after ~3x rally considering that Apr-2020 as inventory is now at 4.4x FY23e PB vs final peak of 5.8x though AL’s marketplace share is slipping.

Good Q4 outcomes: AL’s Q4 volumes grew 32% q-o-q (down 26% vs Q4FY19) even though Ebitda rose 110% q-o-q (down 46% vs Q4FY19). Q4 Ebitda was 18% higher than JEFe led by reduced-than-predicted employees costs. ASPs have been up 10% q-o-q but gross margin fell 250bp q-o-q on bigger commodity costs. Ebitda margin however rose 240bp q-o-q to 7.6% led by operating leverage gain. Recurring PAT was 10x q-o-q on a low foundation. In FY21, AL’s volumes fell 20% y-o-y, Ebitda declined 54% y-o-y and it reported net loss of Rs 3. bn.

Margins and harmony sheet ought to strengthen: AL’s Ebitda margins fell from an ordinary 11% in FY16-19 to 3.5% in FY21. We anticipate input costs for autos to intensify in H1FY22 as the complete impression of CYTD steel price rally comes by, but motor vehicle value hikes need to outpace incremental charges in H2. We hope AL’s margins to get better to 7.3%/11.3% in FY22/FY23.

Equilibrium sheet worsened from Rs 7.4 bn internet cash in FY19 to ~Rs 42 bn net personal debt in Q1FY21, but net credit card debt is considering the fact that down 38% to Rs 26 bn. FCF was damaging above FY19-21 but really should turn sharply by FY23.

Retain Obtain: AL inventory has trebled considering the fact that April-2020 outperforming Nifty-50 by ~100%. We imagine the inventory even now holds prospective for wholesome returns provided vehicles are at early phase of an up-cycle.

But buyers should average return anticipations as inventory is previously at 5.0x/ 4.4x FY22e /FY23e PB versus last cycle peak of 5.8x when AL’s sector share is slipping.We retain Obtain with Rs 150 PT (5.4x FY23e PB).