Ashok Leyland last week announced its fourth quarter results and reported a net profit of Rs 476 crore for the fourth quarter ended March 31 as compared to a net loss of 141 crore during the same period of previous fiscal. The Chennai-based vehicle manufacturer said robust sales and reduction in operating costs contributed to net profit growth. The company’s revenue rose by 13 per cent to Rs 7,057 crore for the fourth quarter as compared to Rs 6,237 crore during the same period of previous fiscal. The company’s medium and heavy commercial vehicles sale stood at 38,643 units, registering a growth 10 per cent from previous fiscal. It also sold 8,978 LCV units during the fourth quarter, up 3 per cent from same period of 2015-16 fiscal. For the year ended March 31, the company’s standalone net profit surged over three-fold to Rs 1,223 crore as compared to Rs 390 crore in the 2015-16 fiscal.
Brokerage Houses Sharekhan and Edelweiss have recommended a ‘Buy’ rating to on the stocks. We look at observation they have made on the company post fourth quarter results
TP: Rs 125
Ashok Leyland management’s guidance stays very robust
a) 10-15% M&HCV industry growth in FY18 (GDP, infra and mining revival)
b) market share gain—across regions and segments—to continue (up 100bps in FY17 to 34%)
c) strong response for new launches (Sunshine, GURU and Oyster) and sustained network expansion (5x over FY12-17) to aid market share gains
d) non-cyclical businesses gaining traction—new orders in defence, bigger scale of spares business and focused product strategy across export markets.
The brokerage house said that the company’s strategy of increasing local presence across export markets and product launches comparable to global peers will help drive export growth.
The company will focus on widening product offerings and deepening distribution to propel current 15-year high market share and industry leading margin/RoE.
TP: Rs 105
Brokerage house believes the outlook for the domestic medium and heavy commercial vehicles (MHCV) industry is buoyant post the hit taken due to the transition to the new BS-IV emission norms.
The Ashok Leyland Ltd (ALL) management expects the domestic MHCV industry to register a strong double-digit growth of 10-15% in FY2018 given the government’s focus on infrastructure development, expected traction in mining activities and a marked improvement in GDP growth post the imminent GST rollout from July 1, 2017. The demand for LCVs will improve with the development of new highways/expansion of old highways.
The company has lined up a slew of new product launches in the LCV space and has guided for one new product launch every quarter. Further, there is an apparent traction in demand for ALL’s products in the key export markets. ALL’s Sunshine branded school buses have seen decent demand in the overseas markets. Also, the company’s initiatives to set up assembly plants/ramp-up capacities and the commencement of export sales to retail clients (earlier ALL was exporting vehicles predominantly for project orders) provide comfort as far as demand in these markets is concerned. Over the next 3-5 years, the ALL management expects to enhance the share of export volumes to ~30% from the current level of 8-9%.
Ashok Leyland has also received around 19 orders to supply different vehicles to the Indian Army, and the Defence business is expected to gather steam over the medium term and contribute meaningfully to the company’s revenue.