While most automobile stocks are being discarded by analysts, Ashok Leyland is getting a favourable look in. And the reason for this is that the company has improved its operating margins in a year that was marked by steep rise in input costs. The EBITDA margins have increased from 9.8% level in FY07, to 10.4% level in FY08. Overall, revenues declined by a percentage point in FY08, but net earnings grew marginally to touch Rs 477 crore. The factor that makes analysts optimistic about the company is that the years ahead are going to see strong volume growth. It will be to ramping up its capacity to 1,84,000 vehicles from the current 84,000 vehicles level in the next two years funded by a debt and internal accruals to the tune of Rs 330 crore. There would be no equity dilution. Moreover the management is keen to keep the margins under control and expect them to remain in the 10% zone. They have been working on sourcing material from China to keep high input costs under control. Already the company has taken a price hike of 2.5% in April and the fact that steel companies have committed to not raise prices, will safeguard margin erosion. Moreover, analysts expect the companies to return strong numbers this year as the commodity cyclical upturn has been established and the mining tippers supplied by the company should find strong demand. Around 67% of the company's revenues are sourced from the cyclical business. However, the company intends to lower the dependence on this line of business and expects revenues from non-cyclical sources like busses, exports and spare parts, to contribute to around 45% in the current year. The bus segment grew by about 50% in FY08 and exports, in volume terms, were up 21% to 7,285 vehicles in FY08.
Contributed by Akash Joshi