Ashok Leyland Q4 profit down 12% at Rs 653 crore

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Published: May 25, 2019 2:20:40 AM

Lower revenue growth was primarily due to a volume growth of 1.3% y-o-y and 36% q-o-q to 59,521 units, while ASP fell 0.6% y-o-y due to adverse product mix as the M&HCV contribution declined. 

The second and third quarters of this fiscal will see demand pick up and the Q4 will see some pre-buying due to ensuing BS VI norms, effective April 1, 2020.

Hit hard by heavy discounting, sharp hike in steel prices and other variable costs, Hinduja group flagship Ashok Leyland (ALL) has reported a 12% drop in its net profit for the quarter ended March 31, 2019, to `653 crore compared to `743 crore a year ago. Current chief financial officer Gopal Mahadevan has been elevated to the board at director level.

The company has also announced a new project called ‘Phoenix’, wherein it will develop LCVs above 3.5 tonne to 7 tonne under new modular platform with an eye on global markets in particular as well to fill the gap in the offerings for domestic market. Overall, the company is planning to invest `1,000 crore in the current fiscal and similar amount in FY21. The stock price was up 5.46% on the BSE at `93.65. The Ebitda margin declined 12% to 11.1% compared to 12.8% a year ago. Ebitda was at `985 crore compared to `1,126 crore. Revenue grew 1% to `8,846 rore against `8,780 crore.

“We have lost nearly 150 basis points in our Ebitda due to heavy discounting, sharp increase in steel prices and other input costs. Despite, there was a meagre 1% growth in our overall sales during the quarter to 59,521 units (58,734 units) due to muted demand, we could still increase our market share by 1.8% to 36.9%,” said Mahadevan. The industry volume in the quarter declined by 4%, he pointed out.
Dheeraj Hinduja, chairman, Ashok Leyland, said: “Amidst liquidity crisis, heavy discounting, new axle norms and subdued sentiment due to elections, we could still perform satisfactorily and could post decent profits. Out of last 16 quarters, we could able to post a double-digit Ebitda in 15 quarters, which was impressive and we hope to maintain the same in this fiscal too.” Mahadevan has been elevated to the board as director, Dheeraj said at the beginning.

“While we had some pressure in the M&HCV segment, however, ALL continue to do well both on the ICV and LCV segments. The ICV segment is growing much faster than other segments with 30%, where ALL is holding a 3% market share. Despite the Dost being the only product in our LCV portfolio, we could still hold a comfortable market share with 18% in Q4FY19 compared to 17% in the same quarter last fiscal,” Dheeraj pointed out. He also said with the stable government in place, the company hopes spending on infra, mining, ports and the proposed scrappage policy will take place soon.

Responding to a specific question, he said: “We see Q1 to be a tough one. The second and third quarters of this fiscal will see demand pick up and the Q4 will see some pre-buying due to ensuing BS VI norms, effective April 1, 2020. Overall, we see a higher single-digit growth in the current fiscal.”

In response to a question on appointing a new MD and CEO, Dheeraj said: “We are in search of a right candidate. We have options in both internally and externally to appoint to the MD’s post. We hope that we will find out the candidate in due course of time.”
Earlier, Mahadevan said: “Decline in our profits and Ebitda margins was due to the drop in realisation. We had to undergo heavy discouting as well sharp hike in steel prices. Despite all these challenges and subdued market conditions, Ashok Leyland done extremely well. We have done equally well on our LCV front, which saw a growth of 8% during the quarter to 15,502 units, and overall, we gained a market share of 1.8% while the industry saw a decline of 4% in its overall volume growth.”

According to Mitul Shah, research, Reliance Securities, “The company’s performance has been in line with the expectations. Ashok Leyland recorded broadly in line operational performance in Q4FY19 with double-digit Ebitda margins of 11.1% against our estimate of 11.5%.

The revenue growth of 1% y-o-y and 40% q-o-q to `8,850 crore is in line with our estimate. Lower revenue growth was primarily due to a volume growth of 1.3% y-o-y and 36% q-o-q to 59,521 units, while ASP fell 0.6% y-o-y due to adverse product mix as the M&HCV contribution declined.

The Ebitda margin contracted 168 bps y-o-y (up 87 bps q-o-q) to 11.1% against our estimate of 11.5%), owing to competitive pricing pressure and higher discounts and inability to pass on the RM cost escalation. Its adjusted PAT stood at `660 crore, down 11% y-o-y (grew strongly by 72% q-o-q) against our expectation of `700 crore due to lower operating margin, while PAT was benefitted from lower tax rate due to the MAT credit (tax benefit on account of merger) in Q4FY19. We expect Ashok Leyland to face margin pressure on account of ongoing slowdown and intense competition in the domestic CV space.

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