26, Mar, 2019
Buy Ashok Leyland; target of Rs 147

Buy Ashok Leyland; target of Rs 147

 

Volumes driven by M&HCV, LCV: Volumes grew ~27% YoY (+23% QoQ), led by M&HCV (volumes up 22% YoY) and LCV (volumes up 42% YoY) segments. Realization declined 1.3% QoQ (-1.2% YoY) to INR1.46m/unit (our estimate: ~INR1.48m), reflecting a weaker mix. Revenue grew 25% YoY (+22% QoQ) to INR76b (our estimate: INR76.7b). We estimate ~16%/~25% growth in revenue/PAT in FY19, implying residual growth of 6%/-2% YoY for 2HFY19. Mix, discounts hurt profitability: Gross margin of 27.3% (-310bp QoQ, -190bp YoY) was below our estimate of 29.5%, led by a weaker mix (lower tonnage and defence sales) and higher discounts. However, lower other expenses (lower warranty cost) diluted the impact of weaker mix, resulting in EBITDA margin expansion of 20bp QoQ (+50bp YoY) to 10.6% (our estimate: ~11.1%). However, lower other income and higher tax led to PAT of ~INR4.7b (+41% YoY; our estimate: ~INR5.2b).