Quarterly Update

23 JAN 2014

ASHOK LEYLAND

SELL

AUTO

Target Price: Rs 12

Continues to disappoint; some respite in FY15

Ashok Leylands (ALs) Q3 was impacted by high discounts and inferior
mix (as reflected by QoQ increase in RM to sales ratio). Q3 EBITDA loss
at Rs 969 mn (margin at -5%) was higher than our est. of Rs
856mn.However, we expect FY15 to see improvement in volumes (10%
growth) and margin (up 600 bps) led by gradual improvement in the
economy.

CMP
Potential Upside
Relative to Sector

: Rs 17
: -31%
: Underperformer

MARKET DATA
No. of Shares

: 2,661mn

Free Float
Market Cap
52-week High / Low
Avg. Daily vol. (6mth)
Bloomberg Code
Promoters Holding
FII / DII
BSE Code
NSE Code

Valuation rich
We now expect a loss of Rs 1.6/sh in FY14 (Rs 0.3/sh earlier) and
accordingly reduce FY15 EPS by 14% to Rs 0.7.We raise our target
EV/EBIDTA multiple to 7x from 6x on expectations of demand recovery.
Our target price is based of Rs 12 (7x FY15E EV/EBIDTA + Rs 2/ sh for
investments) implies 31% downside from CMP.Maintain SELL.

: 59%
: Rs46bn
: Rs 26 / Rs 12
: 10.8 mn shares
: AL IB Equity
: 41%
: 13% / 12%
: 500477
: ASHOKLEY

Other highlights

Despite cash generation, debt at Rs 54 bn was flat QoQ: Cash flow generation of Rs 2.3 bn in Q3FY14 was driven
by operational working capital reduction (Rs 4.9bn), profit on sale of IndusInd Bank shares (~ Rs 1 bn) and profit
on sale of land (Rs 340 mn). Note ALs target is to reduce debt to Rs 51 bn by March 14. We expect net debt of
Rs 37 bn in FY15 led by volume and margin recovery
Market share: In Q3,AL has gained market share YoY in trucks but has lost some on buses as AL was not willing to
discount its products as much as the competition in tender floated by state transport units. Overall, AL has seen a
marginal gain in market share
Boss has been launched in 4 states till Dec-13. Also launched Captain (with Neptune engine) in January 2014 with
23 ton and 25 ton options. The platform can support 18 variants
Cost reduction: While management did not share any specific targets, it indicated AL targets significant cost
reduction by H2FY15. The company has achieved 40% of the target till date
(Continued on page 2)

Financial summary(Standalone)
Y/E March
Sales (Rs mn)

Key drivers

FY12

FY13

FY14E

1,27,034

1,22,031

98,830

FY15E
1,09,267

Adj PAT (Rs mn)

6,267

1,442

(4,274)

1,999

Con. EPS* (Rs.)

(1.1)

0.7

2.4

0.5

(1.6)

0.8

Change YOY (%)

(4.7)

(77.0)

(396.4)

(146.8)

P/E (x)

12.7

31.8

(10.7)

23.0

RoE (%)

22.6

4.8

(14.5)

7.1

RoCE (%)

13.6

6.5

(1.0)

6.8

EV/EBITDA (x)

8.3

10.1

40.2

9.1

DPS

1.0

0.6

0.2

0.3

EPS (Rs.)

Source: *Consensus broker estimates, Company, Axis Capital

(%)

FY13

FY14E

(16)

(23)

10

14.1

14.4

14.5

7.0

2.0

8.1

Volume Growth
ASP
EBITDA margin

FY15E

Price performance
150

Sensex

Ashok Leyland

100
50
0
Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

01

23 JAN 2014

Quarterly Update

ASHOK LEYLAND
AUTO

(Continued from page 1)

Capex and investments planned for FY14 is Rs 5-7 bn. In Q3FY14, the
company spent Rs 870 mnon investments and Rs 350 mnon capex

Exports: AL aims to achieve 1/3rd of its revenue from exports over medium-term
vs. ~10% of revenue currently. Key exports markets under consideration:
Middle East, South-east Asia, Africa and Latin America

Capacity currently stands at ~150,000 units with LCV contract manufacturing

capacity at ~60,000 units

Exhibit 1: Results update

(Rsmn)

Dec-13

Quarter ended
Dec-12
% Chg

Sep-13

% Chg

FY14E

Y/E
FY13

% Chg

Net sales

19,532

23,805

(17.9)

25,496

(23.4)

101,333

124,812

(18.8)

(969)

1,023

563

2,063

8,765

(76.5)

154

141

9.3

231

(33.3)

677

624

8.6

(815)

1,164

794

2,063

8,765

(76.5)

EBIDTA
Other income
PBIDT
Depreciation

883

931

(5.1)

901

(1.9)

3,672

3,808

(3.6)

1,153

1,071

7.6

1,244

(7.4)

4,507

3,769

19.6

PBT

(2,851)

(838)

(1,351)

(5,439)

1,812

Tax

(378)

20

(981)

(1,165)

370

(2,473)

(858)

(371)

(4,274)

1,442

801

1,599

(49.9)

120

567.2

1,166

2,896

(59.7)

Interest

Adjusted PAT
Extra ordinary income/ (exp.)
Reported PAT

(1,672)

741

(251)

(3,107)

4,337

No. of shares (mn)

2,661

2,661

2,661

2,661

2,661

EBIDTA margin (%)

(5.0)

4.3

2.2

2.0

7.0

PBIDT margin (%)

(4.2)

4.9

3.1

2.0

7.0

EPS - annualized (Rs)

(3.7)

(1.3)

(0.6)

(1.6)

0.5

Source: Company, Axis Capital

02

23 JAN 2014

Quarterly Update

ASHOK LEYLAND
AUTO

Financial summary (Standalone)

Cash flow (Rsmn)

Profit &loss (Rsmn)

Y/E March
Net sales
Other operating income
Total operating income
Cost of goods sold
Gross profit
Gross margin (%)
Total operating expenses
EBITDA
EBITDA margin (%)
Depreciation
EBIT
Net interest
Other income
Profit before tax
Total taxation
Tax rate (%)
Profit after tax
Minorities
Profit/ Loss associate co(s)
Adjusted net profit
Adj. PAT margin (%)
Net non-recurring items
Reported net profit

FY12

FY13

FY14E

FY15E

1,27,034

1,22,031

98,830

1,09,267

2,009

2,781

2,503

2,678

1,29,043

1,24,812

1,01,333

1,11,945

(94,618)

(91,231)

(76,433)

(79,837)

34,425

33,581

24,900

32,108

27.1

27.5

25.2

29.4

(21,241)

(24,816)

(22,837)

(23,076)

13,184

8,765

2,063

9,033

10.4

7.2

2.1

8.3

(3,528)

(3,808)

(3,672)

(3,830)

Y/E March
Profit before tax
Depreciation & Amortisation
Chg in working capital

FY12

FY13

FY14E

FY15E

7,507

1,812

(5,439)

2,324

(3,528)

(3,808)

(3,672)

(3,830)

(764)

(3,732)

9,625

(1,637)

Cash flow from operations

11,171

7,283

14,020

7,070

Capital expenditure

(8,722)

(7,503)

(1,000)

(1,000)

Cash flow from investing

(11,364)

(14,911)

(3,323)

(2,695)

Equity raised/ (repaid)

1,330

Debt raised/ (repaid)

5,296

12,575

(2,000)

(3,000)

Dividend paid

(3,092)

(1,868)

(727)

(982)

Cash flow from financing

(2,019)

4,170

(7,234)

(7,566)

Net chg in cash

(2,212)

(3,458)

3,462

(3,191)

FY12

FY13

FY14E

FY15E

9,656

4,957

(1,609)

5,203

(2,552)

(3,769)

(4,507)

(3,584)

404

624

677

705

7,507

1,812

(5,439)

2,324

(1,240)

(370)

1,165

(325)

OPERATIONAL

16.5

20.4

21.4

14.0

FDEPS (Rs)

2.4

0.5

(1.6)

0.8

6,267

1,442

(4,274)

1,999

CEPS (Rs)

3.7

3.1

0.2

2.2

DPS (Rs)
Dividend payout ratio (%)

6,267

1,442

(4,274)

1,999

4.9

1.2

(4.3)

1.8

16

2,896

1,166

6,283

4,337

(3,107)

1,999

Balance sheet (Rsmn)

Key ratios
Y/E March

1.0

0.6

0.2

0.3

42.3

36.8

(20.0)

42.0

14.9

(3.9)

(19.0)

10.6

6.3

(33.5)

(76.5)

337.8

Adj net profit (%)

(4.7)

(77.0)

(396.4)

(146.8)

FDEPS (%)

(4.7)

(77.0)

(396.4)

(146.8)

RoE (%)

22.6

4.8

(14.5)

7.1

RoCE (%)

13.6

6.5

(1.0)

6.8

GROWTH
Net sales (%)
EBITDA (%)

PERFORMANCE

Y/E March

FY12

FY13

FY14E

FY15E

Paid-up capital

2,661

2,661

2,661

2,661

Reserves & surplus

26,287

28,757

24,922

25,939

EFFICIENCY

Net worth

42,082

44,551

40,717

41,733

Asset turnover (x)

1.9

1.5

1.2

1.4

Borrowing

30,979

43,554

41,554

38,554

Sales/ total assets (x)

1.1

1.0

0.8

0.9

0.1

0.1

35.3

42.5

42.4

41.3

Other non-current liabilities

Total liabilities

4,904

5,274

5,274

5,274

1,19,157

1,30,967

1,25,000

1,24,630

Working capital/ sales (x)

Receivable days

Gross fixed assets

72,564

79,913

82,913

85,913

Inventory days

Less: Depreciation

(23,429)

(27,094)

(30,767)

(34,596)

Payable days

70.3

59.6

54.1

56.5

114.1

106.0

125.0

125.0

49,135

52,819

52,147

51,317

6,903

7,057

5,057

3,057

Total debt/ equity (x)

0.8

1.0

1.0

0.9

Total fixed assets

56,038

59,876

57,204

54,374

Net debt/ equity (x)

0.7

1.0

0.9

0.9

Total Investment

15,345

23,376

Inventory

22,306

18,960

26,376

28,776

Current ratio (x)

1.2

1.3

1.1

1.1

14,716

15,944

Interest cover (x)

3.8

1.3

(0.4)

1.5

Debtors

12,302

14,194

11,478

12,365

VALUATION

326

139

3,602

411

12.7

31.8

(10.7)

23.0

Loans & advances

11,932

13,539

10,742

11,877

EV/ EBITDA (x)

8.3

10.1

40.2

9.1

Current liabilities

41,193

37,588

37,456

39,068

EV/ Net sales (x)

0.9

0.7

0.8

0.8

6,581

10,127

3,965

2,411

PB (x)

2.8

1.5

1.7

1.6

Dividend yield (%)

3.3

3.5

1.4

1.8

Free cash flow yield (%)

3.1

(0.5)

28.4

13.2

Net fixed assets

Add: Capital WIP

Cash & bank

Net current assets

Other non-current assets
Total assets
Source: Company, Axis Capital

1,19,157

1,30,967

1,25,000

1,24,630

FINANCIAL STABILITY

PE (x)

Source: Company, Axis Capital

03

23 JAN 2014

Quarterly Update

ASHOK LEYLAND
AUTO

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04