Ashok Leyland ‘Purchase’ Score: A superb final quarter for the corporate

1092 Ashok Leyland got here to relaxation within the DTC bus depot for upkeep and inspection checks in Capital on Monday. EXPRESS PHOTO BY PRAVEEN KHANNA DELHI 04 15 2013.

AL’s fourth quarter EBITDA elevated 110% quarter on quarter, or 18% above JEFe. The second wave of Covid impacted demand for vehicles and delayed the bull cycle; Nonetheless, the economic system is recovering effectively and June e-invoices are up 2% from 2019. We have now lowered FY22e EPS by 57% however are typically sustaining FY23 estimates. We keep Purchase, but additionally our view that buyers ought to reasonable return expectations after a rally of round 3x since April 2020, because the inventory is already at 4.4x FY23e PB in opposition to the final peak of 5.8x then that AL’s market share is declining.

Good leads to This fall: This fall LA volumes elevated 32% qoq (down 26% from Q4FY19) whereas EBITDA elevated 110% qo (down 46% from Q4FY19) . This fall EBITDA was 18% increased than JEFe, as a consequence of decrease than anticipated payroll prices. ASPs elevated 10% qoq, however gross margin fell 250bps qoq as a consequence of increased uncooked materials prices. EBITDA margin additional elevated by 240bp quarter-on-quarter to 7.6% due to operational leverage. The recurring PAT was 10x qoq on a low foundation. In FY21, AL volumes fell 20% year-on-year, EBITDA fell 54% year-on-year and recorded a internet lack of Rs 3.0 billion.

Margins and steadiness sheet ought to enhance: AL’s EBITDA margins fell from a median of 11% in FY16-19 to three.5% in FY21. We count on auto enter prices to escalate in S1FY22 as the complete influence of the CYTD metals worth rally is felt, however automobile worth will increase are anticipated to outpace the extra prices in S2. We count on AL’s margins to rebound to 7.3% / 11.3% in fiscal 22/23.

The steadiness sheet deteriorated from Rs 7.4 billion in internet money in FY19 to ~ Rs 42 billion in internet debt within the first quarter of FY21, however internet debt has since fallen by 38% to Rs 26 billion. FCF was unfavourable in FY19-21, however is anticipated to reverse strongly by FY23.

Maintain Purchase: AL inventory has tripled since April 2020, outperforming Nifty-50 by round 100%. We imagine the inventory nonetheless holds the potential for wholesome returns, provided that the vehicles are in the beginning of a bull cycle.

However buyers ought to reasonable return expectations because the inventory is already at 5.0x / 4.4x FY22e / FY23e PB from the final cycle peak of 5.8x as AL’s market share declines. We preserve Purchase with Rs 150 PT (5.4x FY23e PB).

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