Ashok Leyland: Deferred tax woes - Views on News from Equitymaster

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Ashok Leyland: Deferred tax woes

Jan 25, 2002

Ashok Leyland, the No. 2 in the commercial vehicle segment, has reported a dissappointing third quarter performance. Despite the recent rise in commercial vehicle (CV) sales, turnover for the company has fallen by 15%. While margins have increased, higher tax outgo has resulted in a sharp fall in profits.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Sales 5,088 4,344 -14.6% 14,257 14,932 4.7%
Other Income 3 2 -20.1% 77 85 10.5%
Expenditure 4,485 3,684 -17.9% 12,889 13,380 3.8%
Operating Profit (EBDIT) 603 661 9.5% 1,368 1,552 13.5%
Operating Profit Margin (%)11.9%15.2% 9.6%10.4% 
Interest 184 208 13.4% 645 602 -6.6%
Depreciation 214 238 11.5% 639 696 8.9%
Profit before Tax 209 217 3.7% 161 339 110.2%
Tax 15 81 442.7% 15 113 650.0%
Profit after Tax/(Loss) 194 135 -30.3% 146 226 54.8%
Net profit margin (%)3.8%3.1% 1.0%1.5% 
No. of Shares (m) 118.9 118.9   118.9 118.9  
Diluted Earnings per share* 6.5 4.5   2.5 3.8  
P/E Ratio  16.3    19.4  

Sales have fallen sharply in the third quarter due to lower offtake by the state transport undertakings. Though medium and heavy commercial vehicle (M/HCV) demand had shown signs of improvement, the drop in volumes indicate that Ashok Leyland might have lost market share in this segment. To put things in perspective, Telco, during the same period, reported a 6% rise in M/HCV volumes.

However, a favorable product mix and continuous gains in operational efficiencies have enabled the company to improve margins from 12% in 3QFY01 to 15% in 3QFY02. For the first nine months of the current fiscal, operating margins have gone up by 80 basis points.

Net profit in 3QFY02 has declined by 30% to Rs 135 m primarily on account of higher provisioning towards deferred taxation. The stock currently trades at Rs 74 implying a P/E multiple of 19.4x annualised nine months earnings.

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