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Ashok Leyland: Fourth quarter bonanza! - Views on News from Equitymaster

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Ashok Leyland: Fourth quarter bonanza!
Apr 29, 2010

Ashok Leyland has announced its FY10 results. The company has reported a 12% YoY and 89% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 141% YoY during the quarter.
  • Operating profits grow an impressive 227% YoY as the company manages to slash certain costs.
  • Higher taxes notwithstanding, lower interest and benign depreciation charges lead to a more than fourfold jump in net profits during the quarter
  • Bottomline for the full year grows 126% on the back of a 21% growth in topline, both on a YoY basis


(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 12,181 29,390 141.3%     59,811     72,447 21.1%
Expenditure 11,023 25,606 132.3%     55,116     64,819 17.6%
Operating profit (EBDITA) 1,158 3,784 226.7% 4,694 7,628 62.5%
EBDITA margin (%) 9.5% 12.9%   7.8% 10.5%  
Other income 121 23 -80.9%  496  704 42.0%
Interest (net) 440 221 -49.8% 1,187  811 -31.7%
Depreciation 480 588 22.4% 1,784 2,041 14.4%
Profit before tax 359 2,998 734.9% 2,219 5,480 146.9%
Extraordinary income/(expense) (35) (4)   (135) 33  
Tax   (210) 768    185 1,211 556.4%
Profit after tax/(loss) 533 2,227 317.6%   1,900 4,302 126.4%
Net profit margin (%) 4.4% 7.6%   3.2% 5.9%  
No. of shares (m) 1,330.3 1,330.3      1,330.3    1,330.3  
Diluted earnings per share (Rs)*            3.2  
Price to earnings ratio (x)*         17.1  
(* on trailing twelve months earnings)

What has driven performance in FY10?
  • Volume growth, which remained at a negative 13% for the first nine months of the year, suddenly turned around and came in at an impressive 17% for the full year, thanks to a huge 139% jump in sales for the company during the fourth quarter. It should be noted that volumes had suffered extremely badly during the last two quarters of the previous year and with the same making a comeback during the last two quarters of the current year, the company has been able to log in an appreciable growth for the full year. At 21%, the topline growth was also quite impressive. The company has put before itself a target of selling around 80,000 vehicles in FY11. This would mean a growth of around 33%. Given that the company has managed similar sales in the past as well, achieving the target does not appear too difficult, especially if the Indian economy keeps chugging along at a strong pace.

    Cost break-up...
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Raw materials 8,381 20,965 150.1% 42,501 49,726 17.0%
    % sales 68.8% 71.3%   71.1% 68.6%  
    Staff cost 1,240 1,807 45.8% 5,662 6,659 17.6%
    % sales 10.2% 6.1%   9.5% 9.2%  
    Other expenditure 1,402 2,834 102.2% 6,954 8,433 21.3%
    % sales 11.5% 9.6%   11.6% 11.6%  

  • Operating margins for the quarter have come in at 13% while for the full year, the same have stood at around 11%, both higher than the corresponding period of the previous year. For the coming year though, the company is confident of maintaining margins above 10%. However, a repeat of the fourth quarter performance looks difficult as commodities, key inputs for the company, have started becoming dearer and are likely to continue with their upward spiral, making life difficult for companies like Ashok Leyland.

  • The company also changed its depreciation policy during the quarter, as a result of which, depreciation is lower by around Rs 210 m. Because of this and also because of the lower interest costs, the company was able to grow its bottomline by nearly fourfold during the quarter. For the full year though, bottomline has more than doubled. Here also, lower interest charges and benign depreciation outgo have managed to add some more buoyancy to the company’s net profits.

What to expect?
At the current price of Rs 60, the stock trades at a multiple of 10 times our estimated FY12 cash flow per share. The company’s performance has come in much better than our expectations, mainly on the topline front. Consequently, we will have to revise our number upwards. We will soon update our report on the company.

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