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Ashok Leyland: Bearing the slowdown brunt - Views on News from Equitymaster
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Ashok Leyland: Bearing the slowdown brunt
May 16, 2009

Performance summary
  • Topline falls by 23% YoY during FY09 on the back of a 35% fall in volumes
  • EBITDA margins contract 2.8% and operating profits fall 43% during the fiscal as higher expenses take toll
  • Net profits fall nearly 60% for the full year as higher interest expenses hurt profits further
  • Bottomline for the fourth quarter falls 71% YoY on the back of a 53% fall in topline


(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 25,620 12,181 -52.5% 77,291 59,811 -22.6%
Expenditure 22,663 11,068 -51.2% 69,251 55,251 -20.2%
Operating profit (EBDITA) 2,957 1,113 -62.4% 8,040 4,559 -43.3%
EBDITA margin (%) 11.5% 9.1%   10.4% 7.6%  
Other income 116 131 12.9% 740 496 -32.9%
Interest (net) 91 440 383.4% 497 1,187 138.7%
Depreciation 486 480 -1.3% 1,774 1,784 0.6%
Profit before tax 2,496 324 -87.0% 6,509 2,084 -68.0%
Extraordinary income/(expense) (22) -   (84)    
Tax 669 (210)   1,732 185 -89.3%
Profit after tax/(loss) 1,806 533 -70.5% 4,693 1,900 -59.5%
Net profit margin (%) 7.0% 4.4%   6.1% 3.2%  
No. of shares (m) 1,330.3 1,330.3   1,323.3 1,330.3  
Diluted earnings per share (Rs)*         1.4  
Price to earnings ratio (x)*         20.3  
(* on trailing twelve months earnings)

What has driven performance in FY09?
  • FY09 was a year that the CV industry would like to forget in a hurry and more so, Ashok Leyland. Battling weak sales in segments which are supposed to be the company’s forte, it recorded a 23% drop in topline for the full year. Company’s overall volumes fell 35% YoY with the M&HCV segment coming in for severe drubbing as volumes here were down 46% on a YoY basis. The fact that the company had resorted to some price hikes and impressive growth in some of its other revenues streams helped limit the damage to some extent. As far as the prospects in the current fiscal are concerned, the company is hopeful of a much better performance and sees some chance of volumes growth moving into the positive territory.

    Segment wise break up of sales…
      4QFY08 4QFY09 Change (%) FY08 FY09 Change (%)
    M&HCVs Passenger        
    Domestic 3,869 4,231 9.4% 17,572 16,038 -8.7%
    Exports 1,438 557 -61.3% 4,688 3,696 -21.2%
    M&HCVs Goods        
    Domestic 20,735 4,730 -77.2% 57,835 31,067 -46.3%
    Exports 899 520 -42.2% 2,389 2,280 -4.6%
    Total M&HCVs        
    Domestic 24,604 8,961 -63.6% 75,407 47,105 -37.5%
    Exports 2,337 1,077 -53.9% 7,077 5,976 -15.6%
    LCVs        
    Domestic 238 162 -31.9% 615 514 -16.4%
    Exports 130 588 352.3% 208 836 301.9%
    Total        
    Domestic 24,842 9,123 -63.3% 76,022 47,619 -37.4%
    Exports 2,467 1,665 -32.5% 7,285 6,812 -6.5%
    Grand Total 27,309 10,788 -60.5% 83,307 54,431 -34.7%

  • As far as the operating performance is concerned, margins have slumped 2.7% for the full year. While the company has done well to keep raw material costs under check, less than proportionate fall in other cost heads has led to the margin erosion. Important to add that with the company adopting the new accounting method, an expense of Rs 2.2 bn due to foreign currency exposure has been not routed through the P&L. Had the same been a part of other expense, company’s margins would have eroded even further.

    Cost break-up…
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Raw materials 18,920 8,838 -53.3% 57,649 44,522 -22.8%
    % sales 73.7% 72.6%   74.5% 74.4%  
    Staff cost 1,673 1,240 -25.9% 6,161 5,662 -8.1%
    % sales 6.5% 10.2%   8.0% 9.5%  
    Other expenditure 2,064 955 -53.7% 5,412 4,932 -8.9%
    % sales 8.0% 7.8%   7.0% 8.2%  

  • Company’s PBT has come in lower by 66% YoY. It has dropped more than operating profits mainly on account of higher interest expenses, which have registered more than two-fold jump during the fiscal. The higher interest charges could be attributed to the company putting into use the full foreign currency loan and also higher working capital needs. At 60% YoY, the decline in net profits is slightly better than the fall in PBT on account of a huge 89% fall in taxes. The company qualified to pay MAT for FY09 and hence, reversed excess tax paid during the earlier part of the fiscal.

What to expect?
At the current price of Rs 29, the stock trades at a multiple of 5.4x our estimated FY11 cash flow per share. The company’s performance has come in way below our estimates, both on the topline as well as the bottomline front. However, the management has expressed hope that the worst in terms of demand is perhaps over and there are chances that the current fiscal witnesses some uptick in demand. Furthermore, with raw material prices ruling lower vis-à-vis last year’s levels, margins might also witness some improvement. We will come out with our updated view shortly.

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