Ashok Leyland Zooms 9% After Company Turns Profitable in March Quarter

Commercial vehicles major Ashok Leyland reported a 550% increase in consolidated profit for the quarter ending March as sales more than doubled, but the company was in the red for the complete fiscal year.

The company reported a profit of Rs 3.8 bn for the fourth quarter against Rs 580 m in the same quarter last year.

Its consolidated revenue improved by 60% to Rs 81.4 bn for the quarter.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) improved by 44% year-on-year (YoY) to Rs 10,1 bn.

The EBITDA margin, however, narrowed to 12.4%.

Financial performance for the year 2021

Ashok Leyland registered a standalone net loss of Rs 3.1 bn in the financial year 2021 as against a profit after tax of Rs 2.4 bn in the last year.

Loss before tax came at Rs 4.1 bn in 2021 against a profit before tax of Rs 3.6 bn in the previous fiscal.

Revenue for the year ended March 2021 stood at Rs 153 bn, declining 12.4% from Rs 174.7 bn posted in the year ended March 2020.

Vipin Sondhi, MD & CEO of Ashok Leyland said,

• We have seen recovery in quarter four and the overall performance has been better.
  
  However, with the sudden onset of the second wave, the challenges for the industry continues. We are better prepared this time.
  
  With India's GDP poised to grow at 9.5% in the year 2022, it augurs well for the CV industry.
  
  At Ashok Leyland, we remain rock solid and resilient, driven by our Newgen products and a talented team we are confident that we will come out stronger once demand picks up.
  
  This will help us deliver profitable growth.

Equity dividend

The board of directors has recommended a dividend of Rs 0.6 per share that is 60% of face value of Rs 1 per share for the financial year ended 31 March 2021.

Sales volume outlook

The flagship of Hinduja group posted 83% rise in net sales to Rs 69.7 bn in the fourth quarter from Rs 38.1 bn in the last quarter.

During the quarter, the company's medium and heavy commercial vehicles (MHCV) truck volumes surged 111% YoY which is better than the rate of growth of the industry.

The company said its MHCV truck market share for the March quarter has therefore improved to 28.9% vis-a-vis 27.6% in 2021.

Sequentially, over the third quarter of 2021, MHCV truck volumes for the company have grown by 57% in the fourth quarter. This was higher than the industry growth of 53%, thereby resulting in market share improvement of 0.8%.

Light commercial vehicle (LCV) volume for the quarter stood at 17,042 units which is 112% higher than last year volume of 8,057 units.

The Bada Dost launched in September 2020 has clocked good volumes with more than 4,550 vehicles been sold in the March quarter 2021.

Despite the pandemic situation, MHCV and LCV exports stood at 3,164 units rising by 40% over the same quarter last year.

On a full year basis, export volumes stood at 8,001 units, lower than last year (8,920) by 10%.

Looking forward

Going forward Ashok Leyland sees good opportunities to continue to grow the exports, defence, power solutions, LCV, and parts business even as it expands the reach and products of the core MHCV business.

The focus on digital will help leverage the benefits of efficiency and cost.

Customer requirements will be at the core of all the digital initiatives.

The emerging businesses such as electric vehicle (EV) and customer solutions (CSB) will assist in complementing the core business.

Ashok Leyland has created a dedicated EV-only entity called SWITCH Mobility headquartered in UK.

Equitymaster's view on the automobiles sector

We reached out to Brijesh Bhatia, Research Analyst at Equitymaster, and Editor of the premium monthly recommendation service Fast Profits Report, for his view on the automobile sector.

Here's what he has to say...

• Auto Index is trading at 15-weeks high of 10,700 levels after breaking out of bullish head and shoulder pattern.
  
  After testing the high of 11,093 in February 2021, index retraced by 27.6% of the move from March 2020 low of 4,452 to 11,093 high at 9,345 and resumed it bullish journey.
  
  The medium to long term trend for auto sector looks bullish but stock selection would be the key for investors.
  
  I believe the lockdown pain is temporary impact but the company which has proven record of coming back strongly from bad times should be on investors watchlist.

Financial Writer at Equitymaster, Aditya Vora also wrote about the automobile sector in a recent editorial.

Here's an excerpt:

• After four years of underperformance, I expect the auto cycle to change for the better.
  
  Also, valuations of auto stocks are fairly reasonable compared to certain pockets of market euphoria.
  
  When market leaders are available at 30-35% discount from their all-time highs, it certainly merits a look.
  
  I do agree, the sector is down and is likely to stay that way for a few quarters mainly due to the softness in demand.
  
  But it's during such tough times, the best companies can be found with reasonable valuations.

Aditya believes along with auto stocks, a bigger opportunity for investors would be in the auto ancillary space.

You can read his entire editorial here: Time to Press the Accelerator on Auto Stocks?

How the stock markets reacted to Ashok Leyland's March quarter numbers today

Shares of Ashok Leyland opened the day at Rs 123.4 on the BSE and Rs 124 on the NSE.

Its share price closed at Rs 124.1 (up 5%) on the BSE and Rs 124.2 (up 5%) on the NSE.

The share touched its 52-week high of Rs 138.9 and 52-week low of Rs 45.3 on 4 February 2021 and 30 June 2020, respectively.

Over the last 30 days, the Ashok Leyland share price is down 1.2%. Over the last one year, the company's share price is up 119.8%.

About Ashok Leyland

Ashok Leyland is an Indian multinational automotive manufacturer, headquartered in Chennai, Tamil Nadu, India. It's owned by the Hinduja group.

It was founded in 1948 as Ashok Motors and became Ashok Leyland in the year 1955.

Ashok Leyland is the second-largest manufacturer of commercial vehicles in India, the third-largest manufacturer of buses in the world, and the tenth-largest manufacturers of trucks.

With the corporate office located in Chennai, its manufacturing facilities are spread across the country namely Ennore - Tamil Nadu, Bhandara - Maharashtra, Hosur (two units), Alwar - Rajasthan and Pantnagar - Uttarakhand.

The company also has manufacturing units spread across the globe with a bus manufacturing facility in Ras Al Khaimah (UAE), one at Leeds, United Kingdom and a joint venture with the Alteams group for the manufacture of high-press die-casting extruded aluminum components for the automotive and telecommunications sectors.

Ashok Leyland has recently been ranked as 34th best brand in India.

For more details about the company, you can have a look at Ashok Leyland factsheet and quarterly results on our website.

You can also compare Ashok Leyland with its peers.

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