Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Ashok Leyland: Moves into the profit zone - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jul 26, 2002

    Ashok Leyland: Moves into the profit zone

    It has been a sharp reversal in trend for commercial vehicle majors like Ashok Leyland since 3QFY02. The No. 2 in the CV sector has posted a 11% rise in sales for 1QFY03. Similar to Tata Engineering (Telco), Leyland is also back in the black led by a notable improvement in operating margins.

    (Rs m) 1QFY02 1QFY03 Change
    Net sales 5,033 5,577 10.8%
    Other Income 11 23 113.1%
    Expenditure 4,686 4,971 6.1%
    Operating Profit (EBDIT) 347 606 74.9%
    Operating Profit Margin (%) 6.9% 10.9%  
    Interest 202 176 -12.8%
    Depreciation 249 257 3.2%
    Profit before Tax (94) 196 -
    Extraordinary items - (40) -
    Tax - 58 -
    Profit after Tax/(Loss) (94) 97 -
    Net profit margin (%) -1.9% 1.7%  
    No. of Shares (m) 119.0 119.0  
    Diluted Earnings per share* (3.2) 3.3  
    P/E Ratio (x)   29.6  
    (* annualised)      

    As per the company's website, there has been a 19% growth in overall volumes for 1QFY03. This was led by increased demand for medium and heavy commercial vehicles (M/HCVs), which rose by 19%. The company has been concentrating on improving its presence in the Northern states where Telco has a strong foothold. The regional nature of the company has been restricting its growth prospects over the years.

    First quarter snapshot...
    (Nos) 1QFY02 % of sales 1QFY03 % of sales Change (%)
    Bus 2,238 34.7% 2,556 33.3% 14.2%
    M/HCVs 4,165 64.6% 4,973 64.7% 19.4%
    LCVs 43 0.7% 152 2.0% 253.5%
    Total 6,446 100.0% 7,681 100.0% 19.2%
    Source: Company website

    Passenger bus sales have also increased in the same period and could be attributed to resumption of orders from state transport undertaking (STUs) and private fleet operators. It had won orders for supply of CNG buses in the National Capital Region and from the Bangaladesh government in FY02. There also seems to be some action on the LCV segment front. Both, Telco and Ashok Leyland, have witnessed a sharp spurt in demand in 1QFY03 after remaining sluggish for more than two years. Ashok Leyland also benefited from higher exports as well. Export sales more than doubled in 1QFY03 on the back of fresh orders for passenger bus and defense CKDs (completely knocked down units).

    Given this backdrop of a 19% growth in volumes, turnover has increased only by 11%, which implies that realisations have come under pressure. The rise in other income is primarily due to incremental interest income from free cash flow (Leyland generated free cash flow of Rs 1,195 m in FY02). Interest costs are also lower for the same reason. The cost restructuring exercise and value engineering efforts have paid off in the form of a sharp increase in operating margins. Average raw material per vehicle is also estimated to have come down in 1QFY03. Extraordinary item pertains to write-off towards VRS scheme.

    Geographical mix...
    (Nos) 1QFY02 1QFY03 Change (%)
    Domestic 6,247 7,229 15.7%
    Exports 199 452 127.1%
    Total 6,446 7,681 19.2%

    The stock currently trades at Rs 97 implying a P/E multiple of 29.6x 1QFY03 annualised earnings. Though valuations might look expensive on annualised 1QFY03 earnings, it is in the process of returning into profitability. Prospects for the company in FY03 remains promising in light of recovery in CV sales and expected rise in demand for passenger-based delivery vehicles from STUs. A slew of measures, which include broadening of the product portfolio and venturing into defense-vehicle manufacturing are expected to insulate the company from cyclicality to a certain extent. The expansion into northern markets will aid further increase in market share in the future. However, any unfavorable developments on the economy front could lower growth in the coming quarters.



    Equitymaster requests your view! Post a comment on "Ashok Leyland: Moves into the profit zone". Click here!


    More Views on News

    Ashok Leyland: Recovery backed by Aggressive Discounting! (Quarterly Results Update - Detailed)

    Mar 21, 2017

    Ashok Leyland Limited has announced its financial results for the third quarter of the financial year 2016-17 (2QFY17).

    Ashok Leyland: Volume woes! (Quarterly Results Update - Detailed)

    Nov 16, 2016

    Volume woes!

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in ASHOK LEYLAND with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts