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: Expands margins - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 25, 2002

    Ashok Leyland: Expands margins

    Ashok Leyland, the country's second largest player in the commercial vehicles (CVs) segment, has posted an impressive second quarter performance. While turnover has increased by 14%, there has been considerable rise in operating margins of the company in 2QFY03.

    (Rs m) 2QFY02 2QFY03 Change
    Sales 5,555 6,353 14.4%
    Other Income 72 50 -31.0%
    Expenditure 5,010 5,577 11.3%
    Operating Profit (EBDIT) 545 775 42.3%
    Operating Profit Margin (%) 9.8% 12.2%  
    Interest 192 164 -14.6%
    Depreciation 209 284 36.3%
    Profit before Tax 216 377 74.3%
    Extraordinary items - (46) -
    Tax 31 122 292.6%
    Profit after Tax/(Loss) 185 208 12.5%
    Net profit margin (%) 3.3% 3.3%  
    No. of Shares (m) 118.9 118.9  
    Earnings per share (Rs)* 6.2 7.0  
    P/E (x)   12.1  

    One of the key reasons for the commendable rise in turnover is the upturn in CV sales in 1HFY03. Domestic trunk route freight rates increased by as high as 10% in 1QFY03 followed by a marginal 4% increase in 2QFY03. Lucrative freight rates are one of the key growth determinants of CV sales. Given the sharp spurt in cement output and increased food grain production in FY02, road sector has benefited in a large way. For Ashok Leyland, while domestic CV sales (in volume terms) has risen by 22%, exports have declined in 1HFY03. Demand for multi-axle vehicles that are above 16 tonnes has increased significantly due to economies of scale coupled with road network in key trunk routes also improving. That said, growth in domestic CV sales is on the lower side when compared with Telco (the market leader).

    Volume snapshot...
    (Nos) 1HFY02 1HFY03 Change (%)
    Bus 4,973 5,306 6.7%
    –Domestic 4,610 4,813 4.4%
    –Exports 363 493 35.8%
    Goods 8,631 10,258 18.9%
    –Domestic 8,145 9,894 21.5%
    –Exports 486 364 -25.1%
    LCVs 107 257 140.2%
    –Domestic 78 110 41.0%
    –Exports 29 147 406.9%
    Total 13,711 15,821 15.4%
    –Domestic 12,833 14,817 15.5%
    –Exports 878 1,004 14.4%
    Source: Company website

    On the other hand, passenger vehicle sales have been sluggish in 1HFY03 in absence of fresh orders from State Transport Undertakings (STUs) that account for a bulk of demand. Much of the domestic passenger vehicle sales is believed to have come from increased demand from private transport operators. The company's concerted effort to boost exports have yielded positive results in the passenger bus segment. Volumes are higher by 15% in 1HFY03. The company had won orders from both Bangladesh and Egypt from such vehicles in SKD (semi-knocked down) form recently. This has led to a 7% rise in volume sales for Ashok Leyland in the first half of the current fiscal year.

    When compared on a monthly basis both in 1HFY03 and with respect to the corresponding period previous year, April and September 2002 saw one of the highest rise in volume sales. Moving away from bus and CVs, 1HFY03 also saw a sharp spurt in LCV demand. Though lower base in 1HFY02 was one of the reasons, our interaction with some CV majors indicated that due to higher consumer durable demand, LCV demand has also increased in the same period.

    Operating margins have increased on the back of lower raw material costs, benefits from increased asset sweating and lower employee related expenses. We expect FY03 margins to touch 13% levels in FY03. Interest costs have fallen in line with expectation as Ashok Leyland was estimated to repay debts worth Rs 1.8 bn in FY02 (around 20% of total debt). In FY03, we expect the company to retire debts to the tune of Rs 1.4 bn. Growth in net profits would have been higher but for higher tax outgo and extraordinary items in 2QFY03. Overall, the performance of Ashok Leyland is a commendable one.

    The stock is currently tradeing at Rs 85 implying a P/E multiple of 12.1x annualised 2QFY03 earnings. As mentioned above, freight rates have remained stagnant in the last three months in light of several round of increase in input costs (diesel prices account for 50% of operating expenses for truck operators). Given this backdrop and slower economic growth expectations (3.1% GDP growth as per CMIE), we remain cautious for the rest of the year. While the rise in industrial output is a positive, it remains to be seen whether it is enough to sustain volume growth for the next year and a half. Based on peer value comparison, the stock seems to be fairly valued at the current juncture. Any upward revision in prices would be primarily if CV sales sustain at the current levels and increase in STU orders.



    Equitymaster requests your view! Post a comment on "Ashok Leyland: Expands margins". 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

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    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 23, 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


    Detailed Quarterly Results With Charts