Ashok Leyland: Margins throw a spanner - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Ashok Leyland: Margins throw a spanner

Oct 26, 2004

Performance Summary
Ashok Leyland, one of India’s leading producers of CV, has faced the heat on the expenses front during 2QFY05. As a consequence, while the topline has grown at a steady rate of 11% YoY, the bottomline has witnessed a fall of 20% YoY in the quarter under consideration. For the half yearly period, the corresponding figures stood at 23% and 10% growth respectively.

(Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
Net sales 8,239 9,148 11.0% 14,082 17,360 23.3%
Expenditure 7,186 8,399 16.9% 12,508 15,861 26.8%
Operating profit (EBDITA) 1,053 748 -28.9% 1,574 1,498 -4.8%
EBDITA margin (%) 12.8% 8.2%   11.2% 8.6%  
Other income 93 119 27.6% 111 149 33.8%
Interest (net) 95 (9) -109.6% 181 21 -88.6%
Depreciation 251 258 3.0% 481 498 3.7%
Profit before tax 801 619 -22.8% 1,024 1,128 10.2%
Extraordinary item (18) (24)   (23) (47)  
Tax 248 164 -33.9% 318 331 4.2%
Profit after tax/(loss) 535 431 -19.5% 683 750 9.9%
Net profit margin (%) 6.5% 4.7%   4.8% 4.3%  
No. of shares (m) 118.9 1,189.3   118.9 1,189.3  
Diluted earnings per share (Rs)* 1.8 1.4   1.1 1.3  
Price to earnings ratio (x)   12.5     14.4  
(* annualised)            

Company background
Ashok Leyland (ASOK) is the second largest manufacturer of medium and heavy commercial vehicles (M/HCV) in India. It has a 28% market share in the domestic CV segment and a marginal presence of 1% in LCV's (light commercial vehicles). Apart from CVs, ASOK is also a key player in the passenger bus segment with almost 50%-55% share. CVs and passenger vehicles contributed to 91% of revenues in FY04 while engines, sale of CKD units, castings and spare parts contributed the balance. Land Rover Leyland Investment Holdings (LRLIH) owns 51% of ASOK.

What has driven performance in 2QFY05?
Sales: Total volumes were higher by 4% as compared to the same quarter last year. This growth was largely led by M/HCVs which managed to grow 6% YoY. The growth during the first half period was even more enthusing as overall volumes were higher by 16% YoY. This is the fourth consecutive year of positive growth for the CV industry, a rarity indeed for a cyclical industry like heavy vehicles.

What has led to the robust growth is the fact that over the past few years, the position of railways as the main carrier of goods has come under threat from roadways owing to the latter’s greater flexibility and improvement in the country’s road infrastructure. This coupled with easy availability of financing has led to higher demand for CVs. With improvement in economic activity, we expect the demand to grow at a fair clip of 7%-8% over the medium to long-term. However, with its larger dependence on one market (southern), we expect the company to grow at a slightly lower rate than the industry.

Segmental break up…
Segment 2QFY04 2QFY05 % change 1HFY04 1HFY05 % change
MDV Passenger 3,299 3,333 1.0% 5,605 5,636 0.6%
MDV Goods 8,561 9,078 6.0% 14,433 17,831 23.5%
LCV Goods 158 70 -55.7% 327 150 -54.1%
Total 12,018 12,481 3.9% 20,365 23,617 16.0%

Operating profits: Operating margins have fallen by a significant 460 basis points during the quarter and this has largely led to the decline in bottomline. Prices of key inputs such as steel and rubber have increased at a fair clip over the past few months and this has put pressure on the company’s raw material expenses (up 16%). Besides, other expenses (up 28%) are also significantly higher vis-à-vis the same quarter last year.

Cost break-up…
(Rs m) 2QFY04 2QFY05 %Change 1HFY04 1HFY05 %Change
Raw materials 5,509 6,372 15.7% 9,339 12077 29.3%
% sales 66.9% 69.7%   66.3% 69.6%  
Staff cost 774 873 12.8% 1,556 1748 12.3%
% sales 9.4% 9.5%   11.1% 10.1%  
Other expenses 902 1,154 27.9% 1,612 2037 26.3%
% sales 10.9% 12.6%   11.5% 11.7%  

Net profits: Had it not been for the huge decline in interest expenses, the fall in bottomline of the company would have been even more severe. It should be noted that the company has retired debts to the tune of Rs 4.3 bn in the past three years and this move seems to be paying rich dividends as evident from the savings on the interest front. Tax provisioning has also been lower by a significant 33% as compared to the corresponding previous year quarter.

What to expect?
At Rs 18, the company trades at a P/E of 14 times its annualised 1HFY05 earnings. Growth from a near to medium term perspective seems to have been already factored into the stock. For the long term however, the smaller size of the company’s balance sheet and its inability to make significant inroads into the other regions of the country, does increase the risk profile of the stock.

Equitymaster requests your view! Post a comment on "Ashok Leyland: Margins throw a spanner". Click here!


More Views on News

The BSE AUTO Index Down 2% ; BOSCH Among Top Losers (Market Updates)

Sep 22, 2020 | Updated on Sep 22, 2020

The BSE AUTO Index Down at 17,765 (down 2.2%). Among the top losers in the BSE AUTO Index today are BOSCH, MARUTI SUZUKI and TATA MOTORS. Meanwhile, the BSE Sensex has plunged 0.7% to 38,210.

ASHOK LEYLAND Announces Quarterly Results (3QFY20); Net Profit Down 92.7% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, ASHOK LEYLAND has posted a net profit of Rs 278 m (down 92.7% YoY). Sales on the other hand came in at Rs 40 bn (down 36.5% YoY). Read on for a complete analysis of ASHOK LEYLAND's quarterly results.

ASHOK LEYLAND Announces Quarterly Results (2QFY20); Net Profit Down 91.5% (Quarterly Result Update)

Nov 12, 2019 | Updated on Nov 12, 2019

For the quarter ended September 2019, ASHOK LEYLAND has posted a net profit of Rs 389 m (down 91.5% YoY). Sales on the other hand came in at Rs 39 bn (down 48.4% YoY). Read on for a complete analysis of ASHOK LEYLAND's quarterly results.

ASHOK LEYLAND 2018-19 Annual Report Analysis (Annual Result Update)

Sep 16, 2019 | Updated on Sep 16, 2019

Here's an analysis of the annual report of ASHOK LEYLAND for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of ASHOK LEYLAND. Also includes updates on the valuation of ASHOK LEYLAND.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 22, 2020 (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