Published on 18/09/2020 10:21:21 AM | Source: Motilal Oswal Financial Services Ltd

Update On Ashok Leyland By Motilal Oswal

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Ashok Leyland’s (AL) FY20 Annual Report highlights its muted operating performance. Standalone EBITDA declined by 63% YoY to INR11.7b (FY19: INR31.4b), led by decrease in domestic volumes of LCVs/M&HCVs by 14%/46% due to the weak operating environment. HLF’s standalone PAT growth was subdued 4% YoY to INR2.9b due to 92% decline in other income to INR0.1b. Losses of other subsidiaries increased to INR1.8b (FY19:INR1.5b) while revenue declined. Standalone capitalization of expenses increased to INR4.6b, 68.9%/5.2% of overall R&D spends/gross block (FY19: INR2.9b, 43.6%/3.8%). Standalone Intangible assets increased 46% YoY to INR10.8b, 14.9% of net worth (NW), mainly comprising ‘in-house developed’ intangible assets. In FY20, ‘acquired technical knowhow’ of INR528m (net block) has been regrouped into ‘in-house developed’. Useful life of ‘acquired’/‘in-house developed’ intangible assets stands at 5-6 years/6-10 years. CFO turned positive to INR9.4b (FY19: -INR3.6b), primarily due to liquidation of BS-IV inventory worth INR14.5b. As a result, inventory days reduced by 12 days in FY20 to 37 days and cash conversion cycle improved to -33days (FY19: -25 days). Inter-corporate deposits (ICDs) of INR9.5b (FY19: INR 7.4b) were given during the year from standalone; of which INR5.0b remained outstanding as at end-FY20. These ICD’s o/s pertain to 5 companies (of INR 1 b each), which includes Hinduja Energy – a fellow subsidiary. Standalone gross and net debt increased in FY20 to INR33.2b (FY19: INR6.3b) and INR20.0b (FY19: net cash of INR7.4b), respectively .


* Liquidation of BS-IV inventory led to spurt in cash flow: Cash flow from operations increased to INR9.4b in FY20 (FY19: -INR3.6b), primarily due to liquidation of BS-IV inventory, which led to decline in inventory by INR14.5b YoY to INR12.4b in FY20. This resulted in inventory days declining by 10 days YoY to 37 days. Thus, earnings to cash conversion ratio increased to 88% in FY20 (FY19: 6%). Standalone free cash flow (post interest) remained negative at INR5.0b (FY19: INR12.0b) due to rising capital intensity. Capex in FY20 rose to INR12.9b (FY19: INR7.3b).


* Expense capitalization increases intangibles (including IAUD) to 14.9% of NW: During FY20, the company capitalized expenses of INR4.6b, 68.9%/5.2% of overall R&D expense/gross block (v/s FY19: INR2.9b, 43.6%/3.8% of R&D/gross block). This primarily pertains to BSVI, AVTR (Modular Platform) and the LCV project. These mainly comprised (a) employee benefit expense of INR0.7b, (b) finance cost of INR0.3b, and (c) other expense of INR3.6b. Total intangibles increased to 9.1b, 12.5% of NW in FY20 (FY19: INR3.6b, 4.3% of NW), mainly due to ‘in-house developed’ technical knowhow of INR8.2b. IAUD stood at INR1.7b, 2.4% of NW.


* Losses of other subs continue; capital infused, impairment recognized: During FY20, AL made fresh investments of INR4.3b in subsidiaries, primarily by (a) Increasing stake in HLF to 67.2% (FY19: 61.9%) by purchasing shares from existing shareholders for INR3.0b, (b) Optare PLC – INR1.0b. HLF’s standalone PAT increased by 4% to INR2.9b, while losses of other subsidiaries increased to INR1.8b (FY19: INR1.5b). AL made an additional impairment provision of INR3.6b, writing down the entire value of investment in Optare PLC. Impairment provision of all the investments in subsidiaries/ JVs/ associates increased to INR10.3b (FY19: INR6.6b).


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