IGI Logo

New launches to help recoup lost market share

Valuation and View

Ashok Leyland’s (AL) 3QFY22 results were weak as higher than expected RM impact led ~12% miss on EBITDA at Rs2.2b (est Rs2.5b, street Rs2.9b) with margins at 4% (est 4.5%, street 5.2%), consequently leading to adj. loss at Rs32m (est of PAT Rs88m). The new product launches in CNG ICVs (12‐14ton segment), MAVs and tippers should result in curtailment of falling market share. AL’s EV play too is hosting up with incremental focus remaining on 1) new launches in LCVs and 2) raising of external funding (management indicated ~USD200m) which is at an advance stage of discussion.     

AL’s ability to create strong profit pools and de‐risk MHCV is critical success factor for cyclical recovery over FY21‐24E as we expect MHCV revenue share to decline to ~50% by FY23/34 (v/s ~60% now). However, market share sustenance on CNG side (both for ICVs and LCVs) backed by new product launches is key catalyst as we note AL is lagging incumbents so‐far due to lack of products. With normalized production, gross margins expansion is likely to be higher led by parts commonalities across variants due to modular platform strategy.  With healthy CV upcycle expected, we build in ~29% volumes CAGR with margins expanding to ~10% in FY24E (v/s peak margins of 10.8% in FY19). We cut FY23/24 EPS by ~8%/6% as we build in early contribution from EV vertical and weak product mix. Maintain BUY with TP of Rs159 (13x FY24 EV/EBITDA including ~Rs13 for NBFC).

Result Highlights – Expect RM inflation impact to come off gradually

* Revenues grew 24.2% QoQ (+15% YoY) at Rs55.4b (est Rs56.4b) as volumes grew 23.7% QoQ (+2% YoY) while ASP grew 0.4% QoQ (+13% YoY) at Rs1.62b (est Rs1.65b).

* Led by RM inflation, gross margins contracted 120bp QoQ (‐350bp YoY) at 22.1% (est 23%), partially offset by lower other exp at Rs5.6b (est Rs6b, +12% QoQ). Continues to take price hike of ~2% QoQ

* Consequently, EBITDA grew 66% QoQ (‐12% YoY) at Rs2.2b (est Rs2.5b, street Rs2.9b), with margins at 4% (est 4.5%), ‐120bp YoY/+30bp QoQ.

* AL reported net exceptional gains of Rs420m of which gain of Rs721m due to EV business transferred to subsidiary Ohm global, VRS and impairment expense of Rs300m.

* Led by weak operating performance and higher tax, adj. loss came in at Rs32m (v/s est PAT of Rs88m).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer