IGI Logo

Market share gains continues; defense visibility improving too

Valuation and View

AL’s 2QFY23 EBITDA missed our estimates by 5.5% to Rs5.4b (Rs5.7b), led by higher employee cost due to increments and performance linked bonus provisions given anticipated growth in coming quarters. However, gross margins expanded 130bp QoQ to 22% (in?line), post 4 quarter of successive decline. We believe, the same to continue expand even in 2H led by 1) price hikes 1.5%/1%/1.8?2% in Nov’22/2Q/1Q, 2) ease in RM inflation especially steel, 3) stable discounting, 4) VAVE and cost controls. AL continues to gain market share with overall market share at 32.3% in 2QFY23 (v/s 31.1% in 1QFY23 and 22.2% YoY). High margins tractor segment market share back at 26% (16% YoY and ~40% peak) is also positive.

We are building in volume CAGR of ~19% over FY22?25 with likely margins expansion to 10.2% by FY24 (v/s 4.6% in FY22 but ~80bp lower than FY19 peak). We believe AL’s de?risking strategy to help as itreduces domestic MHCV exposure by adding new revenue pools such as LCVs (12?13%), exports (9?10% of sales) and spares (8?9% of sales). We believe, sustenance of MHCV market share gains in 2Q (~32%) is likely led by new launches and network expansion. We cut FY23 EPS by ~8.5% to build in higher staff cost while raise FY24 EPS by ~1.5% (mix related). We re?iterate BUY with TP of Rs178 (v/s Rs179, unchanged at ~14x of FY24 EV/EBITDA) and ~Rs13 for NBFC. AL continues to be one of our top picks among OEMs. Any announcements related to 1) external funding for EV business (Switch) and 2) concrete plan to list financing arm are value accretive.  

Result Highlights? Higher cost led to ~5% miss at EBITDA

* Revenues grew 14.5% QoQ at Rs82.7b (in?line) as volume grew 14.2% while ASP/unit grew 0.2% QoQ at Rs1.825m/unit (in?line).

* Gross margins expanded 130bp QoQ (post decline consecutively in last 4 quarters) at 22% (in?line). This was led by price hikes, favorable mix.  

* Led by higher staff cost at Rs5.3b (est Rs4.5b), EBITDA came in at Rs5.4b (+70% QoQ, est Rs5.7b) with margins at 6.5% (est 6.8%, +210bp QoQ).

* Adj. PAT grew 3x QoQ at Rs2.13b, est Rs 2.4b, despite higher tax at 36% (est 24%).   

* Debt ? WC increased by Rs6.50b due to increase in production. Net debt increased by Rs4b with D/E of 0.4x v/s 0.5x. Net debt at Rs26.77b v/s Rs22.81b in June’22

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