Ashok Leyland 3QFY2014 performance highlights and results update
January 27, 2014, Monday, 05:32 GMT | 00:32 EST | 10:02 IST | 12:32 SGT
For 3QFY2014, Ashok Leyland (AL) reported disappointing results with an operating loss of Rs.97cr as against an expectation of a modest profit of Rs.21cr. Consequently, the adjusted bottom-line loss stood at Rs.260cr against our expectation of a loss of Rs.151cr. The performance was impacted due to a volume decline of 18.6% yoy (20% qoq), adverse product-mix (share of medium & heavy commercial vehicle [MHCV] in total volumes down to 16% from 24.9% in 2QFY2014), higher levels of discounts and lower utilization levels. We believe that the operating environment would continue to remain challenging for the company, as we expect the commercial vehicle (CV) cycle to remain weak in the near term. Against this backdrop, we revise our revenue and earnings estimates downwards for FY2014/15. While we believe that the company would benefit immensely from a revival in the CV cycle, we feel that the current stock price factors in the recovery in volumes. We maintain our Neutral rating on the stock.
Dismal 3QFY2014 performance: AL’s total volumes declined sharply by 18.6% yoy (20% qoq) to 18,453 units, led by severe weakness in MHCV volumes, which declined by 27.1% yoy (32.6% qoq), following weak industrial activity in the country. The net average realization declined 4.2% qoq (flat yoy), led by an adverse product-mix in favor of Dost and also due to increase in average discounts. Consequently, the top-line declined sharply by 18.8% yoy (23.4% qoq) to Rs.1,953cr, which is in line with our expectation. The EBITDA loss stood at Rs.97cr due to an adverse product-mix, higher discounts and lower utilization levels. While raw-material cost as a percentage of sales witnessed a sharp increase of 339bp qoq (862bp yoy) due to an adverse product-mix; other expenditure as a percentage of sales increased 150bp qoq reflecting the impact of lower volumes and consequent lower utilization levels. The reported net loss stood at Rs.167cr, benefiting from the gains on sale of long-term investments (to the tune of Rs.100cr due to sale of IndusInd Bank shares) and from sale of immovable property (Rs.34cr), while the same was slightly offset by an exceptional loss of Rs.44cr related to VRS.
Outlook and valuation: At Rs.18, the stock is trading at 1.9x and 0.5x FY2015E P/B and EV/Sales respectively. We maintain our Neutral rating on the stock.