Ashok Leyland Ltd. share price target

Results: For Q2FY17, Ashok Leyland's (AL) reported a 7% fall in revenue to Rs46.2 bn (est.45.6 bn) on the back of a 10% decline in volumes (M&HCVs; down 15%). Despite a weaker mix (lower heavy trucks, higher LCV's), realizations grew 4% (est.3%) on account of increase in share of higher realization exports (10% vs 7.9% in Q2FY16), defense revenues and spares. EBITDA fell 14% to Rs6.2 bn with margins contracting 96bps to 11.6% (est. 11.4%). AL saw gross margin expansion of 189 bps, while other expenses rose 244bps. However, this was partly due to IND-AS. IND-AS also resulted in revised Q2FY16 numbers, with margins revised upwards by 53bps, which makes the margin performance for Q2FY17 actually worse than it appears. Adjusted PAT declined 11%, with...

Though volume declined by 10.5% yoy, ALL's reported revenue dipped by only 6.5% on the back of 3.9% yoy rise in ASPs. We attribute sharp rise in ASPs to higher non domestic M&HCV; revenue. Notably, non domestic M&HCV; businesses contributed ~45% to ALL's total revenue in 2QFY17 vs. 36% in 2QFY16. EBITDA margin contracted by 100bps yoy to...

ICICI Securities Ltd | Retail Equity Research Ashok Leyland's Q2FY17 results were above our estimates on all parameters. Revenues came in at | 4622 crore (down 7% YoY, up 9% QoQ) above our estimate of | 4375 crore. Total volumes declined 10% YoY to 33440 units, with MHCV volumes declining 15% YoY to 25340 units while LCV volumes grew 9% YoY to 8100 units. The beat on revenues was on account of higher than estimated ASPs Reported EBITDA was at | 537 crore (down 14% YoY, up 13% QoQ)...

12.6% on account of high discounting and ramped up marketing activities to win market share. Staff cost came in high at 8% from 7.6% but came down sequentially by 40 bps. Other income came lower by 30% yoy, while tax rate came in at 29.5% in line with the standard tax rate. Adjusted net profits were down by 15% to Rs2.87 bn, while reported PAT came in at Rs2.9bn which included exchange gains of Rs66 mn....

Key highlights : Share swap ratio fixed at 40 shares of AL for every 100 shares of HFL, resulting in dilution of ~2.8% for AL. This would result in increase in promoter’s stake in AL to 51.3% (from 50.4%). 2) AL has invested ~Rs 3.5bn in preference shares (apart from ~7.5% equity interest) on which there were no interest servicing in the past few years. This will get cancelled on the merger. 3) This deal is subject to various approval from regulatory authorities and shareholders.

However given the government’s thrust on the manufacturing sector and the Make-in-India initiative, we believe HFL’s foundry business will gain strong traction and become EPS accretive for AL’s business in long term. This merger will also help to diversify AL’s revenue streams and achieve better operational efficiencies.They will wait for shareholder approval before incorporating HFL’s financial in their estimates.They maintain BUY with a TP of Rs 104 (14.5x on FY18E EPS ex HFL) as expect marginal impact on EPS due to tax shield from accumulated losses at HFL.

The board of Ashok Leyland (ALL) approved the amalgamation of Hinduja Foundries (HFL), a Hinduja group company (in the business of grey iron castings & supply of automotive components) with Ashok Leyland, subject to statutory approvals. Based on the swap ratio, the amalgamation will result in dilution of ~2.8% for Ashok Leyland, and increase promoter stake from 50.4% to 51.3%. HFL is one of the largest producers of cylindrical blocks & heads, with tractor segment contributing 55% of company’s revenues & ALL contributing ~35%. As of FY16 (12 month), HFL’s revenues stood at | 577 crore, EBITDA loss of | 155 crore & PAT loss of | | 171 crore. Although the impact of the deal might be low (equity dilution offset by tax saving resulting from accumulated loss of ~| 1046 crore of Hinduja Foundries), the deal is a deviation from managements’ recent years practice of strengthening balance sheet. Assuming, the deal gets all the regulatory/ statutory approvals, the impact of the deal will be EPS accretive in FY18 due to tax shield provided by accumulated loss of Hinduja Foundries. However, if the turnaround in HFL is not as per management outlook, the deal could be a drag on ALL’s earnings & return ratios in FY19E.

Valuation : Although, the deal does not fit into the company’s strategy of improving balance sheet, we believe the growth triggers outweigh the potential negative impact of the deal. We value core business at 8x EV/EBITDA (earlier 9x) to factor in the negative potential drag on earnings & return ratios post FY18E. Based on SOTP valuation, we arrive at a target price of | 95. We have a BUY recommendation on the stock. The upside risk to our estimates could be the implementation of the scrappage policy to discard 15+ year vehicles

AL's annual report for FY16 highlights stellar standalone operating performance. While revenue grew 39% to INR188.2b, EBITDA doubled to INR21.7b, driven primarily by domestic business. Subsidiaries excluding Hinduja Leyland Finance (HLF) played spoilsport and continued to incur losses. The standalone entity infused INR1.8b of fresh investments while writing-off investments of INR5.8b (INR1.7b goodwill on consolidated basis) towards these subsidiaries. Goodwill-on-consolidation of INR6.4b (13% of NW)...

Ashok Leyland Limited - ASHOKLEY'S : 1QFY17 EBITDA at Rs 4.8bn (+23% YoY) beat estimates by 11% led by higherthan-expected gross margins, related to an improved product mix and price hikes during the quarter. Topline growth of 11% YoY (Rs 42.6bn) was in line. Higher APAT at Rs 2.9bn (+106% YoY) was aided by lower interest cost and forex gain.HDFC Securities maintain NEUTRAL rating with a revised SOTP-based TP of Rs 92 (8.5x EV/EBITDA on FY18E + 0.5x investment book).

Trendlyne has 18 reports on ASHOKLEY updated in the last year from 6 brokers with an average target of Rs 108.5. Brokers have a rating for ASHOKLEY with 1 downgrade,2 price downgrades,1 upgrade,6 price upgrades in past 6 months and 9 price upgrades in past 1 Year.

Results: For Q1FY17, Ashok Leyland's (AL) reported a 11% rise in revenue on the back of 11% volume growth. Margins improved 106bps to 11.2%, primarily on the back of raw material benefits. Adj. PAT rose 51% on the back of a 63% rise in other income and a 56% drop in interest. Overall, revenue was in line with street expectations, while margin expansion was a slight positive. Revenue growth of 11%, while sharply lower than FY15/16 run-rate of 36/39%, was expected as Q4FY16 saw pre-buying on account of avoiding new sales taxes. Margin expansion was limited by the product mix, with a sharp a fall in exports limiting average selling price increases. For the quarter, overall exports fell 34% YoY, as volatile African markets and forex/LC...