Ashok Leyland
BSE SENSEX
34,427
S&P CNX
10,565
19 April 2018
Update
| Sector:
Automobiles
CMP: INR151
TP: INR179(+19%)
Buy
Multiple drivers to ensure a smooth ride
Management reiterates focus on LCVs, exports, defence, digital initiatives
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
AL IN
2,927
153 / 81
-1/11/69
442
6.7
1606.0
48.7
Financials Snapshot (INR b)
2018E 2019E 2020E
Y/E Mar
Net Sales
260.4 308.0 360.6
EBITDA
28.4
35.6
42.8
PAT
15.9
21.2
26.9
EPS (INR)
5.4
7.2
9.2
Gr. (%)
28.8
33.1
27.1
BV/Sh (INR)
23.9
28.5
34.7
RoE (%)
24.3
27.6
29.2
RoCE (%)
20.3
23.3
25.2
P/E (x)
27.8
20.9
16.4
P/BV (x)
6.3
5.3
4.4
Shareholding pattern (%)
As On
Mar-18 Dec-17 Mar-17
Promoter
45.5
51.3
50.4
DII
11.8
11.5
9.9
FII
26.4
22.6
17.9
Others
16.3
14.6
21.9
FII Includes depository receipts
Stock Performance (1-year)
Ashok Leyland
Sensex - Rebased
150
130
110
90
70
We attended Ashok Leyland’s (AL) Annual Global Conference 2018. Themed ‘Conquer
new
frontiers – More battles to win,’
the conference provided useful insights into the
company’s operations and opportunities. Management re-iterated its focus on gaining
further ground in LCVs, exports, defence and digital initiatives (after-sales and service
infrastructure). Encouragingly, AL’s product launch pipeline remains strong, with five
products planned to be rolled out in the M&HCV segment and two products each in the
LCV and bus segments. The company also targets to launch a new variant of Dost in the
LCV segment. Furthermore, AL is sanguine about the FY19 demand outlook, considering
the pick-up in mining and infrastructure activities. Pre-buy demand ahead of the BS-6
emission standards implementation is another positive.
Key highlights of the conference
Outlook remains positive; new product launch pipeline robust
M&HCV industry growth momentum is expected to continue until FY20. The
new product launch pipeline remains robust, with around nine new products
planned for roll out in FY19. AL expects the shift toward higher-tonnage
vehicles to continue until FY20.
AL is expected to continue expanding its market share this year, led by network
expansion (~35% expansion in FY18 for M&HCVs and ~20% for LCVs) and new
product launches.
Robust growth in exports is attributed to healthy sales in Nepal, Bangladesh,
the Middle East and ASEAN markets. The company targets to reach an exports
market share of 50% in 3-5 years (v/s <35% currently of exports from India).
The company’s focus on quality improvement, sales and customer satisfaction
is resulting in industry leading performance across parameters.
Spare parts business grew at a 30% CAGR in the last two years to reach a size of
INR12.6b in FY18.
It would invest INR10b in FY19, largely towards building capabilities in areas
like product development, engines, modular program and cabins.
AL expects M&HCV industry volumes to grow 10% in FY19, driven by infra,
construction & mining, and rigorous implementation of rated load in other
markets. Tippers segment is expected to see good growth in FY19, along with
continued momentum in MAV and tractor trailers.
For FY20, AL expects significant pre-buying ahead of BS6 implementation from
April 2020.
AL is expected to continue expanding its market share this year, led by network
expansion and new product launches. AL’s M&HCV sales network grew 4x to
2,894 outlets in FY18 (~35% expansion in FY18 for M&HCVs) from 689 outlets
in FY14. LCV network grew to 465 outlets in FY18 from 300 outlets in FY14
(~20% for LCVs).
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Research analyst: Deep Shah
(Deep.S@MotilalOswal.com); +91 22 61291533/
Suneeta Kamath
(Suneeta.Kamath@MotilalOswal.com); +91 22 61291534
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.