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Company Overview:


Ashok Ley are the 2nd largest manufacturer of commercial vehicles in India, the 4th largest manufacturer of buses in the world and the 16th largest manufacturer of trucks globally.

With a turnover in excess of US $ 2.3 billion (2012-13) and a footprint that extends across 50 countries, we are one of the most fully-integrated manufacturing companies this side of the globe.

Over 70 million passengers use our buses to get to their destinations every day while over 700,000 trucks keep the wheels of economies moving. With the largest fleet of logistics vehicles deployed in the Indian Army and significant partnerships with armed forces across the globe, we help keep borders secure.

Product:
• Buses
• Trucks
• Defence
• Light Vehicles
• Power Solutions

Key Points:

1) ALL outpacing industry growth; expect strong show in Q4:
2) Macro-economic indicators strong; MHCV volume growth to sustain in double digits:
3) Defence identified core business area; to benefit from government’s focus on indigenisation

SECTOR: Commercial Vehicles

Sensex:

25,337

CMP (Rs):

105

Target price (Rs):

125

52 Week h/l (Rs):

106.30/63.85

FV (RS)

1.00

Market cap ( cr):

30,152.06

Avg volume(Nse)

16253835

Industry P/E

63.50

 P/C

23.34

EPS

3.07

BSE code:

500477

NSE code:

ASHOKLEY

Prices as on 25 MAR,2016

Shareholding pattern

Dec ‘15

(%)

Promoters                         

50.3

Institutions

49.7

Public & others

----

Performance rel. to sensex

 

Opm%

Npm
%

EPS

ASHOKLEY

10.99

4.86

0.70

TATAMOTOR

7.48

-2.01

-0.59

TATAMTRDV

7.48

-2.01

-0.59

ESCORTS

5.32

2.31

1.72

INVESTMENT ARGUMENT:

Over the past few quarters, Ashok Leyland Ltd (ALL) has consistently outperformed the domestic medium and heavy commercial vehicle (MHCV) industry, registering a growth of 43% in year-to-date (YTD) FY2016 (April 2015 to February 2016) as against a 31% growth for the industry. ALL’s market share in the MHCV segment has increased from 28.2% in FY2015 to 32.7% in YTD FY2016 period. The market share gains have been primarily driven by increasing network presence in the non-south markets.

The demand for the MHCV industry (which constitutes about 85% of ALL’s revenues) is expected to remain robust growing at a healthy rate of 15% over the next two years. A huge pent-up demand on the back of low base of the earlier years (MHCV industry is still 10% below the pre-downcycle levels witnessed in FY2012) is likely to drive the demand going ahead. Further, on likelihood of a favourable macro-economic environment in the form of better economic growth (FY2017 GDP growth estimated at 7.8% as against 7.5% growth estimated in FY2016) and further easing of interest rates are likely to help maintain strong growth momentum.

The government has recently introduced the new Defence Procurement Policy 2016, which emphasizes on indigenously designed, developed and manufactured products (IDDM). IDDM has been created as a new category for Indian companies to design and develop technologically advanced products aimed at the armed forces. This development augurs well for companies like ALL, which has identified defence as one of the core areas for growth going ahead.

 

Financial Result:

Income Statement

Particulars

2015

2014

2013

Revenue

13,562.18

9,943.43

12,481.20

Other Income

124.47

66.52

62.35

Total Income

13686.66

10009.95

12543.55

Expenditure

-12434.61

-9271.21

-11315.18

Interest

-393.51

-452.93

-376.89

PBDT

858.53

285.82

851.49

Depreciation

-416.34

-377.04

-380.78

PBT

442.2

-91.22

470.7

Tax

-107.39

120.6

-37

Net Profit

334.81

29.38

433.71

 

HIGHLIGHTS THE FACT:

1)Ashok Leyland Ltd (ALL) has consistently outperformed the domestic medium and heavy commercial vehicle (MHCV) industry, registering a growth of 43% in year-to-date (YTD) FY2016 (April 2015 to February 2016) as against a 31% growth.

2)The market share gains have been primarily driven by increasing network presence in the non-south markets.


3)Estimate ALL to deliver robust Q4 results given a sharp 24% overall volume growth (led by 33% growth in the MHCV segment) and consequent operating leverage.

4)Estimate ALL’s operating profit margin (OPM) to expand by 300 basis points (BPS) to 13.1% and net profit to almost double to Rs454 crore for Q4FY2016. Š

5)The demand for the MHCV industry (which constitutes about 85% of ALL’s revenues) is expected to remain robust growing at a healthy rate of 15% over the next two years.

6) The improvement in the fleet operator’s profitability on the back of firm freight rates and steep reduction in diesel prices (diesel costs have come down by about 15% in the last one year) would lead to continued fleet expansion by the operators.Š

TECHNICAL VIEW:

The stock is currently trading above 50 days and 100 days, moving average that is all about good bullish& uptrend signal on daily base. RSI &MFI is present at 57 and 75respectivally, which is side ways& showing the uptrend formation for the short term period. The stock is currently in uptrend and now somemore upside is expecting with major support is found 100level. MACD line is greaterthen signal line 10 day Avg Volume is very high.

VALUATION & OUTLOOK:

ALL’s revenues are expected to grow by a strong 17% compounded annual growth rate (CAGR) over FY2016-18E given the continued robust demand in the MHCV segment and increased supplies to the defence sector. ALL’s earnings are likely to improve by 32% over the next two years given the operating leverage and an improved product mix. ALL is a pure commercial vehicle (CV) play and is likely to continue to reap benefits of the upsurge in the MHCV cycle. We have rolled over our target multiple on FY2018E earnings and upgraded our price target to Rs125, while retaining our Buy rating on the stock.

CONCLUSION:

Ashok Leyland my stop loss would be below Rs 97 and I would buy on any dip, it could be Rs 102. If it were to cross Rs 107, then also buy, that is going to be my first target and the second target would be Rs 125 but the medium-term target remains around Rs 135. However, Ashok Leyland is looking pretty strong; it has broken out of a consolidation zone. All things point to further upswing.

 

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