KRChoksey is bullish on Ashok Leyland and has recommended accumulate rating on the stock with a target of Rs 39 in its July 30, 2014 research report.
"Ashok Leyland posted encouraging number in its Q1FY15 results with topline growth of 5% y-o-Y to Rs.2477.8 Crs. which was mainly led by price hike which led to increase in realization despite lower volumes to 19981 units. EBITDA was reported at Rs.116Cr. against Rs.23Cr. in Q1FY14 and Rs.183.9Cr. in Q4FY14. Increase in EBITDA depicts the company's improving operational efficiency. The company reported a net loss of Rs.48Cr. against loss of Rs.142Cr. in Q1FY14. Margins showed healthy improvement backed by increased realization. EBITDA margin was at 4.7% which is up 370bps Y-o- Y. Sequentially the results look weak due to Q4FY14 being stronger in line with seasonality."
"The volumes of the company were reported 19981 units which are lower by 23%Q-o-Q and 8%Y-o-Y. This was partially contributed to softening LCV demand. But despite lower volumes the realization of the company increased by 5%Q-o-Q and 14%Y-o-Y to Rs1240080. This increase can be attributed to the consistent price hikes taken by the company to mitigate the impact of increase in input cost. The Net Sales of the company was reported at Rs.2477Cr. which is inline with the seasonality trend. Volume de-growth of 23%Q-o-Q and 8%Y-o-Y to 19981units was recorded during the quarter. The EBITDA of the company was reported at Rs.116Cr. which is down by 37%Q-o-Q but saw improvement against corresponding quarter where the company reported marginal EBITDA growth. The company was able to reduce its expenditure by 18%Q-o-Q to Rs.2361.7Cr. On the employee cost front, the company had entered into a wage agreement in June and December last year which is reflected into the accounts from the current quarter. Going forward we expect the EBITDA to remain in the same range while increase in steel prices in coming months will impact input costs which will be offset by price hikes. The EBITDA margin of the company as a result of the operation efficiencies taken by the management improved by 370bps Y-o-Y."
"Increasing operational efficiency has resulted in the reduction in the losses for the company. With the thrust on infra spending by government, increase in orders from JNNURM phase – II, improvement in macro environment, along with added capacity and improved product portfolio we remain fairly positive on the long term growth prospects of the company. At the CMP of Rs.34, Ashok Leyland is trading at 13.5x its FY16E EPS of Rs.2.6. With the target price at Rs.39 using target multiple of 15x FY16E, we recommend "ACCUMULATE" on the stock with a potential upside of 11%," says KRChoksey research report.
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