ASHOK LEYLAND “IN HIGH GEAR”

Ashok Leyland is a part of the multi-billion dollar Hinduja Group. The group is engaged in Investment Banking, International Trading and Global Investments. The company manufactures commercial vehicles and ranks 2nd in India; they also manufacture buses and are the 4th largest in the world. In manufacturing trucks they are the 16th largest in the world. They have footprints in over 50 countries and headquartered in Chennai. They have Joint Venture with Nissan Motor Company (Japan) for Light Commercial Vehicles, John Deere (USA) for Construction Equipment, Continental AG (Germany) for Automotive Infotronics and the Alteams Group for the manufacture of high-press die-casting extruded aluminum components for the automotive and telecommunications sectors. They have 8 plants across the globe.

PRODUCTS

Buses - Helping nearly 70 million people reach their destinations

Trucks – Variety of truck for all needs

Light Vehicles – “DOST” the company’s class –leading LCV with a payload of 1.5 ton.

Defense – Pioneers in design, development and manufacture of specialized Defense Vehicles for armed forces.

Power Solutions – LEYPOWER range of engines that power generator sets, marine applications, earth moving equipments, compressors, cranesamd harvesters.

RESULT ANALYSIS

• Top line increased to 5955 crores from 4505 crores in Q4FY15 growth of 32%
• Operating Profit stood at 635 crores as against 347 crores in Q4FY15 thereby growing 83%
• PAT stood at 456 crores vs. 238 crores growing 66%, growing 92% (before exceptional items)

AL expects MHCV industry to grow at 15-20% YoY in FY17. The company hopes to improve market share in ICVs through new launches and positive on industry growth prospects, but are mindful of rising competition in higher tonnage segments with new launches by incumbents.

HIGHLIGHTS OF THE QUARTER

• Aiming to grow share in ICVs: AL’s domestic MHCV market rose by 440bps YoY to 32.7% in FY16 led by gains in higher tonnage segments and in North/East regions. AL plans to enhance market share in the ICV segment (7 to 16MT segments) with new launches including Sunshine and Guru in bus and truck segments respectively.
• Impairments in subs/JVs: AL management decided to provide for impairment towards equity investments in Optare, Albonair and its LCV JVs with Nissan. AL reckons that bulk of the cleaning up of its non-core investments has been done.
• Modest capex guidance: AL’s capex + investments in FY16 have been ~Rs 2bn. The company has guided for capex + investments of Rs 5bn in FY17. Part of this would be used for building facilities for fully built buses and cabins.
• Near-term outlook: We expect b earnings growth momentum to continue in 1QFY17 with healthy volume growth and YoY margin expansion

We recommend a Buy on Ashok Leyland at its CMP of 105 with a target of 115 for a short term outlook.

ASHOK LEYLAND Share Price closed at Rs.105.00 today.

ASHOK LEYLAND is one of the Top 500 Shares identified by Dynamic Research team at the end of every quarter out of 1700 Shares of NSE.

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