War Horse Ashok Leyland Ltd. - Horse –Ashok Leyland Ltd. October 5, 2012 ... Ashok Leyland Ltd. (“Ashok Leyland” or “The ... The successful launch of 'Dost' and the Backhoe loader

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<ul><li><p> Sumpoorna 2012 </p><p> 1 </p><p>War Horse Ashok Leyland Ltd. October 5, 2012 </p><p>Recommendation Buy </p><p>Transaction Price Range Rs.23 - Rs.26 </p><p>Target Rs.34 </p><p>Time horizon 6 months </p><p> 1-yr stock price movement (NSE) </p><p> Snapshot </p><p>CMP 24.65 </p><p>Date 5-Oct-12 </p><p>Beta 0.89 </p><p>52-week High (Rs.) 33.50 </p><p>52-week Low (Rs.) 18.75 </p><p>Industry Automobiles </p><p>FYE March </p><p>Adj. EPS (Rs.) 2.05 </p><p>P/EPS ratio (x) 12.02 </p><p>Cash EPS (Rs.) 3.4 </p><p>P/ Cash EPS (x) 7.25 </p><p>P/ BV ratio (x) 2.21 </p><p>BV/ Share (Rs.) 11.13 </p><p>M. Cap/ Sales (x) 0.49 </p><p>Market Cap (Rs. Cr) 6558.57 </p><p>Dividend yield (%) 4.17 </p><p>FV/ share (Rs.) 1 </p><p>F&amp;O Presence Yes </p><p>Avg. Daily Trades (Rs. Crore) 18.08 </p><p>Bloomberg Ticker AL IN </p><p>NSE Ticker ASHOKLEY </p><p>BSE Ticker 500477 </p><p> Return Comparison vis--vis Nifty </p><p>Particulars (%) </p><p>1m 3m 1yr </p><p>Ashok Leyland Ltd. </p><p>17.4% -3.9% 0.4% </p><p>Nifty 8.6% 7.7% 17.1% </p><p>Particulars (Rs. Crore) </p><p>FY13 FY12 FY11 </p><p>Q1 </p><p>Q4 </p><p>12m </p><p>Net Sales 2,941.0 4,235.8 13,317.6 </p><p>Net Profit 66.9 258.7 566.0 </p><p>Cash Profit 156.2 354.3 918.8 </p><p>Profit (%) 2.3% 6.1% 4.2% </p><p>Adj. EPS (Rs.) 0.3 1.0 2.1 </p><p> Share Holding Pattern </p><p>No. of shares: 2,660,676,634 </p><p>Promoter holding (%): 52.04 </p><p>Institutions (%): 29.89 </p><p>Non-Institutions (%): 18.07 </p><p>Free Float (%): 61.39 </p><p> Business: Ashok Leyland Ltd. (Ashok Leyland or The Company) is one of the major commercial vehicle </p><p>manufacturers in India. Ashok Leyland is the second largest player across various segments with </p><p>an overall market share of 23 percent. The company manufactures a wide array of products </p><p>ranging from commercial vehicles (CVs) such as trucks and buses to emergency and military </p><p>vehicles. Ashok Leyland also builds spare parts and engines for industrial and marine </p><p>applications. Passenger transportation offerings range from 19 to 80 seater double-decker buses </p><p>while product offerings in the truck segment cover the entire range starting from 7.5 tonne to 49 </p><p>tonne haulage vehicles. The company is the market leader in the bus segment and carries over </p><p>70 million passengers per day. The company has production facilities in India (seven </p><p>manufacturing units) with two facilities in Prague (Czech Republic) and Ras-Al-Khaimah (UAE). </p><p>Ashok Leyland has witnessed 50 percent growth in its network over the last two years with total </p><p>customer touch points increasing to more than 500 spread across India. </p><p>Investment Rationale: </p><p>Ashok Leyland is the second largest player in the commercial vehicles space, which, seems to </p><p>have bottomed out in terms of growth. The strong product portfolio along with more wide </p><p>service network (500 touch points) provides Ashok Leyland with a strong competitive edge over </p><p>various players. It also enjoys market leadership position in the southern market with 50 </p><p>percent market share in the medium heavy commercial vehicles (MHCV) segment. </p><p>Despite the anticipated strong head winds in the economic environment that could impact the </p><p>demand for commercial vehicles, the market is expected to see reasonable growth in </p><p>Intermediate and Light Commercial Vehicles. Further the company focus is to consolidate its </p><p>operations in FY13. The successful launch of 'Dost' and the Backhoe loader through Joint </p><p>Ventures in FY12 has expanded the range of product offerings. The Pantnagar plant will be </p><p>ramping up to full capacity. The launch of new models in the tractor and tipper segments in the </p><p>second half of FY12 will keep the Company in good stead to meet the demand requirements of </p><p>next year. The Company also expanded its dealer network substantially in areas where it had </p><p>only limited coverage. Full service outlets grew to over 400 and for the first time, the number of </p><p>outlets in the North exceeded the number in the South. </p><p>Ashok Leylands topline rose by 14.9 percent to Rs.12,841.99 crore in 2011-12, primarily on </p><p>account of revival in the southern region and growth in LCVs. However, the bottom-line declined </p><p>by 10.3 percent to Rs. 565.98 Crore on account of higher interest payments and depreciation </p><p>charges. </p><p>Thus, aided by robust business expansions and joint ventures going forward, we strongly </p><p>recommend a BUY for the companys stock. </p><p>Business Outlook </p><p> Strength: </p><p>o Diversified product portfolio </p><p>o Strong capex/ investment </p><p>o Widening service network &amp; in-house financing to provide level playing field </p><p>o Ashok Leyland market leader in M&amp;HCV segment with a market share of 54 </p><p>percent </p><p>o Lower Employee cost </p><p> Risks: </p><p>o Competition to pressurise market share </p><p>o Diesel price hikes may pressurise fleet operators </p><p>o Rise in raw material prices </p><p> *Annualized Investment rating scale: Buy (&gt;15% returns); Add (5% </p></li><li><p> Sumpoorna 2012 </p><p> 2 </p><p>War Horse Ashok Leyland Ltd. October 5, 2012 </p><p>Legal History &amp; Structure: </p><p>Founded in 1948 by Raghunandan Saran as Ashok Motors, the Hinduja Group's flagship company came to be known as Ashok Leyland </p><p>after entering into an agreement with Leyland Motors, UK in 1955. Headquartered in Chennai, Ashok Leyland is the second largest </p><p>manufacturer of medium and heavy commercial vehicles (M&amp;HCV) and diesel engines in India. </p><p> Associate Companies: Albonair GmbH, Ashok Leyland Project Services Ltd., Automotive Components and Coaches Ltd. (ACCL), </p><p>Defiance Technologies, Hinduja Foundries Ltd. (HFL), Lanka Ashok Leyland (LAL), TVS IRIZAR1 </p><p> Joint Ventures: </p><p>o 50:50 joint venture with Nissan Motor (Japan) for production of LCV </p><p>o 50:50 joint venture with John Deere (US) for construction equipment </p><p>o 50:50 joint venture with Continental AG (Germany) for design, development and adaptation of infotronic products and </p><p>services for automotive customers. </p><p>o 50:50 joint venture with the Alteams Group for producing high press die casting extruded aluminum components for both </p><p>automotive and telecommunication sectors. </p><p> Products: </p><p>o Buses: City Bus, Sub-urban Bus, Inter-City Bus, School &amp; staff Bus, Special Buses </p><p>o Trucks: Long haul, Mining &amp; Construction, Distribution Trucks </p><p>o Light vehicles: LCV Cargo Vehicle DOST </p><p>o Defence Vehicles: COLT, Super Stallion </p><p>o Power Solution: Leypower </p><p>Management Growth Path: </p><p> Expansion Plans: o Capital expenditure in FY12 add up to Rs.600 Cr mainly in the following areas: </p><p>Areas Amount (Rs.) </p><p>PNR Plant 178 </p><p>Engine Mfg @ Ennore 49 </p><p>LCV (Sunrise) project 44 </p><p>IT infrastructure 78 </p><p>R&amp;D projects 150 </p><p>Plant / Other projects 101 </p><p>Total 600 </p><p>o The company likely to spend in FY13 and Investment in JVs Rs.500 Cr (Nissan, John Deere, Hinduja Foundries, etc.) </p><p>o The company increasing their stake in Optare plc was a significant step in their global bus strategy. This strategic </p><p>partnership opens the doors for the adoption of the latest in bus technology to make buses that are comparable to the best </p><p>in the world. </p><p>o The Company is expanding their range of Defence vehicles with the up-gradation and expansion of the proven and tested </p><p>Stallion range of logistics solutions and the introduction of a heavier range christened 'Super Stallion'. </p><p>o Ashok Leyland also in the process of developing a range of tactical and armoured vehicles in strategic partnership with </p><p>globally renowned names like Krauss Maffei Wegmann, Germany and Panhard General Defense, France like the Light </p><p>Tactical Vehicle </p><p>o The company spreading their footprint with the opening of new offices in Nairobi, Kenya and Lagos, Nigeria and </p><p>inaugurated a new dealership in Algeria. </p><p>o Ashok Leyland has invested Rs.1,400 crore to promote an NBFC, its captive finance arm Hinduja Leyland Finance (HLF) to </p><p>boost sales. HLF financed more than 4500 Ashok Leyland vehicles in FY12. </p></li><li><p> Sumpoorna 2012 </p><p> 3 </p><p>War Horse Ashok Leyland Ltd. October 5, 2012 </p><p>Manufacturing facilities: </p><p> The company has installed capacity of 150,000 vehicles per annum from across their seven manufacturing plants and one </p><p>facility in Prague (Czech Republic) and another plant in Ras-Al-Khaimah (UAE). In India, company has its production facilities </p><p>spread across the country with plants in Pantnagar, Alwar, Bhandara, Ennore and Hosur (3 units). </p><p> The Alwar unit was established in 1982, and is an assembling plant for a wide range of vehicles with an emphasis for passenger </p><p>chassis including CNG buses. </p><p> Set-up in 1982, the Bhandara unit is dedicated for gearbox assembly. Its spread over 232 acres and also has facility for assembly </p><p>of vehicles. </p><p> Ennore plant accounts for 40 percent of Ashok Leylands total production and is spread over 135 acres of land. The plant </p><p>employs over. </p><p> 5,000 people and manufacture vehicles and vital components like engines, gearboxes, axles etc. </p><p> The Pantnagar plant is companys largest plant (accounting for 30 percent of production) and is one of the most integrated </p><p>manufacturing facilities in the Indian CV industry. The production capacity stands at 50,000 vehicles and is spread across </p><p>200,000 sq. ms of built up area. </p><p> Markets: </p><p>o The company presence in the market place has increased significantly pan-India with more than 400 full-service outlets dotting the country. Ashok Leyland network has grown by over 15 percent last year with the addition of 60 new outlets. </p><p>o The Company has signed on the iconic Indian cricket captain, M S Dhoni as Brand Ambassador and to be the new face of the Company. </p><p>o Exports grew by 25 percent and entered new markets: Ukraine, Russia, Turkey, West/East Africa, Latin America &amp; South East Asian markets. </p><p>Divisional Revenue FY12: </p><p>o Income from vehicles was at Rs.10,961 Crore, a growth of 12 percent over the previous year level of Rs.9,779 Crore The </p><p>increase in revenue was attributable mainly to a 0.3 percent growth in vehicle sale volumes in FY12 and impact of pricing </p><p>actions taken during these two years. </p><p>o Revenue from engines increased to Rs.318 Crore, a 3 percent increase over the previous year level of Rs.309 Crore, mainly due </p><p>to pricing action taken in FY12 despite drop in volume by 8 percent. </p><p>o Income from spare parts including sale of kits to Vehicle Factory, Jabalpur increased to Rs.1,341 Crore, an increase of 41 </p><p>percent over the previous year level of Rs.950 Crore. </p><p>o Revenue from services and other operating income have increased to Rs.221 Crore against Rs.139 Crore in the previous year, </p><p>registering a growth of 59 percent mainly due to LCV contract manufacturing revenue of Rs.26 Crore, higher export incentives </p><p>due to increased exports sales in FY12 by Rs.24 Crore and higher scrap sales and others to the tune of Rs.32 Crore in FY12. </p><p>o Other income was lower by Rs.4 Crore, mainly due to lower interest receipts. </p><p>Cyclical60%</p><p>Bus16%</p><p>Defence kits, spares &amp; Dost</p><p>10%</p><p>Exports12%</p><p>Engines2%</p></li><li><p> Sumpoorna 2012 </p><p> 4 </p><p>War Horse Ashok Leyland Ltd. October 5, 2012 </p><p>Financial Performance (Standalone Basis): </p><p>Income Statement (Rs. Crore) </p><p>FY 12 FY 11 FY 10 FY 09 Growth June '12 Mar'12 Dec'11 Sept '11 June'11 </p><p>Annual Annual Annual Annual 09- '12 3 months 3 months 3 months 3 months 3 months </p><p>Net Sales 13317.60 11416.88 7407.23 6098.43 17.27% 2940.98 4235.82 2879.80 3094.57 2483.50 </p><p> Growth 16.65% 54.13% 21.46% -23.17% -30.57% 47.09% -6.94% 24.61% -34.87% </p><p>Total Income 13357.95 11461.33 7502.72 6232.62 16.85% 3020.22 4321.90 2883.03 3104.90 2520.14 </p><p> Growth 16.55% 52.76% 20.38% -22.30% -30.12% 49.91% -7.15% 23.20% -34.78% </p><p>Expenses 12061.51 10203.18 6648.71 5671.96 17.15% 2766.65 3841.07 2669.43 2763.42 2268.08 </p><p> Growth 18.21% 53.46% 17.22% -20.30% -27.97% 43.89% -3.40% 21.84% -32.10% </p><p>EBITDA 1296.45 1258.15 854.01 560.67 16.17% 253.56 480.83 213.60 341.48 252.06 </p><p> Growth 3.04% 47.32% 52.32% -38.02% -47.27% 125.11% -37.45% 35.48% -51.87% </p><p>Int. &amp; Fin. Charges 255.25 188.92 101.85 160.32 48.55% 83.38 72.40 55.01 62.70 56.67 </p><p> Growth 35.11% 85.49% -36.47% 110.08% 15.17% 31.61% -12.26% 10.64% 3.34% </p><p>Depreciation 352.81 267.43 204.11 178.41 19.49% 89.25 95.59 86.63 85.93 84.66 </p><p> Growth 31.93% 31.02% 14.40% 0.59% -6.63% 10.34% 0.81% 1.50% 9.65% </p><p>PBT 689.98 801.80 544.77 208.45 31.81% 80.94 314.43 71.96 192.85 110.73 </p><p> Growth -13.95% 47.18% 161.35% -67.34% -74.26% 336.95% -62.69% 74.16% -71.73% </p><p>PAT 565.98 631.30 423.67 190.00 25.53% 66.94 258.74 66.90 154.08 86.25 </p><p> Growth -10.35% 49.01% 122.99% -59.52% -74.13% 286.76% -56.58% 78.64% -71.08% </p><p>Cash Profit 918.79 898.73 627.78 368.41 18.19% 156.19 354.33 153.53 240.01 170.91 </p><p> Growth 2.23% 43.16% 70.40% -43.03% -55.92% 130.79% -36.03% 40.43% -54.48% </p><p> Common-Size Statement </p><p>(% of Net Sales) </p><p>FY 12 FY 11 FY 10 FY 09 </p><p>Cash Flow Statement (Rs. Crore) </p><p>FY 12 FY 11 FY 10 FY 09 </p><p>Annual Annual Annual Annual </p><p>Annual Annual Annual Annual </p><p>Expenses 90.6% 89.4% 89.8% 93.0% </p><p>PBT 689.98 801.80 544.77 208.45 </p><p>Int. &amp; Fin. Charges 1.92% 1.65% 1.38% 2.63% </p><p> Adjustments 427.09 -210.42 545.29 -734.03 </p><p>Depreciation 2.65% 2.34% 2.76% 2.93% </p><p>Operating Cash Flow 1117.06 591.38 1090.06 -525.58 </p><p>Cash Profit 6.90% 7.87% 8.48% 6.04% </p><p>Financing Cash Flow -210.87 -13.64 123.31 459.18 </p><p>EBITDA 9.73% 11.02% 11.53% 9.19% </p><p>Investing Cash Flow -1057.52 -917.73 -783.17 -664.18 </p><p>Capital Employed 49.42% 55.97% 80.15% 89.14% </p><p>Free Cash Flow 199.12 54.71 -500.86 517.40 </p><p>Enterprise Value 858.28% 780.25% 1074.82% 763.70% </p><p>Net Cash Flow -151.33 -339.98 430.21 -730.58 </p><p>Market Capitalization 1277.03% 2139.91% 4241.29% 1267.35% </p><p>Closing Balance 24.04 175.37 515.36 85.15 </p><p> Key Ratios </p><p>June'12 Mar'12 Dec'11 Sept'11 </p><p>Balance Sheet (Rs. Crore) </p><p>FY 12 FY 11 FY 10 FY 09 </p><p>3 months 3 months 3 months 3 months </p><p>Annual Annual Annual Annual </p><p>Interest Coverage (x) 3.04 6.64 3.88 5.45 </p><p>Equity Capital 266.07 133.03 133.03 133.03 </p><p>PBT Margin (%) 2.69% 7.29% 2.50% 6.23% </p><p>Reserves 3942.11 3829.93 3535.72 3340.86 </p><p>PAT Margin (%) 2.23% 6.00% 2.32% 4.98% </p><p>Net worth 4208.17 3962.96 3668.76 3473.90 </p><p>ROE (%) 25.06% 96.88% 25.05% 57.69% </p><p> Market Capitalization 8061.85 7569.62 7429.94 2407.91 </p><p>ROCE (%) 6.92% 15.94% 5.60% 13.03% </p><p>Debt 2373.50 2426.59 2267.99 1961.99 </p><p>EPS (Rs.) 0.25 0.97 0.25 0.58 </p><p> Payable within 1 yr. 0.00 0.00 85.70 99.89 </p><p> Capital Employed 6581.68 6389.55 5936.75 5435.88 </p><p>Highlights FY 12 FY 11 FY 10 FY 09 </p><p> Annual Annual Annual Annual </p><p> Gross Block 7256.42 6691.89 6018.63 4938.95 </p><p>Interest Coverage (x) 3.70 5.24 6.35 2.30 </p><p> Less: Depreciation 2342.93 2058.10 1769.07 1539.83 </p><p>PBT Margin (%) 5.18% 7.02% 7.35% 3.42% </p><p>Net Block 4913.49 4633.79 4249.56 3399.12 </p><p>PAT Margin (%) 4.24% 5.51% 5.65% 3.05% </p><p>Capital WIP 548.22 357.97 561.47 998.29 </p><p>ROE (%) 13.45% 15.93% 11.55% 5.47% </p><p>ROCE (%) 18.26% 20.47% 14.93% 10.46% </p><p>Investments 2150.15 1617.79 326.15 263.56 </p><p>EPS (Rs.) 2.13 2.37 1.59 0.71 </p><p>Debtors 1230.25 1164.50 1022.06 957.97 </p><p>Price/ EPS (x) 8.77 8.42 11.84 6.54 </p><p>Cash &amp; Bank balance 32.56 179.53 518.92 88.08 </p><p>CEPS 3.45 3.38 2.36 1.38 </p><p>Loans &amp; Advances 367.58 179.77 1103.67 844.84 </p><p>Price/ CEPS (x) 2.78 2.85 3.19 1.15 </p><p>Other Current Assets 442.88 251.07 0.00 0.00 </p><p>BV/ Share 10.88 19.97 17.52 15.78 </p><p>Total Current Assets 4303.89 3983.77 4282.89 3220.91 </p><p>Price/ BV (x) 2.78 2.85 3.19 1.15 </p><p>Total Current Liabilities 4843.70 3759.87 3103.97 21...</p></li></ul>