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  • Sumpoorna 2012

    1

    War Horse Ashok Leyland Ltd. October 5, 2012

    Recommendation Buy

    Transaction Price Range Rs.23 - Rs.26

    Target Rs.34

    Time horizon 6 months

    1-yr stock price movement (NSE)

    Snapshot

    CMP 24.65

    Date 5-Oct-12

    Beta 0.89

    52-week High (Rs.) 33.50

    52-week Low (Rs.) 18.75

    Industry Automobiles

    FYE March

    Adj. EPS (Rs.) 2.05

    P/EPS ratio (x) 12.02

    Cash EPS (Rs.) 3.4

    P/ Cash EPS (x) 7.25

    P/ BV ratio (x) 2.21

    BV/ Share (Rs.) 11.13

    M. Cap/ Sales (x) 0.49

    Market Cap (Rs. Cr) 6558.57

    Dividend yield (%) 4.17

    FV/ share (Rs.) 1

    F&O Presence Yes

    Avg. Daily Trades (Rs. Crore) 18.08

    Bloomberg Ticker AL IN

    NSE Ticker ASHOKLEY

    BSE Ticker 500477

    Return Comparison vis--vis Nifty

    Particulars (%)

    1m 3m 1yr

    Ashok Leyland Ltd.

    17.4% -3.9% 0.4%

    Nifty 8.6% 7.7% 17.1%

    Particulars (Rs. Crore)

    FY13 FY12 FY11

    Q1

    Q4

    12m

    Net Sales 2,941.0 4,235.8 13,317.6

    Net Profit 66.9 258.7 566.0

    Cash Profit 156.2 354.3 918.8

    Profit (%) 2.3% 6.1% 4.2%

    Adj. EPS (Rs.) 0.3 1.0 2.1

    Share Holding Pattern

    No. of shares: 2,660,676,634

    Promoter holding (%): 52.04

    Institutions (%): 29.89

    Non-Institutions (%): 18.07

    Free Float (%): 61.39

    Business: Ashok Leyland Ltd. (Ashok Leyland or The Company) is one of the major commercial vehicle

    manufacturers in India. Ashok Leyland is the second largest player across various segments with

    an overall market share of 23 percent. The company manufactures a wide array of products

    ranging from commercial vehicles (CVs) such as trucks and buses to emergency and military

    vehicles. Ashok Leyland also builds spare parts and engines for industrial and marine

    applications. Passenger transportation offerings range from 19 to 80 seater double-decker buses

    while product offerings in the truck segment cover the entire range starting from 7.5 tonne to 49

    tonne haulage vehicles. The company is the market leader in the bus segment and carries over

    70 million passengers per day. The company has production facilities in India (seven

    manufacturing units) with two facilities in Prague (Czech Republic) and Ras-Al-Khaimah (UAE).

    Ashok Leyland has witnessed 50 percent growth in its network over the last two years with total

    customer touch points increasing to more than 500 spread across India.

    Investment Rationale:

    Ashok Leyland is the second largest player in the commercial vehicles space, which, seems to

    have bottomed out in terms of growth. The strong product portfolio along with more wide

    service network (500 touch points) provides Ashok Leyland with a strong competitive edge over

    various players. It also enjoys market leadership position in the southern market with 50

    percent market share in the medium heavy commercial vehicles (MHCV) segment.

    Despite the anticipated strong head winds in the economic environment that could impact the

    demand for commercial vehicles, the market is expected to see reasonable growth in

    Intermediate and Light Commercial Vehicles. Further the company focus is to consolidate its

    operations in FY13. The successful launch of 'Dost' and the Backhoe loader through Joint

    Ventures in FY12 has expanded the range of product offerings. The Pantnagar plant will be

    ramping up to full capacity. The launch of new models in the tractor and tipper segments in the

    second half of FY12 will keep the Company in good stead to meet the demand requirements of

    next year. The Company also expanded its dealer network substantially in areas where it had

    only limited coverage. Full service outlets grew to over 400 and for the first time, the number of

    outlets in the North exceeded the number in the South.

    Ashok Leylands topline rose by 14.9 percent to Rs.12,841.99 crore in 2011-12, primarily on

    account of revival in the southern region and growth in LCVs. However, the bottom-line declined

    by 10.3 percent to Rs. 565.98 Crore on account of higher interest payments and depreciation

    charges.

    Thus, aided by robust business expansions and joint ventures going forward, we strongly

    recommend a BUY for the companys stock.

    Business Outlook

    Strength:

    o Diversified product portfolio

    o Strong capex/ investment

    o Widening service network & in-house financing to provide level playing field

    o Ashok Leyland market leader in M&HCV segment with a market share of 54

    percent

    o Lower Employee cost

    Risks:

    o Competition to pressurise market share

    o Diesel price hikes may pressurise fleet operators

    o Rise in raw material prices

    *Annualized Investment rating scale: Buy (>15% returns); Add (5%

  • Sumpoorna 2012

    2

    War Horse Ashok Leyland Ltd. October 5, 2012

    Legal History & Structure:

    Founded in 1948 by Raghunandan Saran as Ashok Motors, the Hinduja Group's flagship company came to be known as Ashok Leyland

    after entering into an agreement with Leyland Motors, UK in 1955. Headquartered in Chennai, Ashok Leyland is the second largest

    manufacturer of medium and heavy commercial vehicles (M&HCV) and diesel engines in India.

    Associate Companies: Albonair GmbH, Ashok Leyland Project Services Ltd., Automotive Components and Coaches Ltd. (ACCL),

    Defiance Technologies, Hinduja Foundries Ltd. (HFL), Lanka Ashok Leyland (LAL), TVS IRIZAR1

    Joint Ventures:

    o 50:50 joint venture with Nissan Motor (Japan) for production of LCV

    o 50:50 joint venture with John Deere (US) for construction equipment

    o 50:50 joint venture with Continental AG (Germany) for design, development and adaptation of infotronic products and

    services for automotive customers.

    o 50:50 joint venture with the Alteams Group for producing high press die casting extruded aluminum components for both

    automotive and telecommunication sectors.

    Products:

    o Buses: City Bus, Sub-urban Bus, Inter-City Bus, School & staff Bus, Special Buses

    o Trucks: Long haul, Mining & Construction, Distribution Trucks

    o Light vehicles: LCV Cargo Vehicle DOST

    o Defence Vehicles: COLT, Super Stallion

    o Power Solution: Leypower

    Management Growth Path:

    Expansion Plans: o Capital expenditure in FY12 add up to Rs.600 Cr mainly in the following areas:

    Areas Amount (Rs.)

    PNR Plant 178

    Engine Mfg @ Ennore 49

    LCV (Sunrise) project 44

    IT infrastructure 78

    R&D projects 150

    Plant / Other projects 101

    Total 600

    o The company likely to spend in FY13 and Investment in JVs Rs.500 Cr (Nissan, John Deere, Hinduja Foundries, etc.)

    o The company increasing their stake in Optare plc was a significant step in their global bus strategy. This strategic

    partnership opens the doors for the adoption of the latest in bus technology to make buses that are comparable to the best

    in the world.

    o The Company is expanding their range of Defence vehicles with the up-gradation and expansion of the proven and tested

    Stallion range of logistics solutions and the introduction of a heavier range christened 'Super Stallion'.

    o Ashok Leyland also in the process of developing a range of tactical and armoured vehicles in strategic partnership with

    globally renowned names like Krauss Maffei Wegmann, Germany and Panhard General Defense, France like the Light

    Tactical Vehicle

    o The company spreading their footprint with the opening of new offices in Nairobi, Kenya and Lagos, Nigeria and

    inaugurated a new dealership in Algeria.

    o Ashok Leyland has invested Rs.1,400 crore to promote an NBFC, its captive finance arm Hinduja Leyland Finance (HLF) to

    boost sales. HLF financed more than 4500 Ashok Leyland vehicles in FY12.

  • Sumpoorna 2012

    3

    War Horse Ashok Leyland Ltd. October 5, 2012

    Manufacturing facilities:

    The company has installed capacity of 150,000 vehicles per annum from across their seven manufacturing plants and one

    facility in Prague (Czech Republic) and another plant in Ras-Al-Khaimah (UAE). In India, company has its production facilities

    spread across the country with plants in Pantnagar, Alwar, Bhandara, Ennore and Hosur (3 units).

    The Alwar unit was established in 1982, and is an assembling plant for a wide range of vehicles with an emphasis for passenger

    chassis including CNG buses.

    Set-up in 1982, the Bhandara unit is dedicated for gearbox assembly. Its spread over 232 acres and also has facility for assembly

    of vehicles.

    Ennore plant accounts for 40 percent of Ashok Leylands total production and is spread over 135 acres of land. The plant

    employs over.

    5,000 people and manufacture vehicles and vital components like engines, gearboxes, axles etc.

    The Pantnagar plant is companys largest plant (accounting for 30 percent of production) and is one of the most integrated

    manufacturing facilities in the Indian CV industry. The production capacity stands at 50,000 vehicles and is spread across

    200,000 sq. ms of built up area.

    Markets:

    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 percen