Ashok leyland valuation

ASHOK LEYLAND LTD. Company Analysis 6 sep 2008

Ashok Leyland – Business Overview

5000 Crore Company in Indian CV Industry

No. 2 Manufacturer or Commercial Vehicles

Market Share 28 % and No 1 in bus segment

Current capacity of 84000 Vehicles which would be doubled by 2010.

6 plants and another 1 coming up at Uttaranchal

PRODUCT SEGMENTS Buses TRUCKS DEFENCE VEHICLES, Spares Entering into Design & OEM services

Indian Automobile Industry - overview

Auto companies continue to reel under pressure on the back of turbulent macro economic factors

BSE Auto Index turned in a relatively better performance in FY2008 underperformed the broader markets by 6.8% while the Sensex lost ground by almost 14%.

However, during first quarter of 2009, the Auto Index declined another 20.8% after the 20.2% fall witnessed during 4QFY2008

Growth Divers

Strong Performance of Indian Economy

Regulations on overloading and over-aged vehicles will be Tightened

Private bus demand will continue to grow with better road connectivity

Efficient Infrastructure Investments

Golden Quadrilateral Project 5864 Kms

NSEW corridor Project 7300 Kms

Port Connectivity & others 1016 Kms

48 New Project covering more than 10000 Kms coming up

source : NHAI

Concern Areas

Inflation, Interest Rates & Liquidity

RBI hiked CRR by 125 bps & Repo by 75 bps in last 3 months so financing rates gone up by 300 bps YTD

Conversion Ratio dropped by 45 % in last 4-5 months

Fuel Price Hike

Fuel Accounts for 25 % & 50% for total ownership cost of PV’s & CV’s

Almost 15% Hike in Fuel Prices In 2008

direct impact on the ownership cost, freight operator's profitability and volume growth of the Auto sector

Soaring Raw Material Prices

Accounts for 70 % of total cost for Manufacturers

Prices on a upward trend since last 2 years

Badly affecting the margins as these costs cannot be passed on to customers due to high competition

Impact of Interest Rates

Ashok Leyland – Shareholding Pattern

Ashok Leyland Capacity Expansion plan

Financial Performance FY07 FY08 Change Revenues Rs. Cr 8514 9179 7.81% EBITDA 708 895 26.48% EBIT 555 721 29.75% PAT 364 469 29.11% EPS 3.33 3.53 6.01% ROCE 16.87 20.11 19.20% DPS 1.5 1.5 Margins Operating Profit margin 9.32 10.09 Gross Profit margin 7.27 7.86 Net Profit margin 5.94 5.83

Peer Comparison Ashok Leyland Tata Motors Swaraj Mazda CMP 34 (Face Value = 1) 420 296 P/E 9.61 8.64 10.83 NPM % 5.83 6.96 3.75 Last Dividend 150 % 150 % 55 % EPS 3.53 49.65 24 ROE 22.3 25.98 27 ROCE 20.11 19.8 21.50

Valuation CMP = 34