- Ashok Leyland reported a 4.8% increase in net sales to INR 24,778 million for Q1FY15 compared to Q1FY14. However, losses narrowed to INR 480 million, a 65% reduction from INR 1,418 million in Q1FY14, due to lower raw material costs and higher other income. - Realizations increased 13% to INR 1.23 million per vehicle due to higher sales of medium and heavy commercial vehicles. However, this trend is unlikely to continue throughout the year as production of other vehicle types will increase. - The company plans to invest INR 4.5-5 billion in capex for maintenance and increasing capacity utilization but minimal investment is required for

1. 1
Ashok Leyland
Sensex: 25991 CMP:INR33 Target: 33
Auto Ancillaries
Realisations up 13.0% due to favourable sales mix
Realisation/vehicle increased by nearly 13.0% to INR 1.23 Mn/
vehicle led by higher sale of M&HCVs in the quarter as compared to
Q4FY14 or Q1FY14. M&HCV sales were 74.8% of total volume in the
current quarter vis-à-vis 68.6% in Q1FY14 & 72.3% in Q4FY14. For
FY15, the sales mix is likely to improve in favour of M&HCVs vis-à-
vis FY14 but the Q1 trend is unlikely to sustain as (a) Ashok Leyland
had deliberately cut down the production of Dost LCV to reduce
dealer inventory but its production is likely to increase going
forward (b) Sales of its recently launched LCV truck & bus (Partner
& Mitr respectively) and Stile MUV are expected to gain traction.
EBITDA up 593%, Loss reduced by 65%
Cost of goods sold as a % of sales reduced from 75.5% in Q1FY14
to 73.3% in the current quarter aided by price hikes & favourable
sales mix. The company is trying to further rationalize its raw
material cost by tweaking the engineering design & material mix.
Employee cost, as a % of sales, increased 51 bps YoY to 11.4% of
sales whereas other expenses declined 231 bps YoY to 10.6% at
INR 2831 Mn & INR 2627 Mn respectively. The company has not
changed the useful life of assets as per Schedule II of Companies
Act 2013 as it is of the view that current useful life assigned to
various assets is appropriate.
Capex & Investment plans
The company plans to invest INR 4.5-5 bn in capex & investment.
The capex will be used for maintainence & de-bottlenecking
July 30, 2014 RESULTUPDATE-Q1FY15
purposes. Ashok Leyland has adequate production capacity & its
engines, cabin design & chassis structure are latest & globally
competitive which is why minimal capex is required in these areas.
Other highlights
(1) The entire amount INR 6.7 bn that the company raised via QIP
is likely to be used for paring down the debt.
(2) The working capital has increased from 8 days to 13 days
primarily because of some pre-production of vehicles, as the
company anticipates orders from larger players for tipper &
tractor trucks who are expecting demand for these vehicles on
the back of improvement in mining & higher spends on
infrastructure.
(3) The company had gained market share in FY14 in East (19.3%),
North (21.4%) & Central India (21.4%) whereas it ceded market
share in Southern (43.9%) & Western India (24.1%).
Outlook & Valuation
ALL, being a pure CV manufacturer, is best play on any recovery in
the CV cycle. With international quality product portfolio, adequate
capacity and aggressive investment phase now over, the company
is set to reap benefits of all these going forward as the CV cycle
reverses. The company has trimmed its losses by keeping tight
control over costs & opting for regular price hikes. Top line is
expectedtogrowataCAGRof23.1%betweenFY14-16Ewhereasthe
company is expected to report a profit of INR 5808 mn in FY16E v/s
a loss of 6512 mn in FY14. We change our recommendation from
SELL to HOLD with SOTP based target price of INR 33.
Shareholding (%) Jul-14
Promoters 38.82
FIIs 34.23
DIIs 12.79
Others 14.16
Relative Price Performance
Key Data
BSE Code 500477
NSE Code ASHOKLEY
Bloomberg Code AL IN
Reuters Code ASOK.BO
Shares Outstanding (mn) 2845.9
Face Value 1
Mcap (INR bn) 94.77
52 Week H/L 39.00/11.82
2W Avg. Qty.NSE 16889504
Free Float (INR Bn) 57.98
Beta 1.14
Y/E (INR mn) FY13 FY14 FY15E FY16E
Net Sales 131306 103009 119522 156205
Growth (%) -1.86% -21.55% 16.03% 30.69%
EBIDTAM (%) 6.33% NA 7.02% 9.24%
Adj. PAT 1631 (6512) 1599 5809
Growth (%) -71.00% PL LP 263.26%
Adj. EPS (INR) 0.61 NA 0.56 2.04
P/E(x) 35.81 NA 58.29 16.05
EV/EBIDTA 12.25 NA 12.25 6.87
Net Debt/Equity 0.97 1.05 0.76 0.65
RoACE (%) 5.15% NA 3.62% 7.76%
RoAE (%) 3.76% NA 3.31% 10.79%
Ashok Leyland's Q1FY15 results were inline with estimates on the top-line front at INR 25 bn. Losses narrowed down
to INR 48 mn (more than we expected) led by lower raw material costs & higher other income. The management is
cautiously optimistic on the recovery of the domestic M&HCV industry & is eyeing decent growth in exports vis-a-vis
last year. The company did a QIP in Q1FY15 & raised INR 6.7 bn which led to dilution of nearly 7.0%. We change our
recommendation from SELL to HOLD with SOTP based target price of INR 33.
Prashant Biyani
prashant.biyani@spagroupindia.com
Ph. No. 91 33 4011 4800 (Ext. 833)
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ALL Sensex

2. 2
Auto Ancillaries
Quarterly performance
Particulars (INR Mn) Q1FY15 Q1FY14 YoY% Q4FY14 QoQ%
Net Sales 24778 23638 4.82% 30768 -19.47%
Other Income 231 123 88.58% 3918 -94.10%
Total Income 25009 23761 5.25% 34686 -27.90%
Raw Material Consumed 17148 15399 11.36% 18575 -7.68%
Stock Adjustment (1721) (384) 347.68% 1542 NA
Purchase of Finished Goods 2731 2823 -3.24% 3047 -10.36%
Employee Expenses 2831 2582 9.66% 2473 14.50%
Loss on Forex Transaction 0 0 NA 0 NA
Other Expenses 2627 3052 -13.92% 3292 -20.20%
Total Expenses 23617 23471 0.62% 28928 -18.36%
EBITDA 1161 167 593.37% 1839 -36.90%
Depreciation 1033 952 8.56% 1035 -0.13%
EBIT 127 (784) NA 805 -84.16%
Interest 1063 1007 5.62% 1126 -5.53%
PBT (705) (1669) -57.76% 3598 NA
Tax Expense (225) (251) -10.36% (36) 518.13%
PAT (480) (1418) -66.16% 3634 NA
Extra-ordinary Items 0 (65) NA 3761 NA
APAT (480) (1352) -64.53% (127) 277.72%
Eq Cap (INR Mn) 2661 2661 0.00% 2661 0.00%
FV 1 1 0.00% 1 0.00%
EPS -0.18 -0.51 -64.53% -0.05 277.72%
EBITDAM (%) 4.68% 0.71% 398 bps 5.98% (129 bps)
OPM (%) 5.62% 1.23% 439 bps 18.71% (1310 bps)
PATM (%) -1.94% -5.72% 379 bps -0.41% (152 bps)

3. 3
Financials
Income Statement
Year End March (INR mn) FY13 FY14 FY15E FY16E
Net Sales 131306 103009 119522 156205
Growth in Sales (%) -1.86% -21.55% 16.03% 30.69%
Cost of goods sold 91235 77682 85918 111235
Employees Cost 10867 10511 11355 13277
Other Expenses 20030 14760 13147 16402
Total Expenditure 122992 103562 111137 141773
EBIDTA (without OI) 8315 (553) 8386 14432
% Growth -24.24% NA NA 72.10%
EBITDA Margin % 6.33% NA 7.02% 9.24%
Depreciation/Amortization 3808 3770 4419 4552
EBIT 4507 (4323) 3967 9880
EBIT Margin % 3.43% NA 3.32% 6.32%
Interest Expense 3769 4529 4139 3655
Other Income 3969 6285 2077 1787
Exceptionals 2706 5151 0 0
EBT 4707 (2568) 1905 8012
Tax Expenses 370 (1206) 306 2204
APAT 1631 (6512) 1599 5809
% Growth -71.00% PL LP 263.26%
APAT Margin % 1.24% NA 1.34% 3.72%
Balance Sheet
Year End March (INR mn) FY13 FY14 FY15E FY16E
Sources of funds
Share capital 2661 2661 2846 2846
Reserves & Surplus 41890 41819 49242 52728
Total Networth 44551 44479 52088 55574
Total Debt 43554 46903 40225 36725
Total Liabilities 88105 91383 92313 92299
Application of funds
Net Block 52819 56599 55495 52943
Capital Work-in-Progress 6889 1815 500 500
Investments 23376 27897 30397 32897
Total Current Assets 42965 34711 41250 50263
Total Current Liabilities 36785 31928 37570 45539
Net Current Assets 6180 2783 3680 4724
Net Deferred Tax (5274) (4068) (3802) (3602)
Other Assets 4114 6357 6044 4837
Total Assets 88105 91383 92313 92299
Cash Flow
Year End March (INR mn) FY13 FY14 FY15E FY16E
EBT 4707 (2568) 1905 8012
Less: Other Income/Exceptionals (3969) (6285) (2077) (1787)
Add:Depreciation 3808 3770 4419 4552
Add: Interest paid 3769 4529 4139 3655
Direct taxes paid 0 0 572 2404
Change in Working Capital (3714) 3375 (448) (1023)
Cash Flow from operations (a) 4601 2822 8509 15812
Change in Fixed Assets (7349) (6810) (3315) (2000)
Change in CWIP (1407) 5074 1315 0
Change in Investments (8032) (4521) (500) (500)
Others 1363 (2156) 312 1207
Cash Flow from Investing (b) (15425) (8412) (2188) (1293)
Change in Equity 0 0 6667 0
Debt Raised/(Repaid) 12575 3349 (6678) (3501)
Dividend paid (3092) (2932) (1596) (121)
Interest paid (3769) (4529) (4139) (3655)
Others 4923 8616 (1723) (6510)
Cash Flow from Financing (c ) 10637 5567 (5873) (14498)
Net Change in Cash (a+b+c) (186) (23) 449 21
Opening Cash 326 139 117 566
Closing Cash 139 117 566 587
Key Ratios
Year End March FY13 FY14 FY15E FY16E
Per Share Data (INR)
Adj. EPS 0.61 NA 0.56 2.04
Growth (%) -71.00% PL LP 263.26%
CEPS 2.04 NA 2.11 3.64
DPS 0.60 0.00 0.25 0.75
BVPS 16.74 16.72 18.30 19.53
Return Ratios (%)
RoACE 5.15% NA 3.62% 7.76%
RoANW 3.76% NA 3.31% 10.79%
Liquidity Ratios
Net Debt/Equity 0.98 1.05 0.77 0.66
Current Ratio 1.17 1.09 1.10 1.10
Efficiency Ratios
Asset Turnover Ratio 1.63 1.15 1.30 1.69
Inventory Days 83 72 63 66
Debtor Days 37 48 40 34
Creditor days 105 124 100 98
Valuation Ratios
P/E(x) 35.81 NA 58.29 16.05
P/BV (x) 1.31 1.96 1.79 1.68
P/CEPS (x) 10.74 NA 15.49 9.00
Dividend Yield (%) 2.73% 0.00% 0.76% 2.29%
EV/Net Sales (x) 0.78 1.07 0.86 0.64
EV/EBIDTA(x) 12.25 NA 12.25 6.87
Auto Ancillaries

4. 4
Auto Ancillaries
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