PL First Cut - Ashok Leyland 2QFY24

PL First Cut – Ashok Leyland 2QFY24 – Himanshu Singh – Research Analyst, Prabhudas Lilladher Pvt Ltd

[Ashok Leyland | AL IN | TP: INR220 | BUY]

First Cut 2QFY24 results – Largely in line revenues, beat on EBITDA margins

Revenue grew by 16.6% YoY, helped by volume growth of 10% and came largely in line of PLe and ~3% below Bloomberg consensus estimates (BBGe). EBITDA margins at 11.2% were above our (10.4%) and consensus estimates (10.9%) helped by improvement in COGS and staff costs. Other operating expenses were largely in line. Higher taxes were largely offset by lower than expected depreciation and interest expenses and higher than expected other income, which beat out PAT estimates, but came lower than BBGe.

Other comments:

The focus on expansion of distribution network continued with further addition of 47 touch points in the quarter - especially in the Northern and Eastern parts of the country.

Management commentary: We continue to see strong demand in all segments of trucks and passenger vehicles. The industry continues to post strong growth, on the back of strong macroeconomic factors and we are confident that FY' 24 will see further growth in the second half as well. While International business globally is challenged owing to the conflicts across the globe, we are intensifying our expansion strategy in our focus markets of Middle East, Africa and Asia.

The second half of the year appears to have the twin tail winds of demand growth and softer commodity prices which should improve the profitability of the industry.

There is enhanced thrust to grow all non-MHCV businesses as well and we expect to see the benefits of all of this in the coming quarters.

PL View:

Largely in line results from Ashok Leyland versus our estimates. Margins have continued improve QoQ driven by improvement across all the operating line items during the quarter. AL has reported the highest margins in the last 22 quarters despite revenue and volumes being materially lower from the recent highs. This shows the industry is successfully working towards a more profitable environment, led by lower discounting and appropriate pricing actions. With 2HFY24 volumes expected to be better than 1HFY24, we see this margins further improving going ahead led by higher operating leverage and cost controls.

AL had targeted to reach double digit margins in FY24, which it has comfortably achieved in 1HFY24 itself and will be interesting to see if it will quantify its margin guidance for FY24. Additionally, this which gives us confidence in its medium term margin targets of reaching mid-teen. The stock current trades at 18.0x FY25 PE.

We will circle back with more details post the call tomorrow on 10th November.

Financial performance vs PLe:

Volumes grew YoY by 10%, and QoQ by 20.6%,

Revenue grew YoY by 16.6% to Rs. 96bn, and QoQ by 17.7%, and came in-line with PLe

EBITDA grew YoY by 101% to Rs. 11bn, and QoQ by 31.6%, and beat PLe by 6.9%

APAT grew YoY by 196.7% to Rs. 06bn, and QoQ by 27.9%, and beat PLe by 2.8%

EBITDA margin expanded YoY by 470 bps to 11.2%, and QoQ by 118 bps, and beat PLe by 80bps

Revenue per unit grew YoY by 6%, de-grew QoQ by -2.4%, and in-line with PLe

EBITDA per unit grew YoY by 82.6%, and QoQ by 9.1%, and beat PLe by 6.9%