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Speeding past rivals

Improving margins and launch of new products will drive Ashok Leyland’s growth

Ashok Leyland has come a long way to be a leading medium and heavy commercial vehicle (MHCV) player in India today, and attributes its success towards its restructuring strategy for newer products and expanding network. It has its presence across 50 countries with manufacturing footprint spread across the globe with eight plants.

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Numbers don’t lie

In terms of net sales and net profit, the company clocked a compounded annual growth rate (CAGR) of 24 per cent and 191 per cent, respectively, over FY 2014-16. The company’s net profit witnessed a massive growth of 101 per cent to Rs 290.78 crore in the quarter ended June 30, 2016, as against Rs 144.5 crore YoY. Ashok Leyland’s revenue for the June 2016 quarter grew by 10 per cent to Rs 4,258.84 crore as against Rs 3,883.13 crore YoY. Earnings before interest, tax and depreciation and amortisation (EBITDA) for Q1 FY17 stood at Rs 476.27 crore as against Rs 392.5 crore YoY. The debt to equity ratio stood at 0.3:1 as on Q1 FY16.

Ashok Leyland’s debt has sharply reduced over the past two years, courtesy the improvement in cash from operations and divestment of its non-core businesses. MHCV domestic volume for the latest quarter was 22,061 units, a new high for the company. The company had reported orders from various State Transport Undertaking (STUs) for nearly 3,600 buses to be executed during the year. Going forward, the management expects its volume outlook of 15-20 per cent growth for the MHCV industry in FY17.

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In the fast lane

As per the Society of Indian Automobile Manufacturers (SIAM), MHCVs registered a growth of 29.91 per cent and Light Commercial Vehicles (LCVs) grew by 0.30 per cent during April-March 2016 over the same period last year. Also, the GST implementation will benefit the whole economy due to undisputed movement of goods within the country, making interstate business easier for the company. Ashok Leyland’s initiatives on network development, operational efficiency, and new products paid off in terms of improved profitability, and bodes well for investors. It has churned returns of 220 per cent on its scrip from January 1, 2013 till August 19, 2016. Long term investors can ride on this company’s growth.

Why buy

  • Expected growth in FY17 driven by improved margins and pre buying on BSIV emission norms.
  • GST implementation to create higher demand for trucks
  • Launch of new products to drive growth

Watch out for

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  • Declining growth in MHCV due to lower replacement demand
  • Rising competitors intensity in MHCV segment
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