AMIT NALIN SECURITIES PVT. LTD. ANSec Research 19 th MARCH 2012 Investment Case: We recommend a buy on Ashok Leyland with a price target of Rs 33 per share over the next 9-12 months. We expect central bank of India to start reducing its key interest rate in the second half of CY2012 which should improve the industrial growth and benefit the commercial vehicle industry. Ashok Leyland which has market leadership in the Bus segment and 20% market share in the truck segment should benefit from the interest rate cut. Specially, the bus segment which has recorded degrowth over the last years should perform well on account of improved government activities. Ashok Leyland’s JV with Nissan has recently launched their first LCV- Dost; LCV segment which is less sensitive to the interest rate is expected to grow at 20% over the next 2 years. We expect the JV to capture a market share of 5% by FY2014. Indian Commercial Vehicle (CV) segment which constitutes 4-5% of the total Automobile Industry volume grew 30%+ during FY2009 to FY2011. During H1FY2012, the CV growth has come down to 15-18%, led by de-growth in the Medium and Heavy Commercial Vehicle passengers (M&HCV Bus) segment and slowdown in the M&HCV goods carrier (Trucks) segment. But the Light Commercial Vehicle (LCV) segment has bucked the industry trend by continuing its growth rate at 28-30%. The CV segment was impacted due to high interest rate combined with high inflation and contracting industrial activity. With the start of CY2012, RBI has cut CRR by 50bps and indicated that it will focus on growth over inflation for the period ahead. With inflation inching towards the acceptable level, we expect interest rate to come down this year. This should improve the industrial output and ease the cost of borrowing; benefiting CV industry. M&HCV segment which had the major impact of interest rate hike and slowdown in the industrial activity is expected to underperform the LCV segment during CY2012. We expect CAGR of 6-7% for M&HCV and 18-20% for LCV segment during FY2013-2014. ALL’s M&HCV passenger (Bus) segment which had seen a de-growth during CY2011 is expected to improve in the H2FY2013. We expect ALL’s M&HCV segment to grow in line with industry growth rate. Ashok Leyland (ALL) through its JV with Nissan launched their first LCV (Dost) last year and received a good response. Till December 2011, they were able to sell 3000 vehicles. The management is confident of achieving a sales target of 50000 vehicles for FY2013 which translates into a market share of 10-12%, on incremental basis. We believe it will be very difficult to capture such a huge market share within a short span of time due to strong presence of players like Mahindra & Mahindra and Tata Motors. We expect ALL to capture a market share of 5-6% over the next 2 years. AMIT NALIN SECURITIES PVT. LTD. Ashok Leyland CMP: Rs 27 Fair Value: Rs 33 Bloomberg Code AL.IN Reuters Code ASOK.BO Market Cap 7290cr. 52 W High 30.50 52 W Low 20.05 Average Volume 533383 Price 27 Sensex 17300 Company Information Stock Data Share Holding Pattern Promoters 38.61 Institutions * 15.76 Foreign 29.96 Public 10.78 *includes corporate holding Analysts Vinod Malviya Amit Nalin Securities Pvt. Ltd. 142/A, Mittal Tower, Nariman Point, Mumbai- 400021. Tel.: 40021601 Fax: 22854721 E-mail: [email protected]Sensex vs ALL’s Mcap Standalone (Rs in Crs.) 201003 201103 2012e 2013e 2014e Net Sales 7407.2 11366.0 12502.6 14065.4 15472.0 EBIDTA 750.9 1204.4 1312.8 1462.8 1609.1 EBIT 546.8 937.0 967.8 1090.8 1217.1 EBT 544.8 801.8 741.1 830.1 930.3 PAT 423.7 631.3 601.0 672.4 753.5 EPS 1.6 2.4 2.3 2.5 2.8 PE (x)* 12.0 10.7 9.5 Mcap/Sales (x)* 0.6 0.5 0.5 EV/EBIDTA (x)* 6.8 5.8 4.9 *Ratios are calculated at current price.
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AMIT NALIN SECURITIES PVT. LTD.
ANSec Research 19th MARCH 2012
Investment Case:
We recommend a buy on Ashok Leyland with a price target of Rs 33 per share
over the next 9-12 months. We expect central bank of India to start reducing
its key interest rate in the second half of CY2012 which should improve the
industrial growth and benefit the commercial vehicle industry. Ashok Leyland
which has market leadership in the Bus segment and 20% market share in the
truck segment should benefit from the interest rate cut. Specially, the bus
segment which has recorded degrowth over the last years should perform well
on account of improved government activities. Ashok Leyland’s JV with Nissan
has recently launched their first LCV- Dost; LCV segment which is less sensitive
to the interest rate is expected to grow at 20% over the next 2 years. We
expect the JV to capture a market share of 5% by FY2014.
Indian Commercial Vehicle (CV) segment which constitutes 4-5% of the total Automobile
Industry volume grew 30%+ during FY2009 to FY2011. During H1FY2012, the CV
growth has come down to 15-18%, led by de-growth in the Medium and Heavy
Commercial Vehicle passengers (M&HCV Bus) segment and slowdown in the M&HCV
goods carrier (Trucks) segment. But the Light Commercial Vehicle (LCV) segment has
bucked the industry trend by continuing its growth rate at 28-30%. The CV segment
was impacted due to high interest rate combined with high inflation and contracting
industrial activity. With the start of CY2012, RBI has cut CRR by 50bps and indicated
that it will focus on growth over inflation for the period ahead. With inflation inching
towards the acceptable level, we expect interest rate to come down this year. This
should improve the industrial output and ease the cost of borrowing; benefiting CV
industry.
M&HCV segment which had the major impact of interest rate hike and slowdown in the
industrial activity is expected to underperform the LCV segment during CY2012. We
expect CAGR of 6-7% for M&HCV and 18-20% for LCV segment during FY2013-2014.
ALL’s M&HCV passenger (Bus) segment which had seen a de-growth during CY2011 is
expected to improve in the H2FY2013. We expect ALL’s M&HCV segment to grow in line
with industry growth rate.
Ashok Leyland (ALL) through its JV with Nissan launched their first LCV (Dost) last year
and received a good response. Till December 2011, they were able to sell 3000 vehicles.
The management is confident of achieving a sales target of 50000 vehicles for FY2013
which translates into a market share of 10-12%, on incremental basis. We believe it will
be very difficult to capture such a huge market share within a short span of time due to
strong presence of players like Mahindra & Mahindra and Tata Motors. We expect ALL to
capture a market share of 5-6% over the next 2 years.