Ashok Leyland Ltd detailed report - Sify.comim.sify.com/sifycmsimg/may2010/Finance/14941051_Ashok_Leyland.pdfAshok Leyland has received the certificate of registration from the Reserve

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Stock Data

Sector Automobile

Face Value (Rs.) 1.00

52 wk. High/Low (Rs.) 64.00/20.40

Volume (2 wk. Avg.) 1776000

BSE Code 500477

Market Cap (Rs.mn.) 83146.25

Financials (Rs. in mn.) FY09 FY10 FY11E FY12E

Net Sales 59810.7 72447.1 86936.5 102585.1

EBIDTA 5055.6 8300.1 11207.2 13162.6

PAT 1899.9 4236.7 6307.7 7680.5

EPS 1.43 3.18 4.74 5.77

P/E 43.76 19.63 13.18 10.83

Ashok Leyland Ltd

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SYNOPSIS Ashok Leyland, the flag ship company of Hinduja Group, is the second largest commercial vehicle manufacturer of the country.

The joint venture (JV) between Ashok Leyland and Nissan Vehicles is on track to roll out its first Light Commercial vehicle (LCV) by 2011.

Hinduja Leyland Finance to commence operations gets RBI license.

Ashok Leyland is planning to introduce 25 models over the next 18 months. It will invest around Rs 2,000 crore over the next two years. The company has planned capex incurrence over the next two years of Rs 1,200 crore and investments in JVs around Rs 800 crore for the purpose.

The Board of Directors of the Company has recommended a dividend of Rs. 1.50 per share of face value of Re. 1/- each (150%).

The company’s net sales and net profit are expected to grow at a CAGR of 20% and 59% over FY09 to FY12E.

1 Year Comparative Graph

Ashok Leyland BSE SENSEX

V.S.R. Sastry

Equity Research Desk

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]

C.M.P: Target Price: Rs.62.50 Rs.75.00

Share Holding Pattern

May 06, 2010

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Table of Content

Content Page No.

1. Peer Group Comparison 03

2. Investment Highlights 03

3. Company profile 09

4. Financials 13

5. Charts & Graph 15

6. Outlook and Conclusion 17

7. Industry Overview 18

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Ashok Leyland 62.50 83146.25 3.18 19.63 3.56 100.00

Tats Motors 812.50 441967.50 41.08 19.78 3.56 60.00

M & M LTD 512.50 286816.80 34.59 14.82 5.47 100.00

Swaraj Mazda 280.00 4052.10 10.84 25.83 2.30 15.00 *As on 06/05/2010

Investment Highlights

Results Updates (Q4 FY10) (Standalone)

For the fourth quarter, the top line of the company increased 141%YoY and stood at Rs.29390.40mn against Rs.12181.22mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.2226.65mn from Rs.533.15mn of the corresponding period of the previous year i.e. an increase of 318%YoY.

EPS of the company for the quarter stood at Rs.1.67 for equity share of Rs.1.00 each.

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Expenditure for the quarter stood at Rs.25610.42mn, which is around 131% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 65% of the sales of the company and stood at Rs.19059.26mn from Rs.5779.60mn of the corresponding period of the previous year i.e., an increase of 230%YoY. Employee cost increased 46%YoY to Rs.1807.12mn from Rs.1239.85mn. and accounts for 6% of the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 13% and 8% respectively from 10% and 4% respectively of the same period of the last year.

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FY10 Performance in line with expectation The Company’s Top line has increased 21% to Rs.72447.11mn from Rs.59810.74mn of FY09. Bottom line for the year increased 123% to Rs.4236.75mn. from Rs.1899.96mn of FY09. These numbers are in line with our expectation. Earnings per share of the company for the year stood at Rs.3.18 per share.

Expenditure of the company for the year stood at Rs.64851.43mn, which is around 17% higher than FY09. Raw materials Cost for the year stood at Rs.49661.27mn from Rs.42988.57mn of FY09 i.e. an increase of 16%YoY. Employee cost increased 18%YoY to Rs.6659.25mn. Interest decreased 32%YoY to Rs.811.30mn, and depreciation increased 14%YoY to Rs.2041.08mn.

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With the inauguration of the modern, fully-integrated manufacturing facility at Pantnagar, Uttarakhand, the Company’s annual installed capacity will be 150,500 vehicles. Production at the new chassis and bus assembly plant at Ras Al Khaimah, UAE, has already begun and, at full capacity, can roll out 2,000 buses to international specifications. These products, which will eventually also include trucks; will be manufactured to feed the neighboring GCC (Gulf Co-operation Council) and African markets. The Company has earmarked Rs 1,200crores for Capex over the next couple of years in addition to investments ear-marked for the various joint ventures to the tune of Rs. 800crores. Having obtained the RBI license for operations as NBFC, Hinduja Leyland Finance is set to commence operations of providing financing for commercial vehicles and allied vehicle financing, initially from 130 centers across 16 states. The developmental activities for all joint ventures are well on schedule. The first batch of Light Commercial Vehicle products as part of the JV with Nissan Motor Company will roll out by early 2011. The JV with John Deere for the construction equipment business is also well on track with pilot production set to commence at their new manufacturing facility at Goomdipoondi, near Chennai, from October 2010 and products set to roll out by early 2011.

Board recommends Dividend The Board of Directors of the Company has recommended a dividend of Rs. 1.50 per share of face value of Re. 1/- each (150%).

JV between Ashok Leyland and Nissan Vehicles on track to roll out its first LCV by 2011 The joint venture (JV) between Ashok Leyland and Nissan Vehicles is on track to roll out its first Light Commercial vehicle (LCV) by 2011. The JV will roll out three families of light trucks in the first phase, which will be equally distributed below 7.5 tonnes category. All of these LCV's will be engineered in India, but some will have donor platforms, which will be restructured. Ashok Leyland initially had planned to invest Rs 2,300crore for setting up a joint production facility near Chennai but due to delay in availability of land it scaled down its investment and started executing the Phase I by using the facilities of its plant as well as Nissan's plant. The company is able to do the Phase 1 with little less than 50 per cent of the total announced investment. The JV had initially planned out to have an initial LCV production capacity of 1.80lakh units annually, but now it will do it in phases. The two partners have agreed to go for separate bagging of the products to be manufactured by the JV. Ashok Leyland, Nissan Vehicles JV, in which the Indian partner has a 51 per cent stake and the remaining equity is held by Nissan, was announced in 2007 to manufacture LCVs as part of three JVs between the two partners. The other two JVs pertain to manufacturing of power trains and developing technology.

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Annual sales The company has closed the year ended 31st March 2010 with an annual sales volume of 63,926 vehicles (54,431 vehicles), up 17.4%. The domestic market accounted for 57,947 vehicles (47,619 vehicles) up 21.7% and exports stood at 5,979 vehicles (6,812 vehicles). March Sales during March 2010 was 10,067 vehicles (5,099 vehicles), up 97.4%. Domestic sales at 9,299 vehicles (4,428 vehicles) reflected an increase of 110% while exports also showed an increase of 14% at 768 vehicles (671 vehicles).

Total production for the year was 64,673 vehicles (54,049 vehicles).

Hinduja Leyland Finance to commence operations gets RBI license. To initially to operate in 130 centers.

Hinduja Leyland Finance Limited (HLF), promoted by Hinduja Group flagship Ashok Leyland has received the certificate of registration from the Reserve Bank of India, clearing the deck for commencement of operations covering financing of commercial vehicles and allied vehicle financing.

HLF is already in readiness to commence operations in 130 centers covering 16 states. Through rapid branch expansion, HLF plans to have a presence in all Indian states in one year’s time and has targeted network strength of 300 centers in three years.

The initial capital of Rs 100crore will be contributed by Ashok Leyland, Ashley Holdings Ltd and Ashley Investments Ltd. The Company is already in discussion with leading bankers for funding to support the planned disbursement of Rs 850crores in the first year.

HLF will have a larger role in the offing, of supporting Ashok Leyland’s proposed foray into Light Commercial Vehicles and Construction Equipment, wherein product roll outs are scheduled to commence in 2011.

MoU with Cisco The company has inked a Memorandum of Understanding (MoU) with Cisco for developing solutions as per the requirements of different sectors, which will facilitate Vehicle-to-Infrastructure (V2I) communication.

The company also showcased the vehicle with wireless connectivity -- iBus2 -- at the Auto Expo 2010, as part of this MoU.

Ashok Leyland unveils Hybus at Auto Expo 2010

The company unveiled India's first plug-in hybrid bus -- Hybus -- at the Auto Expo 2010. The latest in green technology for urban mass transportation, Hybus is more eco-friendly than a CNG-powered bus, because of integration of

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hybrid technology. Compared to a conventional bus powered by IC engine, Hybus offers significant fuel saving of 20-30%.

The Hybus combines conventional CNG engine with electric propulsion system. The engine is operated at an optimal efficiency to drive the generator for charging the on-board battery. The lithium ion battery that powers the electrical drive system provides the propulsion.

The company is plans to approach the government for subsidies on lithium ion batteries. At present, the duty on lithium ion batteries, that powers the drive system of a vehicle, is 18%. And also plans to use these buses during the Commonwealth Games to be held in Delhi in October.

New launches

The company launched the new, innovative U-Truck platform with the unveiling of the U-4936 (6x4) Tractor and the U-2523 (6x4) Tipper.

The U-Truck platform will straddle the entire range of tractors, tippers and haulage trucks in the 16 – 49tonne segment, with over 25 models and a host of variants to roll out in 18 months starting April 2010. The range will be powered by BS III and BS IV engines that are also protected for BS V norms, ranging from 160 to 380 hp.

Ashok Leyland inks pact with Belgian company

Belgium-based Wabco has entered into a supply agreement with Ashok Leyland. The agreement is for development of transmission automation technology and the long term supply of automated manual transmission systems from 2010 through 2015.

Wabco will supply its new OptiDrive modular AMT system, an automation technology, to Ashok Leyland. The company will be the first manufacturer of commercial vehicles in India to adopt OptiDrive system in volume production.

Ashok Leyland enters in JV with John Deere

The company has completed the formation of a joint venture (JV) with the US-based agriculture equipment maker John Deere for manufacturing and marketing construction equipment.

It is learnt that the joint venture will initially manufacture backhoes and wheel loaders and will market these in India and abroad. The range will subsequently be expanded to include a full line of construction equipment also the 50:50 JV would start producing various equipments by 2011 from a new production facility in Chennai.

The two firms had tied up last year to form a JV in the country. The Hinduja group firm had earlier said the products made from the plant would initially reach neighboring countries before being exported to US and European markets.

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Company Profile Ashok Leyland, the flagship company of Hinduja Group, is one of India’s leading manufacturers of commercial vehicles such as trucks, buses, defense special application vehicles, engines and emergency vehicles. Ashok Motors was set up in1948 at Madras for the assembly of Austin Cars. The name of the company changed after the equity participation by British Leyland. For over five decades, Ashok Leyland has been the technology leader in India's commercial vehicle industry, moulding the country's commercial vehicle profile by introducing technologies and product ideas that have gone on to become industry norms. From 18 seater to 82 seater double-decker buses, from 7.5 tonne to 49 tonne in haulage vehicles, from numerous special application vehicles to diesel engines for industrial, marine and genset applications, Ashok Leyland offers a wide range of products. Eight out of ten metro state transport buses in India are from Ashok Leyland. With over 60 million passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network! Manufacturing plants The company has seven manufacturing plants the mother plant at Ennore near Chennai, three plants at Hosur (called Hosur I and Hosur II, along with a Press shop), the assembly plants at Alwar, Bhandara and state –of-the – art facility at Pantnagar. The total covered space at these seven plants exceeds 650,000 sq m and together employs over 11500 personnel.

• Ennore

• Hosur : Unit 1

• Hosur : Unit 2

• Hosur : Unit 2A

• Alwar

• Bhandara

• Pantnagar

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Joint Ventures

• Nissan Motor Co. Ltd., Japan.

• Ashley Alteams India Private Ltd.

• Automotive Infotronics Private Ltd.

• Ashok Leyland (UAE) LLC, Ras Al Khaimah, UAE.

• Defiance Testing and Engineering Services, Inc.

• Avia Ashok Leyland Motors s.r.o. (AALM).

• Albonair GmbH. Associates Companies:

• Automotive Coaches & Components Ltd (ACCL)

• Lanka Ashok Leyland

• Hinduja Foundries

• IRIZAR-TVS

• Ashok Leyland Project Services Limited Product range of the company includes:

• Buses

• Trucks

• Engines

• Defence & Special Vehicles Buses

• Viking BS –II • Viking BS -III • Viking BS II • Viking SLF BS -III • Viking CNG BS –III • 12 M BUS-BS II

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• Cheetah BS-II • 12 M BUS BS-III • Cheetah BS-III • Cheetah BS-II • Panther BS-II • Lynx BS-II • Vestibule BUS-BS III • Double Decker • Airport Tarmac Coach • Stag BS - II.

Trucks

4 X 2 Haulage Models

• Bison Haulage • Tusker Super 1616 • Comet CO 1611 • 1613 H • 1613 H II • 1612 H • Comet Gold 1613

4 X 2 and Multi-axle Tippers

• Comet Tipper (4X2) • Comet Coal Carrier (4X2) • Taurus 2516 (6X4) Tipper • Bison Tipper

Multi-axle Vehicles

• Tusker Super 2214- 6X2 • Tusker Gold 2214- 6X2 • Taurus 2516- 6X4 • Taurus 2516- 6X2 • 2516 H? 6X2

Tractors

• 4018 Tractor • Artik 30.14 Tractor • Tusker Turbo Tractor 3516

Ecomet

• Ecomet 912 • Ecomet 1112

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Engines

• Gen set Application Engines ranging from 15KVA to 250KVA

• Industrial Application Engines with power rating from 40PS to 200PS

• Marine Application Engines with power rating from 58PS to 193PS

• DG Sets for exports Diesel and Natural Gas gen sets from 15KVA - 250KVA

Defence Vehicles

• Stallion 4x4 mk IV • Stallion 6x6 • Light Recovery vehicle 4x4 • Comet 4x4 • Short Chassis Bus • Stallion 4x4 KL Water Boser • Stallion 4x4 MK III • Topchi Field Artillery Tractor • F 14 Rapid intervention Vehicle 4x4 • Long Chassis Bus • Stallion Truck Fire Fighting 4x2.

Special Vehicles

• Rapid Intervention Vehicle 4X4 • Hippo Tractor • Beaver Tractor • Beaver Haulage • Hippo Haulage • Stallion Mk III Tipper • Hippo Tipper

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Financials Results 12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 59810.74 72447.11 86936.53 102585.11

Other Income 496.23 704.45 774.90 852.38

Total Income 60306.97 73151.56 87711.43 103437.49

Expenditure -55251.28 -64851.43 -76504.15 -90274.89

Operating Profit 5055.69 8300.13 11207.28 13162.60

Interest -1187.09 -811.30 -851.87 -894.46

Gross profit 3868.60 7488.83 10355.41 12268.14

Depreciation -1784.14 -2041.08 -2163.54 -2293.36

Profit Before Tax 2084.46 5447.75 8191.87 9974.78

Tax -184.50 -1211.00 -1884.13 -2294.20

Net Profit 1899.96 4236.75 6307.74 7680.58

Equity capital 1330.34 1330.34 1330.34 1330.34

Reserves 19760.00 22025.50 28333.24 36013.82

Face Value 1.00 1.00 1.00 1.00

Total No. of Shares 1330.34 1330.34 1330.34 1330.34

EPS 1.43 3.18 4.74 5.77

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Sep-09 31-Dec-09 31-Mar-10 30-Jun-10E

Description 3m 3m 3m 3m

Net sales 15776.85 18155.34 29390.40 23512.32

Other income 55.60 19.52 23.09 25.40

Total Income 15832.45 18174.86 29413.49 23537.72

Expenditure -14125.03 -16102.79 -25610.42 -20972.99

Operating profit 1707.42 2072.07 3803.07 2564.73

Interest -170.04 -162.13 -221.11 -232.17

Gross profit 1537.38 1909.94 3581.96 2332.56

Depreciation -505.82 -512.72 -587.53 -616.91

Profit Before Tax 1031.56 1397.23 2994.45 1715.66

Tax -145.50 -350.90 -767.80 -439.91

Net Profit 886.06 1046.33 2226.65 1275.75

Equity capital 1330.34 1330.34 1330.34 1330.34

Face Value 1.00 1.00 1.00 1.00

Total No. of Shares 1330.34 1330.34 1330.34 1330.34

EPS 0.67 0.79 1.67 0.96

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Key Ratio

Particulars FY09 A FY10 A FY11 E FY12 E

EBIDTA % 8% 11% 13% 13%

PAT % 3% 6% 7% 7%

P/E ratio (x) 43.76 19.63 13.18 10.83

ROE - % 9% 18% 21% 21%

ROCE - % 8% 14% 17% 17%

EV/EBIDITA (x) 11.25 3.39 8.31 7.90

Debt Equity Ratio 0.93 0.93 0.80 0.67

Price/Book Value 2.70 3.56 2.80 2.23 A-Actual E-Expected Charts:

• Net sales & PAT

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• P/E Ratio (x)

• P/BV (X)

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• EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.62.50, the stock is trading at 413.18 x and 10.83 x for FY11E and FY12E respectively.

On the basis of EV/EBDITA, the stock trades at 8.31 x for FY11E and 7.90 x for FY12E.

Price to book value of the company is expected to be at 2.80 x for FY11E and 2.23 x for FY12E respectively.

EPS of the company is expected to be at Rs.4.74 and Rs.5.77 for the earnings of FY11E and FY12E respectively.

The Board of Directors of the Company has recommended a dividend of Rs. 1.50 per share of face value of Re. 1/- each (150%).

Ashok Leyland is planning to introduce 25 models over the next 18 months. It will invest around Rs 2,000 crore over the next two years. The company has planned capex incurrence over the next two years of Rs 1,200 crore and investments in JVs around Rs 800 crore for the purpose.

The joint venture (JV) between Ashok Leyland and Nissan Vehicles is on track to roll out its first Light Commercial vehicle (LCV) by 2011.

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Hinduja Leyland Finance Limited (HLF), promoted by Hinduja Group flagship Ashok Leyland has received the certificate of registration from the Reserve Bank of India, clearing the deck for commencement of operations covering financing of commercial vehicles and allied vehicle financing.

The company has inked a Memorandum of Understanding (MoU) with Cisco for developing solutions as per the requirements of different sectors, which will facilitate Vehicle-to-Infrastructure (V2I) communication.

We recommend ‘BUY’ this stock with a target price of Rs.75.00 for long term investment.

Industry Overview The growth of the Indian middle class along with the growth of the economy over the past few years has attracted global auto majors to the Indian market. Moreover, India provides trained manpower at competitive costs making India a favoured global manufacturing hub. The attractiveness of the Indian markets on one hand and the stagnation of the auto sector in markets such as Europe, US and Japan on the other have resulted in shifting of new capacities and flow of capital to the Indian automobile industry. Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant Hyundai are increasingly banking on their Indian operations to add weight to their businesses, even as numbers stay uncertain in developed markets due to economic recession and slowdown. Moreover, according to a study released by global consultancy firm Deloitte, at least one Indian company will be among the top six carmakers that would dominate the global auto industry by 2020. According to the study, the car industry would see a massive capacity building in low-cost locations like India and China as manufacturers shift base from developed regions. Production Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. In recent times, India has emerged as one of the favourite investment destinations for automotive manufacturers.

• German car major Audi will start assembling its sports utility vehicle Audi Q5 from mid-2010. The company plans to assemble more cars locally at its Aurangabad plant instead of importing completely built units (CBUs).

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• Ford India commenced commercial production of its compact car Figo, and diesel and petrol engines at a new factory in Chennai. The Figo will be built exclusively in India and exported to Asian countries and South Africa.

• Japanese major Nissan has decided to shift the entire production of its small

car, Micra, from the UK to India. After production of the Micra begins here, Nissan plans to manufacture four more models in India, involving a total investment of over US$ 412.2 million.

• Suzuki Motorcycle India (SMIPL), a wholly-owned subsidiary of Japanese auto

major Suzuki Motor Corporation, plans to double production capacity of its two-wheelers to 300,000 units by the end of the current fiscal year. The company will invest US$ 26.77 million.

• Volkswagen has set a target to localize production in India to about 80 per cent

in 2-3 years from the current levels of almost 50 per cent as it seeks to offer cars at more competitive prices.

Domestic Market According to figures released by the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales have increased 32.28 per cent to reach 145,905 units in January 2010 from 110,300 units in the same month last year. Across all categories, total sale of vehicles increased 44.94 per cent to 1,114,157 units in January 2010, against 768,698 units in the January 2009. Road Ahead The Indian auto industry is likely to see a growth of 10-12 per cent in sales in 2010, according to a report by the global rating firm, Fitch. According to its report, Indian Auto Sector Outlook, competition in the country's auto sector is likely to increase due to increasing penetration of global original equipment manufacturers (OEM).

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basis for an investment decision.

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