ashok leyland - motilal oswal

13 May 2015

4QFY15 Results Update | Sector: Automobiles

Ashok Leyland

Jinesh Gandhi ([email protected]); +91 22 3982 5416

Jay Shah ([email protected]); +91 22 3078 4701

BSE SENSEX S&P CNX CMP: INR70 TP: INR84 (+20%) Buy 27,251 8,235

Bloomberg AL IN

Equity Shares (m) 2,845.9 M.Cap. (INR b) / (USD b)

198.1/3.1

52-Week Range (INR) 77/25

1, 6, 12 Rel. Per (%) -2/44/159

AvgVal(INR m)/Vol ‘000 963/19,949

Free float (%) 61.2

Financials & Valuation (INR b)

Y/E MAR 2015 2016E 2017E

Net Sales 135.6 173.6 225.8

EBITDA 10.3 18.1 27.9

Adj PAT 2.3 8.9 16.6

EPS (INR) 0.8 3.1 5.8

Gr. (%) NA NA NA

BV/Sh.(INR) 18.0 19.9 23.9

RoE (%) 4.9 16.6 26.5

RoCE (%) 8.0 17.0 27.1

P/E (x) 84.7 22.2 12.0

EV/EBITDA 21.6 12.1 7.4

P/BV (X) 3.9 3.5 2.9

Estimate change 6%

TP change 6%

Rating change

Operating performance in line; transformed and prepared for the upcycle AL reported third consecutive quarter of positive PAT in 4QFY15, driven by cost cutting and operating leverage. Management’s focused approach is paying off in a) market share gains, b) rising ASPs, c) controlled cost, d) working capital reduction, e) significant control on capex and f) debt reduction. Strong volume recovery, coupled with weak commodity prices, would drive significant margin expansion and EPS growth going growth. Maintain Buy with a TP of ~INR84 (9x FY17E EV/EBITDA). n Net sales grew 46% YoY (+34% QoQ) to INR45b (in line with est.), led by volume

growth of 31.1% YoY (34.5% QoQ) and realization growth of ~12% YoY (flat QoQ). n EBTIDA margin of 10.1% (up 430bp YoY and 300bp QoQ; est. of 9.9%) was aided

by lower RM cost (value engineering and cost-cutting initiative) and higher operating leverage.

n PBT was ~INR2.9b (in line with est.). However, lower tax rate boosted Adj. PAT to ~INR2.4b (v/s est. of INR1.8b).

Key takeaways from the call: a) The management expects domestic M&HCV volumes to grow 10-15% (AL to outgrow at 15-20%) in FY16, b) it is targeting ~ 100bp margins improvement in FY16 (exit margins of ~11% v/s 10% in 4QFY15), c) AL witnessed negative working capital in 4QFY15 (for the first time since FY08), d) standalone net debt reduced to ~INR26b (0.6x equity) from ~INR46.8b in FY14, and e) capex is expected to remain moderate with ~INR3-3.5b for FY16 (~INR1.5b for capex and ~INR2b for investments) v/s ~INR3b in FY14 (incl. ~INR1b for investments in subsidiaries/JVs). Valuation and view: We are downgrading FY16/17E EPS by 14%/6% to ~INR3.1/5.8 (see Pg.5 for details). AL trades at 12x FY17E EPS and EV/EBITDA of 7.4x. Maintain Buy with a target price of ~INR84 (~9x FY17 EV/EBITDA; in line with LPA).

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

http://www.motilaloswal.com/Institutional-Equities�

13 May 2015 2

Ashok Leyland

Strong revenue growth led by volume uptick and price increase of 1% n AL’s volume grew by 31%YoY (34.5% QoQ), reflecting early cycle recovery in

M&HCVs. MHCV volumes grew by ~39% YoY, while LCV volumes showed early signs of recovery by growing at 9% YoY.

n AL’s domestic M&HCV market share gain continues, with ~32% market share (v/s 28.5% in 4QFY14), driven by doubling of network to over 620 touch points over last 3-4 years and new product launches (Boss , Captain, Neptune Engine, Rigid Dost, Jan Bus etc). AL’s FY15 domestic M&HCV market share at ~28.3% (v/s 25.6% in FY14) is at decadal high level. AL’s market share gain was broad based across regions and segments.

n Company’s LCV market share also improved to 7.5% (v/s 6.2% in 4QFY14). n Average realizations improved by ~12% YoY (flat QoQ) to INR1.32m/unit (v/s

~INR1.35b) driven by higher M&HCV contribution (despite moderately higher discounts) and 1% price increase in 4Q. On QoQ basis, realizations were partly impacted due to lower contribution from defense at INR160m (v/s INR940m in 3QFY15).

n As a result net sales grew 46.4% YoY (+34% QoQ) to INR45b (in-line est).

Exhibit 1: AL’s MHCV volumes rise sequentially on better macro-environment

Source: Company, MOSL

Exhibit 2: MHCV volumes grow by 39.5% YoY


Exhibit 3: Share of LCVs (under Nissan JV) continue to be under pressure


Exhibit 4: Product mix change in favor of MHCV, drives realizations


19,2

77

23,6

59

20,6

85 30

,776

20,2

39

21,1

75

14,6

81

23,6

03

14,8

97

15,9

13

10,6

98

18,8

29

14,9

49

18,1

87

18,2

52

26,2

62

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

MHCVs (units)

-8.8 -3.213.3

4.6 5.0 (10.5)

(29.0)

(23.3)

(26.4)

(24.9)

(27.1)(20.2)

0.3 14.3

70.6

39.5

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

3QFY

15

- 1 11 14 26 29 35 32 31 31 42 28 25 28 28 23

100 99 89 86 74 71 65 68 69 69 58 72 75 72 72 77

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

Volumes (ex Dost) Dost

1,30

3

1,30

5

1,25

3

1,18

2

1,09

4

1,10

5

1,05

0

1,07

7

1,08

8

1,10

3

1,06

2

1,18

1

1,24

0

1,26

8

1,32

3

1,31

9

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14 FY15

Realization (INR '000/unit)

13 May 2015 3

Ashok Leyland

Exhibit 5: 4QFY15 registers gain in MHCV market share

Source: Company, SIAM, MOSL

Exhibit 6: AL’s M&HCV market share at decadal high

Source: Company, SIAM, MOSL

Highest EBITDA in 11 quarters at 10.1%, driven by lower RM cost and operating leverage n EBITDA came in at INR 4.6b (+157% YoY, 92% QoQ, in-line with est.), translating

into EBITDA margins of 10.1% (+430bp YoY, 300bp QoQ) - highest EBITDA margins in last 9 quarters.

n RM cost at 72.8% (-250bp YoY, -170bp QoQ, v/s est 73.5%) due to value engineering and cost cutting initiative. It also expects some benefit going ahead to come from lower commodity prices.

n Staff cost at 7.4% (-80bp QoQ, -60bp YoY, v/s est 6.9%) was lower on both QoQ and YoY basis, in spite of increment and bonuses being declared.

n Recurring PBT at ~INR2.9b (in-line with est.), a third consecutive quarter of positive PBT after 5 quarters of PBT loss.

n Lower tax rate at 20% boosted Adj. PAT to ~INR2.4b (v/s est INR1.8b). n AL in standalone results provided for ~INR2.24b towards impairment of

investment in Nissan JV, triggered by the JV’s impairment of two product platforms (Stile and Evalia; ~INR6b impairment at JV level).

n Working Capital moderation continues with negative INR1.7b (v/s INR4b in 3QFY15 v/s INR2.2b in 4QFY15).

Exhibit 7: Strong rebound in margins on higher volumes, mix change


Exhibit 8: RM cost at 72.8% on cost cutting & value engineering initiative


26.2 25.4 22.5

29.7

23.0 28.0

22.4

28.5 25.1

28.0 26.7 32.0

Q1 Q2 Q3 Q4

FY13 FY14 FY15

25.6 23.3

25.7 23.6

26.1 25.6 28.3

FY09 FY10 FY11 FY12 FY13 FY14 FY15

M&HCV Dom. Market Share (%)

2,40

7

3,34

1

1,02

3

1,98

3

233

563

-969

1,77

8

1,16

1

2,34

3

2,38

1

4,57

1

8.010.1

4.3 5.31.0 2.2

-5.05.8

4.77.3 7.1

10.1

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY13 FY14 FY15

EBITDA (INR m) EBITDA Margins (%)

72.8 72.8 71.9

75.8 75.5 76.379.7 75.3

73.3 73.6 74.572.8

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY13 FY14 FY15

RM (% of net sales)

13 May 2015 4

Ashok Leyland

Exhibit 9: Working Capital Moderation continues


Exhibit 10: Negative Working capital days in FY15


Exhibit 11: Financial gearing reducing


Exhibit 12: Interest cost reducing


Subsidiary losses impacts consolidated performance n For FY15, consolidated net sales grew 34% to INR153b ( Standalone revenues of

INR135b). n EBITDA of INR9.9b up 147% YoY (v/s INR10b on S/A basis). n Consolidated reported PAT of INR1.34b for FY15, as against loss of INR1.64b in

FY14 (v/s INR3.3b profit in S/A). n Net debt at consolidated level increased by INR5b to INR90b (v/s INR26b in

standalone). Highlights from the earnings call n The management expects domestic M&HCV volumes to grow 10-15% (AL to

outgrow at 15-20% growth) in FY16. While domestic M&HCV industry has grown at ~16% in FY15 to ~232k, it is well below peak volumes of ~347k in FY12. It expects industry to cross peak volumes over next 2-3 years.

n Freight rates are going up, as freight availability is improving. n Defence business offers huge potential: AL is expanding its offering in defence

segment from just 4x4 trucks, now into other product segments. Of 4 bidders for gun mounters, AL is partner of choice for 3 players. Defence is currently ~USD100m, but offers huge potential for scale-up.

n It is targeting margins improvement by ~ 100bp improvement in FY16 (exit margins of ~11% v/s 10% in 4QFY15). This would be driven by lower RM cost (cost cutting through value engineering as well benefit of favorable commodity prices) and control on fixed costs.

12,379

6,300

2,2404,570

7,781

4,000

-1,720

2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15

Trend in Working Capital (INR mn)

20

8

-6

32

17

35

1924

10

-5FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Working Capital Days

55 57 5447 45 43 40

33

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY14 FY15

Gross Debt (INR b)

1,2441,153 1,126 1,063 1,007 982

882

2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15

Interest Cost (INR m)

13 May 2015 5

Ashok Leyland

n AL witnessed negative working capital as of March-15, for the first time since FY08. While negative working capital cycle is not sustainable, it is focused to have minimal investment in working capital.

n Standalone net debt reduced to ~INR26b (0.6x Equity) from ~INR46.8b in FY14. Debt reduction was driven by free cash generation of over INR20b through improvement in operating performance, working capital (not sustainable as huge amount collections at the end of the year), sale of non-core assets and equity issuance.

n However, consolidated net debt increased by ~INR5b to ~INR90b, largely driven by scale-up in its 65.8% NBFC subsidiary Hinduja Leyland Finance (by ~INR18b) and increase in other operating subsidiaries.

n Capex is expected to remain moderate with ~INR3-3.5b for FY16 (~INR1.5b for capex and ~INR2b for investments). For FY15, AL investment ~INR3b (including ~INR1b for investments in subsidiaries/JVs).

n GST is expected to benefit CV industry in three ways a) 1-2% uptick in GDP to benefit CV demand, b) Customers would have lesser extra cost and higher profitability benefiting CV demand, c) AL would be able to reduce regional stock yards.

Valuation and view: Lower EPS, target price n Lower our FY16-17 EPS by 14/6%: We are lowering our FY16/17E EPS by

14%/6% to INR3.1/5.8 to reflect for lower than expected pace of recovery in volumes, especially LCVs.

n MHCV demand bottomed-out; sharp recovery expected in 1HFY16 onwards: MHCV demand has bottomed-out with growth witnessed in 2HFY15 post 2 years of sharp decline of over 40%. Freight utilization levels and consequent freight rates have moved up over last 2-3 quarters, reflecting improving transporters’ cashflows. While domestic M&HCVs industry volumes grew for first time in Aug-14, AL’s M&HCV volumes grew by ~40% in 4QFY15 (~28% FY15 growth) given its higher exposure to South and West, as well as distribution expansion in North and East.

n Past CV cycles suggest 23% volume CAGR from bottom to top of cycle for MHCV industry: During the last two major CV cycles, MHCV volumes clocked a CAGR of ~23% from the bottom of the cycle to the top. EBITDA during such recovery phases has grown at a faster pace, driven by margin expansion on operating leverage and enhanced pricing power. Interestingly, even after assuming 20% CAGR in MHCV volumes on the base of FY14, FY17 volumes would be marginally lower than FY12 levels. For AL, we are estimating ~22% CAGR in MHCV volumes over FY15-17E.

n Expect sharp improvement in operating performance: Rebound in industry demand should drive down discounts significantly from all time high levels of ~INR180k (v/s <INR60k in FY12). With recovery in demand coupled with cost reduction measures, we expect fixed cost (as percentage of sales) to reduce meaningfully, driving margins higher. We estimate EBITDA margins to improve by ~4.8pp over FY15-17E, to 12.4%.

n Aggressive focus on curtailing debt and generating cash: To emerge leaner and stronger from the downturn, AL has focused on generating cash and curtailing debt through working capital reduction, controlled capex and monetizing non-

13 May 2015 6

Ashok Leyland

core assets. Further, capex (incl. Investment) for FY16 is expected to be at INR 3b (v/s INR5bin FY15 v/s INR5.5b in FY14 v/s 15.4b in FY13).

n Rerating to continue: Management’s focused approach is paying-off in a) market share gains, b) rising ASPs, c) controlled cost, d) reducing working capital, e) significant control on capex and f) debt reduction. Strong volume recovery coupled with weak commodity prices would drive significant margin expansion and EPS growth. AL trades at 12x FY17E EPS and EV/EBITDA of 7.4x. Maintain Buy with target price of ~INR84 (~9x FY17 EV/EBITDA, in-line with LPA).

Exhibit 13: Revised Forecast (INR M) FY16E FY17E

Rev Old Chg (%) Rev Old Chg (%)

Volumes (units) 127,526 142,733 -10.7 155,856 175,625 -11.3

Net Sales 173,637 190,846 -9.0 225,760 250,038 -9.7

EBITDA margins (%) 10.4 11.1 -70bp 12.4 12.3 0bp

Net Profit 8,938 10,376 -13.9 16,567 17,547 -5.6

EPS (INR) 3.1 3.6 -13.9 5.8 6.2 -5.6


Exhibit 14: Valuations trading above historical average, reflecting improving fundamentals

Source: MOSL

Source: MOSL

Exhibit 15: Comparative Valuation CMP * Rating TP P/E (x)

EV/EBITDA (x)

RoE (%)

RoCE (%)

Auto OEM's (INR)

(INR) FY16E FY17E

FY16E FY17E

FY16E FY17E

FY16E FY17E

Bajaj Auto 2,125 Buy 2,407 16.9 14.1 11.2 9.1 31.9 33.4 43.6 45.0

Hero MotoCorp 2,502 Buy 2,791 17.7 14.3 12.2 10.1 39.8 41.1 55.6 56.4

TVS Motor 220 Buy 302 19.9 12.8 12.3 8.2 28.5 34.4 27.6 35.9

M&M 1,205 Neutral 1,246 16.4 13.0 14.4 12.1 15.8 16.1 16.9 17.9

Maruti Suzuki 3,601 Buy 4,617 20.1 15.6 10.4 8.4 19.3 21.2 25.9 28.3

Tata Motors 520 Buy 722 7.4 6.4 3.0 2.4 24.0 22.1 26.2 25.5

Ashok Leyland 70 Buy 84 22.2 12.0 10.6 6.4 16.6 26.5 17.0 27.1

Eicher Motors# 18,063 Buy 18,211 46.9 27.3 27.2 16.4 36.9 45.5 38.9 52.7 Auto Ancillaries

Bharat Forge 1,245 Buy 1,619 26.3 19.2 14.5 11.0 29.6 31.0 29.7 33.4

Exide Industries 152 Buy 223 18.0 15.0 11.2 9.1 15.7 16.6 22.1 23.3

Amara Raja Batteries 814 Buy 1,195 25.2 17.0 14.3 10.3 29.0 33.5 40.9 45.4

# Nos. are on CY basis Source: Company, MOSL

9.1

46.4

12.3

11.34.02

12

22

32

42

52

May

-00

Jul-0

1

Sep

-02

Nov

-03

Jan-

05

Mar

-06

Apr

-07

Jun-

08

Aug

-09

Oct

-10

Nov

-11

Jan-

13

Mar

-14

May

-15

EV/EBDITA Peak(x) Avg(x)Median(x) Min(x)

3.2

7.2

2.8

2.50.7

0.0

3.0

6.0

9.0

Apr-

05

Jul-0

6

Oct

-07

Jan-

09

Apr-

10

Jul-1

1

Oct

-12

Jan-

14

Apr-

15

PB (x) Peak(x) Avg(x)Median(x) Min(x)

13 May 2015 7

Ashok Leyland

Ashok Leyland | Story in Charts: Best play on CV cycle recovery Exhibit 16: Past cycle suggest ~23% volume CAGR from bottom to top of the cycle

0

5

10

15

20

0

100

200

300

400

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

E

FY16

E

FY17

E

M&HCV Volumes ('000 units) IIP Growth (%) - RHS

Volumes went 3.5x or ~23% CAGR

Volumes decline ~4% CAGR

Volumes to grow ~23% CAGR


Exhibit 17: Revenue to grow at 29% CAGR


Exhibit 18: Higher volumes, discount reduction to drive margins


Exhibit 19: Capex/investments to moderate significantly

6,70

4

6,09

5 7,57

9

6,84

4

3,50

1

6,90

6

6,43

8

2,32

4

-494

2,00

0

3,00

0

1,50

6

1,77

4

1,78

4

2,04

1

2,67

4

3,52

8

3,80

8

3,77

0

4,16

3

4,13

2

4,24

4

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

E

FY15

E

FY16

E

FY17

E

Capex Depreciation


Exhibit 20: Focused on reducing debt levels


129,

034

124,

812

99,4

34

135,

622

173,

637

225,

760

15.4

(3.3)(20.3)

36.4

28.0 30.0

FY12 FY13 FY14 FY15E FY16E FY17E

Revenues (INR m) Growth (%)

13,1

75

8,76

5

1,66

6

10,2

67

18,0

76

27,8

84

10.2

7.0

1.7

7.6

10.4 12.4


EBITDA (INR m) EBITDA Margins (%)

32.3

43.446.8

25.4 22.2

10.7


Net Debt (INR b)

13 May 2015 8

Ashok Leyland

Exhibit 21: RoE to improve with recovery in CV demand


Exhibit 22: Focused on reducing debt/equity levels


13.4 6.4

(1.5)

8.0

17.0

27.1

15.3

3.9

(10.7)

4.9

16.6

26.5


RoCE (%) RoE (%)

0.8

1.0 1.1

0.6 0.5

0.3


Debt/Equity (x)

13 May 2015 9

Ashok Leyland

Key operating metrics

Exhibit 23: Snapshot of revenue model 000 units FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

HCV Passenger (units) 18 25 26 23 19 21 26 31

Growth (%) -6.4 36.5 2.2 -8.9 -18.0 7.7 25.0 20.0

HCV Goods (units) 44 68 68 55 41 57 71 89

Growth (%) 32.9 53.4 0.4 -18.8 -26.1 39.0 25.0 25.0

LCVs (units) 1 1 1 1 0 2 2 3

Growth (%) -17.1 -20.7 27.7 -29.7 -47.0 306.0 25.0 50.0

DOST (units) 0 0 8 35 28 25 28 32

Growth (%) 359.9 -20.0 -9.7 11.0 15.0

Non-DOST JV (units) 0 0 0 0 1 0 0 0

Growth (%) 0.0 -0.5 0.3 0.3

Total volumes ex Dost (units) 64 94 95 80 61 79 99 123

Growth (%) 17.4 47.2 1.1 -16.3 -23.9 30.9 25.0 24.2

Total Volumes incl Dost (units) 64 94 103 115 89 105 128 156

Growth (%) 17.4 47.2 9.2 11.5 -22.1 17.4 21.6 22.2

ASP (INR/unit) 1,133 1,188 1,255 1,089 1,113 1,293 1,362 1,449

Growth (%) 2.2 16.1 5.3 6.4

Net Sales (INR b) 72 112 129 125 99 136 174 226

Growth (%) 21.1 54.3 15.4 -3.3 -20.3 36.4 28.0 30.0


13 May 2015 10

Ashok Leyland

Financials and valuations Income Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E

Volumes ('000 units) 64 94 103 115 89 105 128 156

Growth (%) 17.4 47.2 9.2 11.5 -22.1 17.4 21.6 22.2

Net Sales 72,447 111,771 129,034 124,812 99,434 135,622 173,637 225,760

Change (%) 21.1 54.3 15.4 -3.3 -20.3 36.4 28.0 30.0

EBITDA 7,628 12,137 13,175 8,765 1,666 10,267 18,076 27,884

Change (%) 62.5 59.1 8.6 -33.5 -81.0 516.4 76.1 54.3

EBITDA Margins (%) 10.5 10.9 10.2 7.0 1.7 7.6 10.4 12.4

Depreciation 2,041 2,674 3,528 3,808 3,770 4,163 4,208 4,310

EBIT 5,587 9,463 9,647 4,957 -2,105 6,103 13,868 23,574

Interest & Fin. Charges 811 1,889 2,553 3,769 4,529 3,935 2,889 1,948

Other Income 704 445 404 624 665 1,245 1,350 1,225

PBT 5,448 8,018 7,514 4,707 -912 4,422 12,329 22,851

Tax 1,211 1,705 1,240 370 (1,206) 1,074 3,390 6,284

Effective Rate (%) 22.2 21.3 16.5 7.9 132.2 24.3 27.5 27.5

Rep. PAT 4,237 6,313 6,274 4,337 294 3,348 8,938 16,567

Change (%) 108.2 49.0 -0.6 -30.9 -93.2 1,039.7 167.0 85.3

% of Net Sales 108.2 49.0 -0.6 -30.9 -93.2 1,039.7 167.0 85.3

Adjusted PAT 4,269 6,313 6,258 1,669 -4,763 2,339 8,938 16,567

Change (%) 109.8 47.9 -0.9 -73.3 -385.4 -149.1 282.1 85.3

Balance Sheet (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E

Share Capital 2,661 2,661 2,661 2,661 2,661 2,846 2,846 2,846

Reserves 34,027 36,969 39,421 41,890 41,818 48,341 53,856 65,288

Net Worth 36,688 39,630 42,082 44,551 44,479 51,187 56,702 68,133

Loans 22,039 26,733 32,630 43,554 46,903 32,913 27,913 17,913

Deferred Tax Liability 4,611 4,439 4,904 5,274 4,068 5,103 5,719 6,862

Foreign currency translation (125) - 42 - - - - -

Capital Employed 63,213 70,802 79,657 93,379 95,450 89,203 90,334 92,908

Gross Fixed Assets 60,186 66,919 72,564 83,796 86,723 87,045 88,295 91,295

Less: Depreciation 17,691 20,581 23,429 25,588 30,124 34,288 38,496 42,806

Net Fixed Assets 42,496 46,338 49,135 58,208 56,599 52,757 49,799 48,489

Capital WIP 5,615 3,580 5,482 6,889 1,815 1,000 1,250 1,250

Investments 3,262 12,300 15,345 23,376 27,897 26,488 27,988 29,988

Curr.Assets, L & Adv. 41,397 43,716 49,195 47,883 41,769 49,592 62,768 80,787

Inventory 16,382 22,089 22,306 18,960 11,887 13,985 19,029 24,741

Sundry Debtors 10,221 11,645 12,302 14,194 12,990 12,577 18,553 24,122

Cash & Bank Balances 5,189 1,795 326 139 117 7,513 5,682 7,183

Loans & Advances 9,605 8,186 14,261 14,589 16,775 15,517 19,504 24,741

Current Liab. & Prov. 29,608 35,131 39,501 37,588 32,630 40,635 51,471 67,606

Sundry Creditors 23,317 23,085 27,725 24,854 22,142 28,283 35,679 46,389

Other Liabilities 2,604 7,092 6,807 8,862 8,929 9,005 9,514 12,370

Provisions 3,687 4,954 4,969 3,872 1,560 3,347 6,278 8,846

Net Current Assets 11,789 8,584 9,695 10,295 9,139 8,958 11,297 13,181

Application of Funds 63,213 70,802 79,657 98,769 95,450 89,203 90,334 92,908

E: MOSL Estimates

13 May 2015 11

Ashok Leyland

Financials and valuations

Ratios Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Basic (INR)

EPS 1.6 2.4 2.4 0.6 -1.8 0.8 3.1 5.8 EPS Fully Diluted 1.6 2.4 2.4 0.6 -1.8 0.8 3.1 5.8 EPS Growth (%) 109.8 47.9 -0.9 -73.3 -385.4 -145.9 282.1 85.3 Cash EPS 1.2 1.7 3.7 2.1 -0.4 2.3 4.6 7.3 Book Value per Share 6.9 7.4 15.8 16.7 16.7 18.0 19.9 23.9 DPS 0.4 0.5 1.0 0.6 0.0 0.45 1.0 1.5 Payout (Excl. Div. Tax) % 23.4 21.1 42.5 95.6 0.0 54.7 31.8 25.8 Valuation (x)

P/E

-38.9 84.7 22.2 12.0 Cash P/E

-186.6 30.5 15.1 9.5

EV/EBITDA

134.9 21.6 12.1 7.4 EV/Sales

2.3 1.6 1.3 0.9

Price to Book Value

4.2 3.9 3.5 2.9 Dividend Yield (%)

0.0 0.6 1.4 2.2

Profitability Ratios (%)

ROE 12.0 16.5 15.3 3.9 -10.7 4.9 16.6 26.5 RoCE 10.5 14.8 13.4 6.4 -1.5 8.0 17.0 27.1 Turnover Ratios

Debtors (Days) 51 38 35 42 48 34 39 39 Inventory (Days) 83 72 63 55 44 38 40 40 Creditors (Days) 117 75 78 73 81 76 75 75 Working Capital (Days) 17 35 19 24 10 -5 4 4 Fixed-Asset Turnover (x) 1.7 2.4 2.6 2.1 1.8 2.6 3.5 4.7 Leverage Ratio

Debt/Equity (x) 0.6 0.7 0.8 1.0 1.1 0.6 0.5 0.3

Cash flow Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E OP/(Loss) before Tax 5,448 8,018 6,900 4,707 -912 6,103 13,868 23,574 Interest/Dividends Received 387 139 168 264 191 1,245 1,350 1,225 Depreciation & Amortization 2,041 2,674 3,528 3,808 3,789 4,163 4,208 4,310 Direct Taxes Paid -893 -1,503 -1,500 -1,100 -297 -39 -2,774 -5,141 (Inc)/Dec in Working Capital 4,339 -4,914 218 -350 3,700 7,577 -4,170 -383 Other Items -34 1,638 2,024 218 -462 0 0 0 CF from Oper. Activity 11,289 6,053 11,338 7,547 6,008 19,050 12,482 23,584

Extra-ordinary Items 0 0 0 0 0 1,009 0 0 CF after EO Items 11,289 6,053 11,338 7,547 6,008 20,059 12,482 23,584

(Inc)/Dec in FA+CWIP -6,844 -3,501 -6,906 -6,438 -2,324 494 -1,500 -3,000 (Pur)/Sale of Invest. -1,375 -5,816 -3,837 -5,468 778 1,409 -1,500 -2,000 CF from Inv. Activity -8,219 -9,317 -10,743 -11,907 -1,546 1,902 -3,000 -5,000

Issue of Shares 0 0 0 0 0 4,900 0 0 Inc/(Dec) in Debt 4,247 3,733 3,239 11,004 1,827 -13,990 -5,000 -10,000 Interest Rec./(Paid) -1,458 -1,542 -2,256 -3,742 -4,446 -3,935 -2,889 -1,948 Dividends Paid -1,556 -2,327 -3,092 -3,092 -1,868 -1,541 -3,423 -5,135 CF from Fin. Activity 1,233 -136 -2,109 4,170 -4,486 -14,565 -11,313 -17,083

Inc/(Dec) in Cash 4,303 -3,400 -1,513 -190 -24 7,396 -1,831 1,501 Add: Beginning Balance 851 5,155 1,755 241 52 28 7,424 5,593 Closing Balance 5,155 1,755 241 52 28 7,424 5,593 7,094

13 May 2015 12

Ashok Leyland

Corporate profile

Exhibit 25: Shareholding pattern (%) Mar-15 Dec-14 Mar-14

Promoter 38.8 38.8 41.5

DII 12.1 13.2 13.3

FII 32.8 32.0 26.0

Others 16.4 16.0 19.2

Note: FII Includes depository receipts

Exhibit 26: Top holders Holder Name % Holding

LIC of India 6.6

JP Morgan Sicav Investment Company (Mauritius) Ltd 2.7

Amansa Holdings Pvt Ltd 1.8

Government Pension Fund Global 1.7

IDFC Premier Equity Fund 1.3

Exhibit 27: Top management Name Designation

D G Hinduja Chairman

Vinod K Dasari Managing Director

Gopal Mahadevan Chief Financial Officer

Rajive Saharia President – Trucks

T. Venkataraman Sr Vice President - Buses

Exhibit 28: Directors Name Name

D G Hinduja D J Balaji Rao*

R Seshasayee Sanjay K Asher*

Vinod K Dasari Shardul S Shroff&

A K Das Andreas H Biagosch*

F Sahami Manisha Girotra*

Jean Brunol*

*Independent

Exhibit 29: Auditors

Name Type

M S Krishnaswami & Rajan Statutory Deloitte Haskins & Sells LLP Statutory Geeyes & Co Cost Auditor

Exhibit 30: MOSL forecast v/s consensus EPS

(INR) MOSL

forecast Consensus

forecast Variation

(%)

FY16 3.1 2.6 21.1 FY17 5.8 4.3 36.2

Company description Ashok Leyland (AL), the flagship company of Hinduja Group, is the 2nd largest MHCV with ~26% market share and the largest Bus manufacturer in India. To expand its product offerings, AL has entered into 50:50 JV with Nissan for LCVs and John Deere for construction equipment.

Exhibit 24: Sensex rebased

13 May 2015 13

Ashok Leyland

N O T E S

13 May 2015 14

Ashok Leyland

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Disclosure of Interest Statement ASHOK LEYLAND § Analyst ownership of the stock No § Served as an officer, director or employee No

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