Stock Market Update on Ashok Leyland for 4QFY2011 with a Buy recommendation and a Target Price of `64 (12 months).
For 4QFY2011, Ashok Leyland (ALL) registered 30.3% yoy growth in net sales, aided by 15% growth in volumes. Net average realisation increased by 13.2% yoy due to change in product mix. EBITDA margin came in substantially higher than our expectation at 13.3%. Net profit registered a substantial increase of 33.9%. We recommend Buy on the stock.
Strong volumes support top-line growth; OPM surprises on the upside: For 4QFY2011, ALL reported 30.3% yoy growth in net sales to `3,829cr (`2,939cr), which was 4.3% above our expectation. Sales growth came on the back of a 15% yoy increase in volumes. Net average realisation for the quarter registered a 13.2% jump yoy to `1,289,980 (`1,138,854). During 4QFY2011, ALL witnessed a 44p yoy increase in EBITDA margin mainly due to lower other expenditure.
Net profit increased by 33.9% yoy to `298cr (`223cr).
Outlook and valuation: The overall outlook for the domestic CV industry is positive, which is in its mid-cycle, with volumes expected to register a ~10% CAGR over FY2011–13E. Most of the factors that drive freight demand and consequently M&HCV demand are positive and CV manufacturers are benefiting from the economic recovery. At `50, ALL is trading at 12.4x FY2011E and 11.2x FY2013E EPS. We recommend Buy on ALL with a target price of `64.
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