Ashok Leyland impresses on margins
Better-than-expected realizations helped Ashok Leyland comfortably beat revenue and profit estimates
Latest News »
- Arundhati Roy among Man Booker Prize contenders
- Opening bell: Asian markets open higher; ITC, ICICI Bank, Idea in news
- Despite ‘Baahubali 2’, multiplexes put up a boring show in the June quarter
- Yes Bank turns tide on bad loans, powered by one account
- Asian Paints: June quarter earnings lose sheen hit by GST, high input costs
The Ashok Leyland Ltd stock gained 3.64% on BSE on Thursday, after the company surprised the Street by reporting a strong performance for the June quarter (Q1). A slowdown in sales of the better-priced medium and heavy commercial vehicles (M&HCV), which grew 12% in Q1 compared with 44% growth a year ago, together with a rise in input costs had been expected to dent profitability.
Contrarily, Ebitda (earnings before interest, taxes, depreciation and amortization) margins expanded 1.1 percentage points to 11.2%. Operating profit jumped 21% as raw material costs remained under control and pricing did not deteriorate much. According to Religare Capital Markets Ltd, net realization per vehicle fell by less than 1% compared with estimates of a 2-3% drop.
The better-than-expected realizations helped Ashok Leyland comfortably beat revenue and profit estimates. Revenue grew 10% and profit doubled. Further, the company sounded optimistic on exports. “Key export markets were down in Q1 but are expected to bounce back in Q2 and beyond,” Vinod K. Dasari, managing director, Ashok Leyland, said in a statement. Tepid exports were part of the reason for the slowdown in sales.
The strong show fuelled gains in the stock whose valuation, at 19 times earnings estimates for the current fiscal year, is not cheap. For it to continue its upward journey, the company needs to maintain sales momentum. It is here that there is a bit of concern. Sales in the last two months grew at an unexciting pace of 6-7%. Channel checks by Nitesh Sharma, auto analyst at PhillipCapital (India) Pvt. Ltd, indicate “subdued” volume growth in the near term. Another analyst, who does not want to be named, says he wants to see the demand and pricing environment for another quarter before deciding on earnings upgrades.
Of course, purchases ahead of changes in pollution norms can aid sales in the later part of the current fiscal year. But that is more of a long-term view. In the near term, much depends on the demand environment and the kind of monthly sales numbers the company will clock.