Ashok Leyland Ltd reported a robust 88.5% jump in net profit to 167.1 crore for the quarter ended September, riding piggyback on strong volume growth.

The company sold 24,590 vehicles in the quarter, 77% higher on a year-on-year (y-o-y) basis.

This was partly because of pre-buying ahead of the anticipated increase in vehicle prices owing to new emission norms.

Ashok Leyland raised prices by 1.5% in April and 2.5% in July this year. Despite the price hikes, raw material costs as a percentage of sales grew from about 70% to 73.5% on a y-o-y basis.

Analysts reckon that the new Pantnagar unit will drag profitability until volume ramp-up will provide an operating leverage. Still, the operating profit margin for the quarter at 11.3% was 80 basis points higher on a y-o-y basis.

This is because of reduction in staff costs and other expenditure as a percentage of sales.

Graphic: Yogesh Kumar/Mint

The company’s share of the northern India market, where its competitor Tata Motors Ltd has a dominant position, had risen from 23% in fiscal 2010 to 26% at end-June.

With the parent group entering commercial vehicle financing, Ashok Leyland will stand to benefit, given that most commercial vehicles are bought through lease-finance.

Ashok Leyland shares have returned 32% since April and outperformed the Bombay Stock Exchange’s auto index too during the period. The outlook for commercial vehicle sales remains robust with analysts estimating sales volumes of 90,000 vehicles during fiscal 2011.

The management, however, has stated that the current quarter could be a trifle slower due to change in emission norms and the resultant increase in prices.

Ashok Leyland shares trade at 75, discounting the estimated fiscal 2012 earnings around 12 times. The company’s ramp-up at its new facility could provide an upside to the stock, both in terms of revenue and profitability.

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