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Ashok Leyland shares in fast lane on Q4 margin beat

Ashok Leyland’s Q4 revenue grew 25% year-on-year to  ₹8,744 crore, driven by an increase in net realisation, favourable mix and volume growth of 11% on year.Premium
Ashok Leyland’s Q4 revenue grew 25% year-on-year to 8,744 crore, driven by an increase in net realisation, favourable mix and volume growth of 11% on year.

  • Ebitda margin widened at a time when gross margin fell 135bps. Amid the high inflationary environment, Ashok Leyland implemented cost control measures. Other expenses, as a percentage of sales, declined to 8% from nearly 10% in Q4FY21. Also, employee costs as a percentage of sales dropped 73bps

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Ashok Leyland Ltd’s shares rose more than 5% in opening deals Friday on the National Stock Exchange, as investors cheer the company’s better than expected March quarter (Q4FY22) results.

The automaker, focussed on commercial vehicles, saw revenue grow 25% year-on-year to 8,744 crore, driven by an increase in net realisation, favourable mix and volume growth of 11% on year.

Ebitda (earnings before interest, tax, depreciation and amortisation) margin came in at 8.9%, expanding 124 basis points (bps) y-o-y. One basis point is 0.01%. For perspective, analysts at Reliance Securities had estimated the metric at 7.2%. Note that Ebitda margin widened at a time when gross margin fell 135bps. Amid the high inflationary environment, the company implemented cost control measures. Other expenses, as a percentage of sales, declined to 8% from nearly 10% in Q4FY21. Also, employee costs as a percentage of sales dropped 73bps.

Further, profit after tax was boosted by inclusion of an exceptional item of 470 crore, largely reflecting impairment reversal. The company reported a net profit of 901 crore while adjusted profit stood at about 430 crore.

In Q4, Ashok Leyland recorded a truck market share of 30.6%. This is the highest in the last 11 quarters, according to the company. In comparison, the market share in Q4FY21 stood at 28.9%. Ashok Leyland’s CNG (compressed natural gas) vehicles have helped the company in recoup market share. Typically, an increase in infrastructure activity and robust growth in e-commerce augurs well for commercial vehicles.

“We expect stable market share for Ashok Leyland, while we assume healthy Ebitda margin in FY23E/FY24E (close to previous peak, aided by turnaround of light commercial vehicle business)," said analysts at Reliance Securities in a first cut note.

They added, “As the worst phase of current down-cycle for medium and heavy commercial vehicle segment as well as Ashok Leyland seems to be over now, we believe up-cycle over FY22-FY24E would bring back high earnings growth and valuation expansion, which would lead to sharp upside from the current level."

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