Leyland delivers goods in Q4, but demand remains challenge for CVs in near term

  • Liquidity crunch and increase in tonnage post-new axle load norms have hit sales since the second half of FY19
  • Ashok Leyland stock is still about 44% lower than its 2018 high, but clearly things are looking better compared to the past few months

Mobis Philipose
Updated26 May 2019, 07:24 PM IST


In mid-February, shares of Ashok Leyland Ltd had fallen almost 54% from their highs in 2018 to 78. They have since risen and now trade at around 94 apiece on the National Stock Exchange. Of course, the stock is still about 44% lower than its 2018 high, but clearly things are looking better compared to the past few months.

Note that the company’s revenues and operating profit had fallen by 12% and 23%, respectively, in the December quarter, owing to weak sales. In the March quarter results, which were announced on Friday, revenues grew about 1%, while operating profit fell 4.6%.

The results actually were a mixed bag with revenues being slightly better than expected, while margins fell short. Ashok Leyland’s volumes had risen 1% year-on-year, and were driven by sales of light commercial vehicles (CVs), which rose by more than 8%. As such, average price realizations were expected to drop on account of the change in the product mix. What’s more, the auto slowdown has resulted in increased discounts. Put together, analysts at Kotak Institutional Equities were factoring in a 3% decline in average price realizations, leading to a decline in revenues as well. But the company has managed to maintain realizations, which is a positive surprise.

Oddly though, despite this advantage and the backing of softening commodity prices, profit margins were slightly below expectations. The consensus estimate on the Street for operating profit margin stood at 11.5%, while Ashok Leyland reported margins of 11.1%.

“It makes sense to compare Ashok Leyland’s margin performance to that of Tata Motors’ India performance,” says an analyst at an institutional brokerage firm, who declined to be named. “By that measure, the former’s performance looks good because it reported a sequential improvement in margins from 10.3% in the December quarter, while Tata Motors reported a 200 basis points drop in margins on a stand-alone basis.”

But as Tata Motors Ltd had highlighted in its call with analysts post-results, demand remains a challenge in the near term. Liquidity constraints faced by non-banking financial companies and increase in tonnage post-new axle load norms have hit sales since the second half of FY19, and these constraints still apply.

Of course, post-elections, investors are hoping for a quick resolution to the liquidity crisis, as well as a boost for infrastructure. These, coupled with the new BS-VI norms, should aid demand for new CVs. Such a thesis has driven Ashok Leyland shares in recent trading sessions. But the fact that the shares are still considerably lower than a year ago means that investors are still being cautious

Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

MoreLess
First Published:26 May 2019, 07:24 PM IST
Business NewsMarketsMark To MarketLeyland delivers goods in Q4, but demand remains challenge for CVs in near term

Most Active Stocks

Tata Steel share price

147.55
03:59 PM | 8 NOV 2024
-3.35 (-2.22%)

Tata Motors share price

805.70
03:58 PM | 8 NOV 2024
-14.1 (-1.72%)

Indian Hotels Company share price

733.05
03:51 PM | 8 NOV 2024
49.45 (7.23%)

Ashok Leyland share price

222.00
03:59 PM | 8 NOV 2024
6.2 (2.87%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Aarti Industries share price

474.75
03:59 PM | 8 NOV 2024
-40.3 (-7.82%)

Signatureglobal India share price

1,274.45
03:29 PM | 8 NOV 2024
-107.95 (-7.81%)

Great Eastern Shipping Company share price

1,200.50
03:29 PM | 8 NOV 2024
-90.45 (-7.01%)

GMM Pfaudler share price

1,282.90
03:29 PM | 8 NOV 2024
-92 (-6.69%)
More from Top Losers

Indian Hotels Company share price

733.05
03:51 PM | 8 NOV 2024
49.45 (7.23%)

Vijaya Diagnostic Centre share price

1,098.90
03:29 PM | 8 NOV 2024
71.45 (6.95%)

Motilal Oswal Financial Services share price

996.05
03:59 PM | 8 NOV 2024
61.85 (6.62%)

One 97 Communications share price

848.15
03:58 PM | 8 NOV 2024
52.35 (6.58%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    79,375.000.00
    Chennai
    79,381.000.00
    Delhi
    79,533.000.00
    Kolkata
    79,385.000.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.92/L0.00
    Chennai
    100.80/L0.00
    Kolkata
    104.95/L0.00
    New Delhi
    94.77/L0.00

    Popular in Markets

      HomeMarketsPremiumInstant LoanMint Shorts