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Ashok Leyland Q4FY22 Review: Stellar performance, EBITDA margins come in at 11 quarter high!

ICICI Securities 20 May 2022

What’s Buzzing

Ashok Leyland (ALL) reported a stellar performance in Q4FY22 and was a handsome beat to our estimates. Sequential jump in EBITDA margins to the tune of ~490 bps at 8.9% was a key positive surprise for the quarter. It was primarily driven by lower than anticipated gross margin decline and operating leverage benefits with volumes for the quarter up healthy 43% QoQ at 48,719 units.

Context

Standalone total operating income for Q4FY22 came in at Rs 8,744 crore (up 58% QoQ). ASPs for the quarter came in at Rs 17.9 lakh/unit, up 10.5% QoQ amid increased share of M&HCV volumes in the total sales volume mix (~66% in Q4FY22 vs. ~57% in Q3FY22). EBITDA for the quarter came in at Rs 776 crore with corresponding margins at 8.9%, up 490 bps QoQ. Gross margin decline was limited to ~30 bps QoQ but significant operating leverage benefits were realised across both employee costs as well as other expenses. Consequent reported profit after tax was at Rs 901.4 crore. PAT for the quarter was supported by exceptional one-time gains of Rs 470.3 crore (reversal of impairment charge for one of the subsidiaries). Adjusted PAT for the quarter was at Rs 477 crore, still significantly higher than our estimates.

Our Perspective

Ashok Leyland (ALL) is a pure-play CV manufacturer domestically, with FY22 market share at 16.4%. The company is present in M&HCV trucks and buses as well as LCV goods segments with FY22 product mix as: LCV goods 42%, trucks 51% and buses 6% and total sales volume for FY22 at 1.28 lakh units, up 27% YoY. Another key highlight from the results was the significant cash generation from business. ALL generated CFO amounting to ~Rs 2,650 crore for FY22 with FCF at ~Rs 2,150 crore and net debt as of FY22 end now at ~Rs 720 crore. With a cyclical recovery under way in the domestic commercial vehicle space amid greater infrastructure spend by the government as well as revival in private capex cycle, the demand prospect for the company look robust. The company is also at the forefront of electrification though its subsidiary Switch Mobility and is one of the key contestants in domestic tenders for electric buses by various state transport undertakings. Key monitorables, going forward, for the company include sustenance of healthy operating margin trajectory, fund raise at Switch Mobility to take care of funding requirement of this new age business and volume growth at its base business given the pick-up in economic activity as well as opening of schools and colleges.

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