Ashok Leyland shares up 13% post Q1 nos; expects Q3 and Q4 to be better

Shares of Ashok Leyland continued to surge on Friday on the benchmark BSE. On Thursday, the stock was up 13 per cent and on Friday it rose by 3.44 per cent to Rs 63.15, before ending at Rs 61.55.

The development comes after the company said it expects the third quarter (Q3) and Q4 of 2020-21 (FY21) to be better, margins are expected to rise and Ashok Leyland will be much stronger when the market opens up, which analysts have also echoed.

The company reported a consolidated net loss of Rs 388.82 crore for the first quarter ended June 30 (Q1) as against a net profit of Rs 274.96 crore in Q1FY20.

With the pandemic hitting, this has been one of the most challenging quarters for the industry. Ashok Leyland saw a significant decline in volumes, said the firm’s Managing Director and Chief Executive Officer 

Vipin Sondhi.

The firm’s revenue from operations declined to Rs 1,486.04 crore in Q1 from Rs 6,588.23 crore, a year ago.

Volumes dropped by around 90 per cent YoY and 85 per cent sequentially to 3,800 units. Net realisation improved by 19 per cent YoY (13.3 per cent sequentially) thanks to the price hike because of the shift to BS-VI and better mix with non-vehicle sales contributing around 59 per cent to revenues (against the normal of 15 per cent). As a result, gross margin improved by 580 bp YoY to 35.9 per cent, according to a Motilal Oswal analysis.

 

 

Gopal Mahadevan, whole-time director and chief financial officer of the firm, said added this was an exceptional quarter for the entire economy.

“As we move out of the current financial year, I would say that we would see Ashok Leyland to be a much stronger, resilient, efficient company,” Mahadeven said, attributing the cost saving works to K54 project, which helped the company save around Rs 550 crore in FY20.

The company’s capacity utilisation stood at 30-35 per cent and Mahadevan said he was confident of producing around 10,000 BS-VI units in Q2.
 

Products from the new platform, code named ‘Phoenix’, will be rolled out in the next 60-90 days. Ashok Leyland plans to invest around Rs 500-600 crore of capex in FY21.

“We expect Q3 and Q4 to be better than previous quarters as infrastructure projects are picking up and many of the markets have started opening up,” said Mahadevan. Truck fleet capacity utilisation is now at 50-55 per cent, and demand will rise only when infrastructure projects pick up, said Mahadevan.

Emkay Global Financial Services analysts expect a gradual revival by the end of FY21, led by a low base, replacement demand and pick-up in economic activity.

Analysts at Motilal Oswal said the Q1 performance was supported by non-vehicle revenue, leading to better mix. While MHCV recovery is expected only in H2FY21, expansion in LCVs should reduce the pain.