Ashok Leyland: Buoyed by other incomes

ANALYSTS' CORNER

Motilal Oswal Securities, in its results update, recommends a "buy" on Ashok Leyland. The company's Q2 FY06 net profit grew by 69 per cent y-o-y to Rs 76.8 crore. This was aided by higher realisations, EBITDA margin expansion, higher other income and lower tax rate.

Net revenues grew at 37 per cent, driven by 19 per cent increase in volumes and 14 per cent growth in realisations. The company has significantly outperformed the market with a growth of 20 per cent as compared to the industry, which witnessed flat growth.

This resulted in its market share expanding by 530 bps. Structural factors for the CV industry are still inplace, but industry growth rates may decline, going forward, as volumes have nearly doubled in the last four years.

The company's volumes are to grow at 11 per cent CAGR over FY05-07E, marginally ahead of the CV industry growth rate. The company's focus on non-cyclical business segments and aggregate exports is expected to cushion domestic business cyclicality. The stock trades at 12.7x.

M&M: Profit on higher realisation

Enam Securities rates Mahindra & Mahindra as "outperformer", relative to the sector. The company declared revenues of Rs 1910 crore (23.2 per cent y-o-y growth), EBITDA of Rs 220 crore (17.1 per cent) and adjusted PAT of Rs 160 crore (28.4 per cent) during Q2 FY06.

EBITDA has been above expectation due to better realisation and steep reduction in staff cost. Margin expansion was led by higher gross realisation and lower employee cost.

Despite de-growth in the auto division, better product-mix in favour of CRDe Scorpio model assisted better realisation. Farm equipment segment witnessed a 33 per cent volume growth due to the cyclical uptrend, coupled with market share gains across the segments.

The auto division maintained margins while, farm equipment improved on a sequential basis. The latter improved on account of scale and productivity improvement at its Rudrapur plant. The stock trades at 13x FY07E standalone and 10x FY07E consolidated.

TVS: motorcycle segment aids growth

Enam Securities rates TVS Motors as "neutral", relative to sector: The company has declared revenues of Rs 790 crore (up 6.2 per cent y-o-y), EBITDA of Rs 45.9 crore (down 31.9 per cent) and adjusted PAT of Rs 32 crore (down 6.7 per cent) during Q2.

Strong growth from motorcycle segment aided topline growth. Within the motorcycle segment, Star has done extremely well at 50,000 units for September. Product-mix, coupled with reduction in the prices of Centra and Victor, has kept net realisations under check.

EBITDA margin dipped by 94 bps q-o-q, mainly due to increase in the marketing and advertising spend. Higher marketing and ad spend was on account of three new variants, launched during the year.

The biggest challenge for TVS, going forward, is to increase the market share without impacting its profitability. The report believes that the company will be able to capitalise on the success of its entry-level motorcycle, Star to regain its lost market share in the industry. The stock trades at 14x FY07E.