After an improved showing in the September quarter with a surprise jump in margins, Ashok Leyland plans to maintain its profitability in the second half with a Ebidta margin target of 10%. The company posted a 210 bps sequential jump in margins to 10.1%. The company plans to do this by controlling its operating costs as well as improving volumes and benefitting from operating leverage.
On a sequential basis, the company managed to grow its volumes, revenues and realisations. This was on the back of a weak environment--- SIAM data released today show that M&HCV sales in the April to October period was down 14%. While volumes were up 8.2%, driven by light commercial vehicle Dost, revenues were up 10% and realisations by 1.3%. Higher realisations aided Ebidta margin growth by 210 basis. Better operating performance as well as higher other income and lower taxes helped improve net profit on a sequential basis by 113%. This was despite a spike in interest costs by 65% y-o-y and 24% sequentially. The company plans to bring down its working capital from Rs 1,700 crore to under Rs 1,000 crore by the end of FY13 and in the bargain bring down its interest costs.
The Street gave a thumbs up to the performance by pushing the stock up 6.64%. The stock has gained 13% since the start of the year and 25% since September.
The key reasons for the improvement in margins to due to favourable product mix and exchange rates, said K Sridharan, company’s CFO in an investor concall. Margins also improved as sales of spare parts which have better profitability moved up. Margins would have been higher but for the competitive pressures in the market which forced Ashok Leyland to increase its discounts by Rs 20,000 to Rs 80,000 per vehicle.
The company management expects a pick up in volumes in the second half especially in the March quarter. The company which improved its overall market share by 180 bps y-o-y in the September quarter expects to end the year with a 26% share. The company increased its market share in the M&HCV segment by 167 bps to 25.4%. The reason for the gain in market share has been higher product acceptance increase in touchpoints and aggressive expansion, appointment of new dealers in Karnataka and Maharashtra as well as brand ambassador MS Dhoni which together pushed up sales.
The sector however is likely to see growth in the -medium and heavy commercial vehicle fall by 8-10%. While M&HCV growth is weak, light commercial vehicle sales have been the savior in this segment with volumes growing 18% during the April to October period. As a consequence overall commercial vehicle growth registered during the period has been 4%.
