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Informist, Thursday, Oct. 24, 202

By Darshan Nakhwa 

MUMBAI – Ashok Leyland Ltd's financial performance in the September quarter is expected to have been weak due to a 9% on-year decline in wholesale volume and a flat average selling price, according to analysts. The commercial vehicle manufacturer's top line and operating profit for Jul-Sept are seen lower than in the year-ago period. It is also likely to see some pressure on the operating margin front due to lower share of high-margin medium and heavy commercial vehicles in overall sales, appraisal cost and negative operating leverage.

The Chennai-based company's revenue is seen at INR 88.24 billion in Jul-Sept, down 8% on year, according to the average of estimates from 12 brokerages. The projections for the top line by brokerages range from INR 84.72 billion by Nuvama Wealth Management Ltd to INR 90.32 billion by KR Choksey Research. 

Ashok Leyland's revenue is expected to decline on year, mainly due to lower volumes. Its overall dispatches, including domestic sales and exports, fell by 9% on year to 45,624 units in the September quarter. Of these, 42,314 commercial vehicles were sold in India and 3,310 units were exported. In the September quarter, the company dispatched a total of 28,180 medium and heavy commercial vehicles, down 12% on year. The segment contributed nearly 62% of the total sales. In the light commercial vehicle category, the company dispatched 17,444 units, down 2% on year. 

For the September quarter, the company's net profit is projected at INR 5.72 billion, up 2% on year, according to the average of estimates from 12 brokerages. The highest and the lowest estimates for the bottom line were INR 6.51 billion by Prabhudas Lilladher Pvt Ltd and INR 4.91 billion by Nuvama Wealth, respectively. 

The company's operating profit, or earnings before interest, taxes, depreciation, and amortisation, is seen at INR 9.83 billion in Jul-Sept, according to the average of estimates from 10 brokerages. The highest projection for EBITDA is INR 10.70 billion and the lowest is INR 9.09 billion. In Jul-Sept 2023, the company had reported an EBITDA of INR 10.80 billion.

On the profitability front, brokerages remained divided on how the company will perform in Jul-Sept. Anand Rathi Share and Stock Brokers Ltd, Kotak Institutional Equities, Nomura Equity Research, Elara Securities (India) Pvt Ltd, Nirmal Bang Equities Pvt Ltd, Nuvama Wealth, KR Choksey and Sharekhan Ltd expect the company's EBITDA margin to contract in the range of 10.6-11% from 11.2% in the year ago quarter. In comparison, Motilal Oswal Financial Services Ltd and Prabhudas Lilladher Pvt Ltd expect the company's EBITDA margin to expand to 11.6% and 12%, respectively. However, Axis Securities Ltd and Yes Securities (India) Ltd expect the company's EBITDA margin to be flat on year.

Kotak Institutional Equities expects Ashok Leyland's EBITDA margin to decline by 20 basis points on year due to a lower mix of medium and heavy commercial vehicles in overall sales and negative operating leverage. The impact of these factors will be partially offset by a decline in steel prices, cost reduction measures taken by the company, and higher non-auto mix. Brokerage firm Motilal Oswal expects the company's margin to improve by 40 bps on year due to moderation in input costs and healthy pricing discipline in the industry.

During the September quarter, Ashok Leyland's cost of raw materials consumed as a percentage of revenue is expected to decline to 72% from 73.5% a year ago and from 72.2% a quarter ago, Motilal Oswal said. Prices of aluminium, copper, and natural rubber rose 9-52% on year in Jul-Sept. However, prices of domestic and Chinese cold-rolled coil steel were down 5% and 20%, respectively. On a sequential basis, prices of domestic and Chinese cold-rolled coil steel, aluminium, lead, and copper declined 5.5-18.2%. However, prices of natural rubber spiked 20%, according to data from Kotak Institutional Equities. The impact of the change in prices of raw materials is usually reflected in the earnings of automakers, with a lag of a quarter.

On the net price realisation front, Ashok Leyland is unlikely to report any change on year due to a lower mix of medium and heavy trucks in total sales. While Motilal Oswal has projected the company's average selling price at INR 1.94 million per unit, YES Securities has estimated it at INR 1.95 million per unit.

On a sequential basis, the company is expected to report single-digit growth in key earnings parameters driven by a 4% increase in overall volumes. While its bottom line is likely to expand by 9% on quarter, EBITDA is seen up by 8%. The company's top line is likely to inch up by 3%, according to analysts. 

Ashok Leyland has not yet announced when it will detail its Jul-Sept earnings. Thursday, Ashok Leyland's shares closed 1.5% higher at INR 217.26 on the National Stock Exchange. The company's stock had gained nearly 14% since its June quarter earnings announcement to a 52-week high of INR 264.65 on Aug 27. The stock has since shed all its gains.

Following are the Jul-Sept earnings estimates for Ashok Leyland, in INR million, based on reports from 12 brokerages:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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