25 Jun , 2021 By : Kanchan Joshi
Ashok Leyland Ltd’s shares were up around 8% in early deals on the National Stock Exchange. Investors are visibly thrilled with the company’s March quarter results announced on Thursday night.
Margin performance has been encouraging, said analysts. During the March quarter, Ashok Leyland’s earnings before interest, tax, depreciation and amortization (Ebitda) margin expanded by around 240 basis points to 7.6% vis-à-vis the December quarter. One basis point is one-hundredth of a percentage point. This was helped by operating leverage benefits.
Commenting on the results, analysts from Jefferies India Pvt. Ltd said in their first cut note, “Ashok Leyland’s March quarter volumes grew 32% quarter-on-quarter while Ebitda rose 110% quarter-on-quarter — 18?ove Jefferies estimates." The broker added, “The Ebitda beat was driven by lower-than-expected staff costs, which fell 12% quarter-on-quarter despite higher volumes." Employee costs have declined by around 12% sequentially.
On the other hand, average selling prices increased by 10% sequentially. Even so, that wasn’t enough to protect gross margin as such, which contracted by 250 basis points versus the December quarter. This has led to gross-profit-per-vehicle staying flat on a quarter-on-quarter basis, said Jefferies analysts.
Overall, revenues have increased by 45% sequentially to Rs7000 crore. “Sequentially, over Q3FY21, MHCV truck volumes for Ashok Leyland have grown by 57% in Q4FY21 which was higher than the industry growth of 53%, thereby resulting in market share improvement of 0.8% (28.9% in Q4 versus 28.1% in Q3)," said the company in its press statement. MHCV refers to medium and heavy commercial vehicles. “This performance was backed by the successful AVTR range - India’s first modular truck platform which was launched in June 2020," said the company.
To be sure, the second covid wave does pose near-term challenges for Ashok Leyland.
Meanwhile, shares of Ashok Leyland have outperformed the broader Nifty 100 index substantially. “The stock trades at FY23E 9.7 times EV/Ebitda and 3.8 times price to book value," said Motilal Oswal Financial Services Ltd analysts in a report on 24 June. EV is short for enterprise value. The broker added, “For FY21, cash flow from operations declined to Rs21.1 crore (versus Rs940 crore), primarily due to the impact of the near-washout in 1HFY21 and an increase in working capital by about Rs430 crore."
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