Revving up! Ashok Leyland - Motilal Oswal

12 November 2012 

Initiating Coverage | Sector: Automobile 

Ashok Leyland 

Jinesh Gandhi (Jinesh@MotilalOswal.com) + 91 22 3982 5416 

Chirag Jain (Chirag.Jain@MotilalOswal.com) + 91 22 3982 5418 

Revving up!


Ashok Leyland: Revving up! 

Page No. 

Summary ............................................................................................................ 3 

CV cycle bottoming out, expect recovery in FY14 ....................................... 4-7 

Expect Ashok Leyland to recover lost ground ........................................... 7-11 

JV with Nissan for LCVs to plug gaps in product portfolio ...................... 12-14 

Other JVs/investments also promising ..................................................... 15-16 

Auxiliary businesses, exports to lower earnings cyclicality..................... 17-18 

Pantnagar ramp-up, operating leverage to support margins ................ 19-21 

2QFY13: Strong performance with EBITDA margin of 10.1% ........................22 

Initiate coverage with Buy rating ............................................................. 23-25 

Snapshot of operating and financial indicators ...................................... 26-27 

Financials and valuation ........................................................................... 28-29 

Investors are advised to refer through disclosures made at the end of the Research Report. 


2

BSE SENSEX 

S&P CNX 

18,684 5,686 

Initiating Coverage | 12 November 2012 

Sector: Automobiles 


CMP: INR24 TP: INR32 Buy 

Revving up! 

CV cycle to recover in FY14; AL offers best play 

Bloomberg 

AL IN 

Equity Shares (m) 2,660.7 

52-Week Range 33/20 

1,6,12 Rel. Perf. (%) 8/-19/-17 

M.Cap. (INR b) 64 

M.Cap. (USD b) 1.2 

Financial summary (INR b) 

Y/E March 2012 2013E 2014E 

Net Income 128.4 139.2 161.6 

EBITDA 12.6 13.9 16.6 

Adj. EPS (INR) 2.1 2.1 2.8 

EPS Gr. (%) -10.3 -0.9 31.4 

BV/Sh. (INR) 15.8 16.8 18.1 

P/E (x) 11.3 11.4 8.7 

P/BV (x) 1.5 1.4 1.3 

EV/EBITDA (x) 7.3 7.4 6.1 

Div. Payout (%) 47 47 45 

Div. Yield (%) 4.1 4.1 5.2 

RoE (%) 13.4 12.6 15.3 

RoCE (%) 12.5 12.1 13.6 

Prices as on 9 November 2012 

Shareholding pattern (%) 

As on Sep-12 Jun-12 Sep-11 

Promoter 38.61 38.61 38.61 

Dom. Inst 14.23 14.05 15.32 

Foreign 29.24 30.14 30.55 

Others 17.92 17.19 15.51 

Stock performance (1 year) 

• CV cycle to bottom-out in FY13 and witness sharp recovery in FY14, driven by expected 

monetary easing and resultant pick-up in the industrial activity. 

• Ashok Leyland's volumes would be supported by demand pick-up in South India, new 

launches, and Dost ramp-up. Higher utilization at Pantnagar coupled with better 

operating leverage would support margins; Dost would contribute meaningfully to 

overall profits. 

• Estimate EPS growth of ~31% CAGR in FY14-15 driven by volume growth of 16%. RoE to 

bottom-out in FY13 and improve 270bp in FY14. Also, it trades at very attractive yield 

of over 4%. Initiate coverage with a Buy rating and a target price of INR32. 

CV cycle bottoming out, expect recovery in FY14: Expected monetary easing to 

drive pick-up in the industrial activity, with estimated growth of ~5.3% in IIP in 

FY14 v/s ~1.4% in FY13. Improvement in infrastructure activity coupled withbetter 

outlook in agriculture outlook (driven by late recovery in monsoon) augurs well 

for CV demand. CV volumes for the Industry are estimated to grow at 14% in 

FY14, with 12% M&HCV volumes and LCV volumes growing 15%. AL's volumes are 

estimated to grow 16.5% in FY14, with 12% M&HCV volume growth and ~29% 

volume growth of Dost. 

JV with Nissan for LCVs to plug gap in product portfolio: The launch of LCV Dost by 

the AL-Nissan JV plugs the gap in AL's product portfolio and marks its entry into 

the high growth LCV segment. Initially, Dost is being manufactured and marketed 

using AL's existing infrastructure, for which it gets manufacturing and marketing 

margins. The JV plans to launch two more LCVs, Stile and Partner, with overall 

intent to launch one product every six months. While Dost would have an adverse 

impact on margins, it would contribute 14%/11% to profits. 

Pantnagar ramp-up, operating leverage to support margins, offset weak pricing 

power: Operating leverage and ramp-up at the excise/income tax exempt 

Pantnagar plant would offset the impact of higher discounts and increase in 

contribution from Dost (margin dilutive, but EBITDA accretive). We expect EBITDA 

margin to improve by 20bp in FY13 to 10% and by 30bp in 10.3% in FY14.Softening 

commodity prices could drive up margins (not yet factored in our estimates). 

Initiate coverage with Buy rating: AL's operating and stock performance is highly 

correlated with M&HCV volumes. Expected improvement in M&HCV outlook for 

FY14 augurs well for AL, driving 31% EPS CAGR in FY14-15 and supporting higher 

dividend payout. AL, being pure play and second largest CV player in India, is the 

best bet to play expected improvement in CV cycle. The stock currently trades at 

8.7x FY13E EPS of INR2.8, an EV of 6.1x FY14E EBITDA and attractive dividend yield 

of 4.1%. Initiate coverage with Buy rating and target price of INR32 (EV of ~7.5x 

FY14E EBITDA) - an upside of 34%. 


3


CV cycle bottoming out, expect recovery in FY14 

LCVs on secular growth path 

• Expected monetary easing to drive pick-up in the industrial activity, with estimated growth 

of ~5.3% in IIP in FY14 v/s ~1.4% in FY13. 

• Further, improvement in infrastructure activity coupled with improvement in agriculture 

outlook driven by late recovery monsoon augurs well for CV demand. 

• Improvement in freight availability to drive improvement in utilization and profitability 

for fleet operators, driving CV demand. 

• CV volumes estimated to grow at 14% in FY14, with 12% M&HCV volumes and LCV 

volumes growing 15% in FY14. 

IIP bottoming out, with recovery expected in FY14… 

Empirical evidence indicates high correlation between IIP growth and CV volume 

growth. Over FY03-12, IIP has grown at a CAGR of 8.2% against a CAGR of 18% for the 

CV sector. However, in FY12/FY13E, IIP growth was just 3.1%/1.4%, down sharply from 

5%+ in 1HFY12 and 8.2% in FY11. Both capital goods and intermediate goods de-grew 

4.1% and 1%, respectively. As a result, CV demand has been under pressure during 

FY12-13 with growth of just 1% CAGR over FY11-13 and ~5% de-growth in FY13E. 

However, we believe economic activity to bottom out in FY13 with GDP growth of 

5.8% and IIP growth of just ~1.4%. While monetary softening would boost industrial 

activity, recovery in monsoon would boost Rabi crop. As a result, our economist 

estimates FY14 to be year of recovery with GDP growth of 6.5%, led by 5.3% growth in 

Industry, 7.6% growth in Services and 3.6% growth in Agriculture. 

M&HCV growth correlated to IIP growth 

Our economist estimates 

GDP growth at 6.5% for 

FY14, translating into IIP 

growth of 5.3% 

Source: SIAM; *data prior to FY02 relates to calender year 

…driven by expected monetary easing 

To control inflation, RBI hiked interest rates seven times in CY11, aggregating 225bp, 

on top of a 150bp increase in CY10. Higher cost of borrowing led to ~200bp increase in 

auto financing rate in FY12. With ~85% of M&HCVs being purchased on finance (on an 

average), higher interest rates dented transporters' profitability, adversely impacting 

M&HCV sales. RBI initiated easing of monetary policy by implementing a 50bp rate 

cut in April 2012. In the recent Monetary Policy, RBI altered the stance to give priority 

to liquidity followed by revival of growth and then control of inflation. This contrasts 

with the last mentioned stance of end-July 2012 whereby inflation control was 

accorded highest priority, followed by growth and then liquidity. Further, its guidance 


4


indicates easing: The cut in CRR …"anticipates projected inflation trajectory which 

indicates a rise in inflation before easing in last quarter. While risks to this trajectory 

remain, the baseline scenario suggests a reasonable likelihood of further policy easing 

in the fourth quarter of 2012-13. The above policy guidance will, however, be 

conditioned by the evolving growth-inflation dynamic". Our economist believes that 

multiple headwinds to growth and easing inflationary pressures provide the necessary 

backdrop for RBI to continue its easing monetary policy stance. We expect at least 

another 50bp rate cut in FY13 (over and above 50bp cut in April 2012) along with other 

liquidity easing measures. 

HDFC Bank's Base rate has been lowered by 25bp 

RBI has guided 

for reasonable likelihood 

of rate-cut in 4QFY13, 

which would drive 

further reduction in 

lending rates for CVs 

Source: Company, MOSL 

Availability of freight - key to fleet operator profitability and CV demand 

Freight rates are a proxy for freight availability and act as a lead indicator for CV demand. 

Better freight availability leads to higher capacity utilization, which in turn provides 

fleet operators flexibility to pass on cost inflation and support his profitability. Lower 

freight availability has resulted in freight rate increase lagging cost inflation. Ownership/ 

operating costs have increased considerably due to a) hike in excise duty, b) higher 

interest rates, (c) increase in toll rates in certain routes, and (d) prices increase in diesel 

and tyres. However, fleet operators have been able to only partly pass-through cost 

inflation and that too only recent diesel cost increase. As a result, the profitability of 

fleet operators has shrunk of high levels, although still earning near average margins. 

This is reflected in ~12.5% de-growth in M&HCV volumes in 1HFY13. 

Freight rates have been lagging cost inflation (indexed) 

Source: TCI, MOSL 


5


Freight availability expected to improve as all 3 key drivers turning positive 

Freight availability, which is key driver for CV demand, is largely determined by 

industrial output, agricultural output, and infrastructure activity. These three 

parameters coupled with interest rates explain ~95% of CV demand. While FY13YTD 

has seen poor performance in all these 3 key drivers, we believe improvement in 

them over next 3-6 months driven by a) softening in interest rates aiding industrial 

activity and infrastructure, b) late recovery in monsoon benefitting Rabi crop and c) 

State elections in key states and General election in 2014 driving pre-election 

developmental work. 

Expected improvement 

in industrial activity, 

possibility of pick-up in 

infrastructure activity and 

late recovery in monsoon 

aiding agri output bodes 

well for improvement in 

freight availability 

While infrastructure projects, especially roads are witnessing several delays, recent 

drive from the government to set the investment cycle rolling will help resurrecting 

infrastructure projects. With exclusive focus on infrastructure, the government is 

planning to set-up National Investment Board-a body to approve and speed up stalled 

infrastructure projects. While the increased focus on infrastructure and road 

development augurs well for demand for tippers, improved road infrastructure 

enhances traffic movement and drives a shift towards higher tonnage vehicles. 

Lastly, progressive reduction in rainfall deficit, has improved kharif sowing (hough 

still below normal) and improved the prospects for the rabi crop. Further, the 

agriculture ministry is targeting average 4% growth in the 12th 5 year Plan as against 

3.3% in the 11th Plan, which augurs well for CV demand from the agriculture sector. 

CV cycle bottoming out, expect sharp recovery in FY14 

We expect macroeconomic headwinds to persist in short term, resulting in continued 

pressure on M&HCV demand in the short term. While M&HCV volumes declined 12.5% 

in 1HFY13, we expect FY13 de-growth of ~5%. Our recent channel checks indicate that 

inventory is under control. However, expected monetary easing and resultant pickup 

in the economic activity would drive better freight availability. This coupled with 

under control inventory augurs well for M&HCV demand. We expect M&HCVs to grow 

-5%/12% and LCVs to grow 15%/15% in FY13/14, leading to overall CV growth of 6%/ 

14%. Anecdotal evidence suggests that recovery in M&HCV volumes are sharp, 

providing positive surprise to our FY14 estimates. 

M&HCV volumes to grow at 13.5% CAGR over FY13-FY15 

LCV volumes to grow at 15% CAGR over FY13-FY15 



6


Expect Ashok Leyland to recover lost ground 

To outperform M&HCV industry; Dost to help gain share in LCVs 

• In FY12, AL lost 250bp market share, primarily led by slowdown in South India, its largest 

market. With activity levels picking up in the region, it is likely to recover its lost share. 

• Volumes will be further boosted by four new launches in the M&HCV segment (scheduled 

for 2HFY13) and the ramp-up of Dost. 

• We expect volumes to grow ~21% CAGR over FY12-14 led by ramp-up of Dost to 45,000 

units in FY14 and 5% CAGR in M&HCV volumes. M&HCV volume growth will be largely 

back-ended, driven by easing in monetary policy and new launches kick in from 2HFY13. 

• For AL, the management has guided 2-3% growth in M&HCV volumes and sale of ~36,000 

units of Dost in FY13, indicating total volume growth of 30% (v/s our estimate of 25%). 

While the management 

has guided 2-3% growth 

in M&HCV volumes in 

FY13, we have built in 

2.5% de-growth 

To outperform M&CHV industry in FY13 

We expect AL's M&HCV volumes to de-grow ~2.5% in FY13, against 5% de-growth for 

the M&HCV industry. In FY12, AL's M&HCV volumes had grown 1.1%, against industry 

volume growth of ~7.2%, primarily led by slowdown in its largest market of South 

India. Its market share declined 250bp to ~23.3% in FY12. With activity levels picking 

up in South India, we expect AL to recover some of its lost market share. 

We expect AL's overall volumes to grow 25% in FY13, led by ramp-up of Dost to 35,000 

units and 2.5% de-growth in M&HCVs. The management has guided total volumes of 

~132,000 (30% growth) in FY13, led by ramp-up of Dost volumes to 36,000 units, 2-3% 

growth in its domestic M&HCV volumes and export volumes of ~10,000 units (v/s 

~12,850 units). While M&HCV volume recovery is likely to be largely back-ended, 

driven by easing in monetary policy and new launches kick in from 2HFY13. 

AL has outperformed M&HCV industry in FY13YTD 

AL to partly recover lost market share in FY13, despite 

increasing competitive pressure 

Source: SIAM, MOSL 


7


Revival of demand in South India to drive market share gain 

In FY12, AL lost 250bp market share, primarily due to slowdown in South India, its 

largest market. It is the dominant player in South India, holding ~51% market share. In 

FY12, volumes in South India were impacted by elections in Tamil Nadu, political 

uncertainty in Andhra Pradesh and ban on mining in Karnataka. Moreover, the impact 

was higher in segments where AL has greater exposure. Industry volumes for MAVs 

fell 17% in South India, while remaining flat across the country. The 4x2 haulage 

segment also de-grew by 15% in South India. 

AL: Trend in market share (region-wise) 


Recovery in South India 

led to AL's market share 

recovery to ~25.7% in 

2QFY13 

AL has indicated that activity levels have already begun picking up in South India, 

resulting in improvement in overall market share to 25.7% in 2QFY13, as against 23.3% 

in FY12. Also, the Supreme Court has partially lifted the ban on iron ore mining in 

Karnataka by allowing re-start of mining up to 25mtpa in the Bellary region and up to 

5mtpa in the Tumkur and Chitradurga regions. Our Metals & Mining team believes 

that it would take 4-6 months for mining to re-start in the region. We expect 

incremental volumes from South India to largely kick in from 2HFY13, resulting in 

partial recovery of lost market share. 

Four new M&HCV launches in 2HFY13 to support volume growth 

AL has lined up four new M&HCV launches for 2HFY13. It plans to introduce a) Next 

gen ICV vehicle, b) 10x2 30T vehicle (5 axle), c) Jan Bus (world's first front engine 

single-step flat floor bus), d) Neptune engine tipper, and e) 2-3 variants to Stallion 

vehicle on defense side. Also, it plans to launch Avia fleet of trucks in India, which are 

already operational in European markets. It currently manufactures the Avia range of 

vehicles at its Prague plant, especially for European markets. In addition to the Prague 

plant, it will also manufacture Avia trucks at its Pantnagar plant. Besides this, the 

company is also planning to launch Neptune engines. We expect these launches to 

support volumes in 2HFY13 and beyond. 


8


10x2: India’s first 5 axle rigid truck Jan Bus - first bus with front engine 

U-3723 H - India's first 37-tonne haulage truck Avia Truck - to be manufactured at Pantnagar 

Dost has already 

garnered ~31% market 

share in its segment 

DOST - 2.5 ton LCV, from AL's JV with Nissan 


Dost - a meaningful contributor to volumes 

While AL holds ~25% market share in M&HCVs, it remains a small player in the LCV 

segment, with just 1.7% market share in FY12. However, its LCV market share will 

increase in FY13, led by the benefit of full year volumes and further ramp-up of its 

2.5-tonne LCV, Dost (produced in JV with Nissan). 

Dost, launched in September 2011, has shown good traction in the LCV segment, 

gaining ~21% market share in the 2-3.5 tonne segment. Moreover, it enjoys 31% market 

share in the eight markets where it was launched. The company currently has two 

months' order book for the vehicle, with greater demand for the higher end models. 

It has increased production of Dost to 100 per day and expects to sell 36,000 units in 

FY13. We model Dost volumes to ramp up to 35,000 in FY13 and 45,000 in FY14. 

Ramp up of DOST volumes 



9


Export markets to boost volumes 

AL exports mainly to SAARC countries and the Middle East, and has a low presence in 

Latin America. Its export volumes grew 25% in FY12, led by exports to Sri Lanka, 

Bangladesh and Kenya, where growth remains strong. Overall, the management has 

guided export de-growth in FY13 to 10,000 units due to sluggiesh demand from its key 

markets viz Sri Lanka and Bangladesh. We estimate AL's export to grow by ~26% CAGR 

over FY13-15, albeit on low base of FY13 (22% de-growth). 

A:'s exports to grow at 26% CAGR over FY13-15 

Trend in AL market mix 


Volumes to grow at 17% CAGR over FY13-15, led by Dost ramp-up 

We expect AL's overall volumes to grow at 17% CAGR over FY13-15, primarily led by 

ramp-up of its LCV, Dost. Our estimates factor in Dost volumes of 35,000 in FY13 and 

40,000 in FY14. We expect M&HCV volumes to grow at 13.5% CAGR over FY13-15. 

LCV's contribution 

estimated to grow to 

~32% by FY15 from 

~1% in FY11 

Ashok Leyland - Revenue Model 

units FY09 FY10 FY11 FY12 FY13E FY14E FY15E 

Commercial Vehicles 

M&HCV passenger (nos) 19,746 18,479 25,226 25,843 25,197 28,221 32,454 

Growth (%) (11.3) (6.4) 36.5 2.4 (2.5) 12.0 15.0 

% of total volumes 36.3 28.9 26.8 25.3 19.8 19.1 18.7 

M&HCV goods (nos) 33,362 44,345 68,010 67,443 65,757 73,648 84,695 

Growth (%) (44.6) 32.9 53.4 (0.8) (2.5) 12.0 15.0 


LCV (incl DOST) 1,323 1,097 870 8,704 36,111 46,200 56,320 

Growth (%) 61.1 (17.1) (20.7) 900.5 314.9 27.9 21.9 


Total Volumes (nos) 54,431 63,921 94,106 101,990 127,065 148,068 173,468 

Growth (%) (34.7) 17.4 47.2 8.4 24.6 16.5 17.2 

Mkt Sh (%) of CV 12.7 11.1 12.4 12.1 14.2 14.6 14.9 

Mkt Sh (%) of M&HCV 26.5 23.7 26.5 24.7 25.4 25.4 25.4 



10


Second largest M&HCV player with focus on heavy-duty segment 

Ashok Leyland (AL) is the second largest M&HCV player in India, with a focus on the 

heavy-duty segment. In FY12, its volume composition was as follows: trucks - 59%, 

buses - 20%, LCVs - 8%, and exports - 13%. 

M&HCV: Market share concentrated among two players 

Market share trend in LCVs 

(%) 

FY12: Domestic M&HCV contributes ~60% to volumes 

AL: Higher contribution of heavy duty vehicles in M&HCV 



11


JV with Nissan for LCVs to plug gaps in product portfolio 

Dost ramping up; planning two more launches 

• Launch of LCV, Dost by the AL-Nissan JV plugs the gap in AL's product portfolio and marks 

its entry into the high-growth LCV segment. 

• Initially, Dost is being manufactured and marketed by leveraging AL's existing infrastructure, 

for which AL gets manufacturing and marketing margins. 

• Post Dost, the JV plans to launch two more LCVs, Stile and Partner, with overall intent to 

launch one product every six months. 

Dost launch plugs gap in product portfolio; enters secular growth LCV 

segment 

Dost, launched in September 2011, has received encouraging response, gaining ~21% 

market share in the 2-3.5 tonne segment. Moreover, it enjoys 31% market share in the 

eight markets where it has been launched. The company currently has two months' 

order book for the vehicle, with greater demand for the higher-end models. It has 

increased production of Dost to 100 per day and expects to sell 36,000 units in FY13 

and over 50,000 in FY14. We model Dost volumes to ramp up to 35,000 in FY13 and 

45,000 in FY14. 

AL's market share in LCV 

segment estimated to 

improve to ~10% by FY15 

based on ramp-up 

of just Dost 

While AL holds ~25% market share in M&HCVs, it was a small player in the fast growing 

LCV segment, with just 1.7% market share in FY12. We believe this JV plugs gaps in 

AL's product portfolio, as LCVs are expected to grow at a faster rate due to high 

acceptance of the hub-and-spoke model of logistics. We expect AL's LCV market share 

to increase to ~8.2% in FY13 and to ~9.1% by FY14, led by ramp-up of Dost. Our estimates 

doesn't factor in for any meaningful contribution from other new launches. 

DOST to drive AL's market share improvement in LCV segment (%) 



12


JV currently leveraging AL's manufacturing and marketing set-up… 

AL entered into three JVs with Nissan for technology development, vehicle 

manufacturing and powertrain manufacturing. Due to the economic slowdown, the 

JV modified its manufacturing strategy to optimize investment, leverage surplus 

capacities available with its partners and make use of available incentives. AL contract 

manufactures Dost at its Hosur plant and also distributes it. 

The marketing of Dost is structured so as to optimize the sales tax benefit available to 

the JV. All sales within Tamil Nadu are done by the JV through AL's marketing network. 

Outside Tamil Nadu, sales are done directly by AL. As a result, only sales outside Tamil 

Nadu reflect in AL's revenue and cost; for sales within Tamil Nadu, AL only books 

marketing fees (part of other operating income) in its P&L. 

JV leverages on AL's manufacturing and distribution network 

Marketing of Dost is 

structured to optimize 

the sales tax benefit 

available to the JV 


…for which AL gets well compensated 

AL gets compensated for manufacturing and marketing Dost. While the exact 

compensation is not known, the management indicated that it would be earning 

INR15,000-18,000/unit of Dost on marketing (for all sales). We estimate contract 

manufacturing margins of ~INR25,000/unit. The management has indicated that Dost 

profitability is comparable with Tata Ace, which is over 20%. We expect AL to earn 11- 

12% margins for manufacturing and marketing, while the JV retaining ~10% margins. 

Effectively, Nissan (~50% stake in the JV) would be earning ~5% EBITDA margin on 

Dost, which can be attributed to 'royalty' for technology provided. The management 

expects cash breakeven for the JV at ~50,000 units i.e in 1.5 years. We are not factoring 

for this JV, though we include AL's gains from manufacturing and distribution. 


13


Dost - AL well compensated for leveraging its manufacturing, brand and marketing assets 


Dost - first of four launches planned by the JV 

Dost is one of the four new launches planned by the JV. It plans to launch new vehicles 

every six months over the next 18 months. It would be launching two more LCVs, Stile 

and Partner, apart from a CNG and passenger variant of Dost. Stile, a multi-functional 

vehicle based on Nissan's MPV Evalia, would be launched in 2HFY13. Partner, a 6.5- 

tonne LCV, would be launched in FY14. While Partner would be manufactured at AL's 

Hosur plant, Stile (along with Evalia) will be manufactured at Nissan's plant at 

Oragadam, Chennai. Eventually, the JV plans to have its own manufacturing plant in 

Tamil Nadu. Total investment planned is INR41.5b, with phase-I investment at INR20b 

over FY13-15 (including INR2b invested in FY12) for setting-up ~190,000 units capacity. 

AL plans further equity investment of INR3.5b in the JV in FY13. 

The plant, which JV would be setting-up, would enjoy VAT incentive for sales within 

Tamil Nadu - in form of 14 year interest free sales tax loans. The management expects 

this incentive to be ~INR15,000/unit and is expected to be INR750m-1b annually on 

full ramp-up of the plant (not factored in). 

Stile based on Nissan Evalia 

Partner LCV is based on Nissan Capstar 



14


Other JVs/investments also promising 

Expect contribution from FY14 

• AL's has entered into multiple joint ventures to diversify its portfolio, with JVs with 

Nissan Motors for LCVs and John-Deere for construction equipments already operational. 

• Further, it has also entered into smaller but niche JVs viz Irizar TVS JV (for coach building), 

Alteams (for high pressure die cast aluminium castings), Continental (for automotive 

infotronics) and investment in Albonair GmbH (for development of vehicle emission 

treatment / control systems). 

• While these JVs would not contribute meaningfully by FY13, we believe they have 

potential to contribute and reduce cyclicality of CVs business in long term. 

JV with John-Deere for construction equipment 

AL entered into a 50:50 JV with John-Deere (JD) to make and market construction 

equipment in India. The JV commenced production in November 2010 and sold ~221 

back-hoe loaders in FY12. It manufactures backhoes, four-wheel drive loaders and 

excavators. The range will subsequently be expanded to include other construction 

equipment. The range will complement AL's CVs used in the construction business, 

underscoring the synergy that exists between the two segments. 

The JV has a 48-acre manufacturing facility at Gummidipoondi near Chennai. JD is a 

leading construction equipment manufacturer and the JV will have access to JD's 

range of construction equipment. The JV will pool AL's expertise in the Indian 

automobile sector, its supply chain and marketing & distribution strength, and JD's 

technical knowhow and experience in the construction equipment business. The 

management expects this JV to achieve cash breakeven in two years. 

Breakup of Construction Equipment industry 

Segment break-up in Earth moving equipments 

Equipment Contribution (%) 

Earth Moving Equipment 57 

Material Handling 13 

Tunneling and Drilling for mining 12 

Road construction equipment 7 

Concrete equipment 6 

Concrete preparation 5 



15


JV with Alteams OY for aluminum castings 

AL entered into a JV with Alteams OY, which will cater to a growing market for high 

pressure die-cast aluminum castings for applications in automobile and telecom 

equipment. The state-of-the-art manufacturing facility at Cheyyar, near Kanchipuram 

(Tamil Nadu) was inaugurated in FY10. It has begun supplies, meeting stringent 

requirements of customers in both the segments. 

JV with Continental AG for automobile infotronics 

AL formed a JV with Continental AG, which will focus on opportunities for automobile 

infotronics. Vehicle electronics are expected to play an increasingly important role in 

CVs, making them economical, safer and cleaner. The JV focuses on developing 

innovative solutions in vehicle electronic systems, such as instrument cluster 

applications, cockpit electronics and body control units for CVs and special vehicles. 

The JV started operations in FY10 and has been developing products and providing 

engineering services support to Continental AG. 

JV with Albonair GmbH for vehicle emission treatment 

Albonair GmbH, AL's associate company, is focused on the development of vehicle 

emission treatment and control systems and products. Albonair (India) was 

incorporated in FY10 to cater to emerging markets in China and India. It has developed 

the complete solution for Selective Catalytic Reduction (SCR) and Urea Dosing System 

(UDS) conforming to Euro 4, 5 and 6 emission standards for commercial as well as 

passenger vehicles. 

Optare Plc (subsidiary) - low floor bus specialist 

AL invested USD11.5m to acquire 75.1% stake in Optare, UK, for access to technology, 

product development and to gain entry into newer markets (especially Europe). Optare 

pioneered low floor double-decker buses in UK. It is also known for its innovative, 

weight optimized 'low carbon' range of low-floor mid-size buses as well as a modern 

range of city buses. Its new electric bus has already secured several orders, as more 

countries in Europe are promoting cleaner, greener mobility. AL's long-term objective 

is not only upgrading it to world class standards but also to produce these high-end 

buses at the Indian plants, giving it a significant price advantage. 

Performance of JVs under pressure being in ramp-up mode 

FY11 

FY12 

INR m Income Exp Profit Income Exp Profit 

AL Nissan Vehicles 21 31 -11 1,135 1,306 -171 

Nissan AL Powertrain 12 15 -3 309 356 -46 

Nissan AL Technologies 1 103 -102 172 331 -158 

AL JD Construction Eqpt 1 46 -45 201 493 -293 

Ashley Alteams India 470 577 -107 607 714 -107 

Automotive Infotronics 28 5 22 29 58 -28 

Total 532 778 -246 2,453 3,256 -803 

Source: Company/MOSL 


16


Auxiliary businesses, exports to lower earnings cyclicality 

Sales of spares, defense kits, engines less cyclical 

• To counter the cyclical nature of the M&HCV business, AL is focusing on enhancing 

contribution from businesses like LCVs, spares, defense kits and power solutions. 

• Sales of spare parts, including the sale of defense kits and customized vehicles to the 

defense factory in Jabalpur, comprise ~13.4% of revenue and are likely to post 18.6% 

CAGR over FY12-14. 

• Also, ramp-up in nascent exports would help offset the cyclicality in domestic business. 

Sales of spares, defense kits, engines less cyclical 

AL sells spare parts, including defense kits and customized vehicles to the defense 

factory in Jabalpur. This includes sales of Stallion trucks, Topchi tractors and buses. 

The spare parts segment comprised ~13.4% of revenue in FY12 (26% CAGR over FY07- 

12), and is likely to post 18.6% CAGR over FY12-14. AL also sells engines/gensets for 

commercial and industrial applications. However, its engine volumes contracted ~9% 

in FY11 and ~7% in FY12, led by slowdown in sales to the telecom sector. Despite 

lower volumes, revenue from engine and genset sales grew 2% in FY12, driven by 

higher realization. Engine and genset sales now contribute ~2.7% to total revenue. 

We expect the engine segment to post 14.7% CAGR over FY12-14, driven by business 

re-structuring, with reducing contribution from the telecom sector. 

Revenues from its LCV, Dost are likely to contribute meaningfully from FY13, led by 

ramp-up of volumes. We expect Dost to account for 7% of AL's net revenues in FY13 

and 7.7% in FY14. 

Trend in spare part and defence sales (INRm) 

Revenue contibution from LCV DOST 

Trend in Engine Volumes (units) Trend in Engine sales (INR m) 


17


Ramp-up in exports to help counter domestic cyclicality 

Export potential provides opportunity to supplement growth and offset the cyclicality 

in the domestic M&HCV segment. Exports contributed ~12% to AL's FY12 revenue and 

should grow consistently, as AL enters new markets beyond the existing SAARC and 

Middle East countries. 

AL is targeting five regions - West Asia, Africa, CIS, Asean and Latin America - to either 

export to or start local operations. It has appointed Mr Per Gustav Nilsson from German 

truck-maker MAN as Executive Director, International Operations, to spearhead its 

export strategy. AL can either export from India or leverage on its existing international 

subsidiaries like Optare (for buses) and Avia (for trucks). 

AL's Ras-Al-Khaimah based bus assembly plant, with initial capacity of 2,000 buses, 

will improve its footprint in the GCC and African markets. This plant will initially be a 

bus assembly unit and will later be upgraded to a vehicle assembly plant (trucks and 

buses). Also, the new U-truck series, powered by H series (160-230 HP) and Neptune 

engine (up to 380 HP), will give a fillip to truck exports, as they offer higher power/ 

tonnage ratio. The management has guided for exports to de-growth to 10,000 units 

in FY13 as its key markets viz Sri Lanka and Bangladesh remains weak. However, 

management expects the share of exports to rise to 15% over the next 2-3 years. 

Export contribution to increase gradually 



18


Pantnagar ramp-up, operating leverage to support 

margins 

Pricing power, though, likely to remain weak 

• Operating leverage and ramp-up at excise/income tax exempt Pantnagar plant would 

offset the impact of higher discounts and increase in contribution from Dost. 

• Though ramp-up of Dost would have an adverse impact on EBITDA margin, it would 

contribute 14%/11% to PAT. 

• We expect EBITDA margin to improve 20bp/30bp in FY13/FY14 to 10%/10.3%. The 

management has guided EBITDA margin of 10% in FY13. 

• Softening in commodity prices could drive up margins (not yet factored in our estimates). 

Pantnagar plant enjoys fiscal benefits… 

AL's Pantnagar plant, which enjoys fiscal incentives, became operational in FY10, 

with initial installed capacity of 50,000 vehicles (on a two-shift basis). Capacity can be 

increased to 75,000 units on a three-shift basis. Ramp-up at this plant was slow, with 

29,000 units produced in FY12. While it has ramped-up production to a quarterly runrate 

of 10,000 units, due to slowdown in volumes we estimate Pantnagar's FY13 

production at 32,000 units (v/s management guidance of 40,000 units). As a result, we 

estimate Pantnagar's volume contribution (ex Dost) to increase from ~31% in FY12 to 

~35% in FY13 and ~37% in FY14. 

Production ramp-up at Pantnagar 


…further boosted by increase in excise duty 

Post the 2% excise duty increase in the 2012 budget, the excise benefit for the 

Pantnagar plant has increased to ~INR59,000/vehicle (net of excise on components). 

This coupled with benefit of operating leverage translates to ~60bp contribution to 

overall EBITDA margin in FY13, as Pantnagar would enjoy ~170bp higher margin. 

Inclusive of income tax savings, the overall benefit from Pantnagar amounts to 

~INR74,950/unit in FY13. 


19


Savings due to fiscal incentives at Pantnagar (INR/Unit) 

Ramp-up at Panatnagar to drive margins 

Trend in excise duty 

Pantnagar plant: Income statement 

FY12E FY13E FY14E 

Volumes (units) 29,000 32,000 38,000 

Net sales (INR m) 41,102 47,784 57,744 

Net realn (INR / unit)* 1,417 1,493 1,520 

EBITDA (INR m) 3,721 5,303 6,808 

EBITDA margins (%) 9.1 11.1 11.8 

EBITDA (INR / unit)* 128 165 179 

PAT (INR m) 2,696 4,216 5,608 

PAT (INR / unit) 92,961 131,745 147,577 

Growth (%) 707.8 41.7 12.0 

(*'000) 


Pricing power likely to remain weak 

Weak economic outlook coupled with declining freight rates signals muted outlook 

for the industry. The slowdown has become more pronounced over the last couple of 

months. To induce demand, incumbents are offering higher discounts. Pricing power 

of the incumbents is likely to remain weak in the short term, as demand outlook 

remains muted. We expect AL's EBITDA margin to improve by 20bp/30bp in FY13/FY14 

to 10%/10.3%. 

Dost - margin dilutive but EBITDA accretive 

The marketing of Dost is structured so as to optimize the sales tax benefit available to 

the JV. All sales within Tamil Nadu are done by the JV through AL's marketing network. 

Outside Tamil Nadu, sales are done directly by AL. As a result, only sales outside Tamil 

Nadu reflect in AL's revenue and cost; for sales within Tamil Nadu, AL only books 

marketing fees (part of other operating income) in its P&L. While Dost is margindilutive 

(due to inflated RM cost), it would be EBITDA and PAT accretive, with 

contribution of 7%/6% at EBITDA and 14%/11% at PAT level in FY13/FY14. 


20


Revenue contibution from LCV DOST 

A meaningful contributor to profits 


Softening in commodity prices to drive margins 

In USD terms, international prices of key commodities used in automobile production 

have corrected by 5-15% QoQ in 2QFY13 (after factoring in for INR depreciation).Our 

estimates do not factor in any RM cost savings. Further correction in commodity prices 

(or INR strengthening) would provide upside risk to our EBITDA margin estimates of 

10%/10.3% for FY13/FY14. 

Trend in commodity cost (indexed) 



21


2QFY13: Strong performance with EBITDA margin of 10.1% (+210bp QoQ) 

Ashok Leyland's 2QFY13 performance was above consensus estimates. Favorable 

export mix (higher buses) and higher export realizations (INR depreciation) off-set 

increase in discounts. This coupled with cost control and Fx gain leads to EBITDA 

margins improvement of 210bps QoQ (-50bp YoY) at 10.1%. Key highlights include: 

• Volumes grew by 27%YoY (+9% QoQ) at 29,840 units. Realizations improved 1% 

QoQ (-16% YoY) despite product mix change in favor of LCV DOST and higher 

discounts due to competitive pressures & demand slowdown. Realizations 

increased QoQ due to a) better mix in exports (with higher buses), b) higher 

export realizations (INR depreciation) and c) 37% growth in spare parts sales. 

Hence, Net sales grew 6% YoY (+10% QoQ) to INR33b. 

• EBITDA margins improved by 210bp QoQ (-50bp YoY) to 10.1%, benefitting from 

better export mix and higher export realizations. Also, cost control (lower power 

cost & advertisement), operating leverage and MTM Fx gain (~INR120m) also 

supported margins. Further lower tax boosted PAT to INR1.43b, a decline of 8% 

YoY (+113% QoQ). 

• Gross Debt has increased to ~INR43b v/s INR32.6b as of Mar-12, impacted by 

increase in working capital to ~INR13.5b v/s INR6.9b (seasonal increase). 

• Earnings call highlights: 1) Management expects domestic MHCV industry to 

decline by 5-10% in FY13. 2) AL's MHCV volume guidance reduced to 93k units for 

FY13 (v/s earlier guidance of 103k units), flat YoY. 3) Guidance for Dost and Pantnagar 

volumes increased to 36k units (v/s earlier 32k units) and 40k units (v/s earlier 30k 

units) respectively, 5) Margin guidance maintained at 10% for FY13, 6) Expects 

competitive intensity to unchanged, 7) Increased capex (incl investment) guidance 

to ~INR13b (from ~INR8b earlier), and 8) Focus on working capital reduction 

remains (~INR7b reduction in 2QFY13). 


22


Initiate coverage with Buy rating 

Target price of INR32 implies 34% upside 

• AL's operating and stock performance is highly correlated with M&HCV volumes. Expected 

improvement in M&HCV outlook for FY14 augurs well for AL. 

• Upcycle to drive 31% EPS CAGR over FY14-15, supporting higher dividend payout. 

• AL, being pure play and second largest CV player in India, is the best bet to play expected 

improvement in CV cycle. 

• Key risks: (a) Significant capex restricting balance sheet deleveraging, (b) faster than 

expected inroads by new players, and (c) equity dilution. 

• Initiate coverage with Buy rating and target price of INR32 (EV of ~7.5x FY14E EBITDA). 

Outlook for M&HCV expected to improve, auguring well for AL 

AL's operating and stock performance is highly correlated with M&HCV volumes. 

Expected monetary easing would drive pick-up in the industrial activity, with estimated 

growth of ~5.3% in IIP in FY14 v/s ~1.4% in FY13. Further, improvement in infrastructure 

activity coupled with improvement in agriculture outlook driven by late recovery 

monsoon augurs well for CV demand. Improvement in freight availability would drive 

improvement in utilization and profitability for fleet operators, driving CV demand. 

CV volumes estimated to grow at 14% in FY14, with 12% M&HCV volumes and LCV 

volumes growing 15% in FY14. We expect AL to outperform the domestic M&HCV 

industry in FY13-14, its operating and stock performance would be driven by the 

outlook for the domestic M&HCV industry - which we believe has bottomed out and 

would witness recovery. AL, being pure play and second largest CV player in India, is 

the best bet to play expected improvement in CV cycle. 

AL's stock performance highly correlated with its M&HCV volumes 


Upcycle to drive 31% EPS CAGR in FY14-15, supporting high dividend payout 

Based on our expectation of recovery in M&HCV cycle, we estimate 12% M&HCV 

volume growth and ~29% growth in Dost volumes for AL. This coupled with benign 

commodity prices and volume led operating leverage would drive EBITDA margin 

expansion of 30bp in FY14 and drive ~31% EPS growth to ~INR2.8. We expect high 

dividend payout to be maintained at ~45% (~INR1.25/share). 


23


Initiate coverage with a Buy rating and target price of INR32 

The stock currently trades at 8.7x FY13E EPS of INR2.8, an EV of 6.1x FY14E EBITDA and 

attractive dividend yield of 4.1%. We initiate coverage with a Buy rating and target 

price of INR32, implying an upside of 34%. We have valued the company at an EV of 

7.5x FY14E EBITDA, which is in line to its 10-year average multiple of 7.4x. We believe 

FY14 is going to be beginning of the upcyle and hence we believe there is scope of 

further re-rating in the stock. Key risks: (a) Significant capex restricting balance sheet 

deleveraging, (b) faster than expected inroads by new players, and (c) equity dilution. 

Ashok Leyland EV/EBITDA band 

Ashok Leyland PE band 

Sensitivity analysis for FY14 M&HCV volumes 

Volume M&HCV EBITDA EPS FCF PE EV/EBITDA RoE TP @ 7x 

growth (%) Volumes Margins (INR) (INR B) (x) (x) (%) EV/EBITDA 

('000 units) (INR) 

-10 87,402 9.3 1.8 13.2 13.2 7.5 10.7 23.4 

0 93,977 9.8 2.3 13.6 10.7 6.8 12.9 27.5 

5 97,265 10.0 2.5 13.8 9.8 6.5 13.9 29.5 

12 101,868 10.3 2.8 14.0 8.7 6.1 15.3 32.3 

15 103,841 10.4 2.9 14.1 8.3 6.0 15.9 33.5 

20 107,129 10.6 3.1 14.3 7.7 5.7 16.9 35.5 

30 113,705 10.9 3.5 14.6 6.8 5.3 18.8 39.6 

Based on our volume estimates 



24


Key Risks 

Significant capex plans to restrict balance sheet improvement 

It has increased its capex/investment plan to ~INR13b for FY13 (v/s INR8b earlier), 

with capex of ~INR6.5b and investment of INR6.5b in subsidiaries and JVs. It would be 

financing these investments through mixture of debt (~Rs7b) and internal accruals. 

This would restrict possible balance sheet improvement, though we estimate cash 

flow from operations at INR8.8b in FY13 and INR15.5b in FY14. 

We estimate net debt to increase to INR42.5b in FY14 (v/s INR32.3b in FY12 and INR43.7b 

in FY13), implying net-debt-to-equity of 0.9x. These investments would begin to add 

value from FY15. While the board has approved raising of INR7.5b through equity 

issuance, there are no immediate plans of equity issuance. 

Intensifying competition could materially alter duopoly structure 

The domestic M&HCV industry has witnessed the entry/resurgence of players like 

Bharat Benz, Mahindra Navistar, Volvo Eicher, MAN Trucks, etc. In the medium term, 

we do not expect any meaningful change in the competitive landscape, as new 

entrants work towards overcoming entry barriers in the form of servicing network, 

and relevant and cost competitive product portfolio. 

However, in the long run, we see a risk to the existing duopoly structure of the industry, 

especially as the domestic M&HCV industry evolves, driven by factors like shift towards 

higher tonnage vehicles, focus on uptime/total cost of ownership, regulatory 

requirement-driven technology change, etc. 


25


Snapshot of operating and financial indicators 

Ashok Leyland - Revenue Model 

FY09 FY10 FY11 FY12 FY13E FY14E FY15E 

Commercial Vehicles 

M&HCV passenger (nos) 19,746 18,479 25,226 25,843 25,197 28,221 32,454 

Growth (%) (11.3) (6.4) 36.5 2.4 (2.5) 12.0 15.0 


M&HCV goods (nos) 33,362 44,345 68,010 67,443 65,757 73,648 84,695 

Growth (%) (44.6) 32.9 53.4 (0.8) (2.5) 12.0 15.0 


LCV (incl DOST) 1,323 1,097 870 8,704 36,111 46,200 56,320 

Growth (%) 61.1 (17.1) (20.7) 900.5 314.9 27.9 21.9 


Total Volumes (nos) 54,431 63,921 94,106 101,990 127,065 148,068 173,468 

Growth (%) (34.7) 17.4 47.2 8.4 24.6 16.5 17.2 

Mkt Sh (%) of CV 12.7 11.1 12.4 12.1 14.2 14.6 14.9 

Mkt Sh (%) of M&HCV 26.5 23.7 26.5 24.7 25.4 25.4 25.4 

Vehicle Sales (INR m) 55,195 67,456 108,365 118,462 124,622 143,656 169,254 

% of total sales 81.6 84.3 88.4 85.1 83.0 83.3 84.3 

Engines & Spares 

Volumes (nos) 21,447 19,050 17,643 16,432 18,897 20,786 21,826 

Growth (%) 82.4 (11.2) (7.4) (6.9) 15.0 10.0 5.0 

Engine Sales (INR m) 4,423 3,688 3,558 3,492 4,136 4,596 4,874 

% of total sales 6.5 4.6 2.9 2.5 2.8 2.7 2.4 

Spare & Others (INR m) 7,997 8,851 10,613 17,175 21,469 24,152 26,567 

% of total sales 11.8 11.1 8.7 12.3 14.3 14.0 13.2 

Total Sales (INR m) 67,615 79,994 122,536 139,129 150,227 172,404 200,695 

Growth (%) (25.9) 18.3 53.2 13.5 8.0 14.8 16.4 


Realizations declined due to contribution of DOST 

Trend in Revenue-mix 



26


Trend in EBITDA margins 

PAT estimated to grow ~31% CAGR over FY13-15 

Significant capex plans (including investments in JV) to restrict FCF generation and balance sheet deleveraging (INR b) 

Capital efficiency set to improve 

AL: consistent track record of high dividend payout 



27


Financials and Valuation 

Income Statement 

(INR Million) 

Y/E March 2010 2011 2012 2013E 2014E 2015E 

Net Sales 72,447 111,771 128,420 139,232 161,566 190,726 

Change (%) 21.1 54.3 14.9 8.4 16.0 18.0 

Total Income 72,447 111,771 128,420 139,232 161,566 190,726 

Expenditure 64,819 99,634 115,859 125,365 144,962 171,504 

EBITDA 7,628 12,137 12,561 13,867 16,604 19,222 

% of Net Sales 10.5 10.9 9.8 10.0 10.3 10.1 

Depreciation 2,041 2,674 3,528 3,943 4,299 4,490 

EBIT 5,587 9,463 9,033 9,925 12,305 14,731 

Interest & Fin. Charges 811 1,889 2,553 3,646 4,036 3,851 

Other Income 704 445 404 560 720 900 

PBT 5,448 8,018 6,900 6,839 8,989 11,780 

Tax 1,211 1,705 1,240 1,231 1,618 2,120 

Effective Rate (%) 22.2 21.3 18.0 18.0 18.0 18.0 

Rep. PAT 4,237 6,313 5,660 5,608 7,371 9,660 

Change (%) 108.2 49.0 -10.3 -0.9 31.4 31.1 

Adjusted PAT 4,262 6,313 5,647 5,608 7,371 9,660 

Change (%) 109.5 48.1 -10.6 -0.7 31.4 31.1 

Balance Sheet 

(INR Million) 

Y/E March 2010 2011 2012 2013E 2014E 2015E 

Share Capital 1,330 1,330 2,661 2,661 2,661 2,661 

Reserves 35,357 38,299 39,421 41,937 45,443 50,466 

Net Worth 36,688 39,630 42,082 44,598 48,104 53,126 

Loans 22,039 26,733 32,630 44,130 43,130 40,130 

Deferred Tax Liability 4,611 4,439 4,904 5,246 5,695 6,284 

Capital Employed 63,213 70,802 79,657 94,015 96,971 99,582 

Gross Fixed Assets 60,186 66,919 72,564 82,046 86,546 89,546 

Less: Depreciation 17,691 20,581 23,429 27,372 31,671 36,161 

Net Fixed Assets 42,496 46,338 49,135 54,675 54,875 53,385 

Capital WIP 5,615 3,580 5,482 2,500 2,000 3,000 

Investments 3,262 12,300 15,345 22,345 24,845 24,845 

Curr.Assets, L & Adv. 41,397 43,716 49,195 55,924 63,601 75,505 

Inventory 16,382 22,089 22,306 24,795 28,772 33,965 

Sundry Debtors 10,221 11,645 12,302 14,495 15,493 18,289 

Cash & Bank Balances 5,189 1,795 326 422 524 1,043 

Loans & Advances 9,605 8,186 14,261 16,212 18,812 22,208 

Current Liab. & Prov. 29,608 35,131 39,501 41,428 48,351 57,153 

Sundry Creditors 23,317 23,085 27,725 28,609 33,199 39,190 

Other Liabilities 2,604 7,092 6,807 7,629 8,853 10,451 

Provisions 3,687 4,954 4,969 5,190 6,299 7,512 

Net Current Assets 11,789 8,584 9,695 14,496 15,250 18,352 

Application of Funds 63,213 70,802 79,657 94,015 96,971 99,582 

E: MOSL Estimates 


28


Financials and Valuation 

Ratios 

Y/E March 2010 2011 2012 2013E 2014E 2015E 

Basic (INR) 

EPS Fully Diluted 1.6 2.4 2.1 2.1 2.8 3.6 

EPS Growth (%) 108.2 49.0 -10.3 -0.9 31.4 31.1 

Cash EPS 2.4 3.4 3.4 3.6 4.4 5.3 

Book Value per Share 13.8 14.9 15.8 16.8 18.1 20.0 

DPS 0.7 1.0 1.0 1.0 1.3 1.5 

Payout (Excl. Div. Tax) % 47.1 42.1 47.0 47.4 45.1 41.3 

Valuation (x) 

P/E 11.3 11.4 8.7 6.6 

Cash P/E 7.0 6.7 5.5 4.5 

EV/EBITDA 7.3 7.4 6.1 5.1 

Price to Book Value 1.5 1.4 1.3 1.2 

Dividend Yield (%) 4.1 4.1 5.2 6.2 

Profitability Ratios (%) 

RoE 11.6 15.9 13.4 12.6 15.3 18.2 

RoCE 10.5 14.8 12.5 12.1 13.6 15.9 

Turnover Ratios 

Debtors (Days) 51 38 35 38 35 35 

Inventory (Days) 83 72 63 65 65 65 

Creditors (Days) 117 75 79 75 75 75 

Fixed-Asset Turnover (x) 1.7 2.4 2.6 2.5 2.9 3.6 

Leverage Ratio 

Debt/Equity (x) 0.6 0.7 0.8 1.0 0.9 0.8 

Cash flow Statement 

(INR Million) 

Y/E March 2010 2011 2012 2013E 2014E 2015E 

OP/(Loss) before Tax 5,448 8,018 9,033 9,925 12,305 14,731 

Interest/Dividends Received 387 139 404 560 720 900 

Depreciation & Amortisation 2,041 2,674 3,528 3,943 4,299 4,490 

Direct Taxes Paid -893 -1,503 -775 -889 -1,169 -1,531 

(Inc)/Dec in Working Capital 4,339 -4,914 -2,580 -4,705 -653 -2,582 

CF after EO Items 11,289 6,053 9,625 8,834 15,503 16,008 

(Inc)/Dec in FA+CWIP -6,844 -3,501 -5,645 -6,500 -4,000 -4,000 

(Pur)/Sale of Invest. -1,375 -5,816 -3,045 -7,000 -2,500 0 

CF from Inv. Activity -8,219 -9,317 -8,690 -13,500 -6,500 -4,000 

Issue of Shares 0 0 1,330 0 0 0 

Inc/(Dec) in Debt 4,247 3,733 5,897 11,500 -1,000 -3,000 

Interest Rec./(Paid) -1,458 -1,542 -2,553 -3,646 -4,036 -3,851 

Dividends Paid -1,556 -2,327 -3,092 -3,092 -3,865 -4,638 

CF from Fin. Activity 1,233 -136 1,582 4,762 -8,900 -11,488 

Inc/(Dec) in Cash 4,303 -3,400 2,517 96 102 519 

Add: Beginning Balance 851 5,155 1,755 4,272 4,368 4,470 

Closing Balance 5,155 1,755 4,272 4,368 4,470 4,989 

E: MOSL Estimates 


29

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institutional investors and will be engaged in only with major institutional investors. 

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, Marco 

Polo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account. 

Motilal Oswal Securities Ltd 

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025 

Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com

Revving up! Ashok Leyland - Motilal Oswal

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