Revving up! Ashok Leyland - Motilal Oswal

Ashok Leyland
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
Source: Company, MOSL
12 November 2012
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