Ashok Leyland

CMP: | 130 Target: | 160 (23%) Target Period: 12 months

Ashok Leyland Limited is an India-based automotive and transport vehicle
company. The Company is engaged in the manufacture and sale of
commercial/passenger and defense vehicles and power solutions. It also
provides financial services relating to vehicle and housing financing.It Particulars
manufactures medium and heavy commercial vehicles, light commercial
Particular ₹ crore
vehicles, and power solution systems.Its commercial vehicles include vans,
Market Capitalization 38,052.4
lorries, over-the-road tractors for semitrailers. It provides a range of

Result Update
Total Debt (FY21P) 3,771.3
trucks, which include trippers, haulage, and tractors. It offers a range of
Cash & Inv. (FY21P) 823.0
power solution systems, which includes agricultural engines, diesel
EV (₹ Crore) 41,000.6
generators, industrial engines, and marine engines.It offers a range of
52 week H/L (₹) 143 / 52
defense vehicles, which includes ALS Driving Simulator, BMP
Equity capital (₹ crore) 293.6
COMPREHENSIVE UPGRADE, and BMP REPOWERING.It offers buses for
intercity, stage carrier, school and college and city. It also manufactures Face value (₹) 1.0
chassis fitted with engines for motor vehicles. Shareholding pattern
Sep-20 Dec-20 Mar-21 Jun-21
Promoter 51.5 51.5 51.5 51.5
Key triggers for future price performance: FII 14.6 16.3 18.1 17.0
• Set to be an outsized beneficiary of impending M&HCV revival riding on DII 17.6 17.6 16.7 18.2
government’s infra push and pickup in core industrial activity (mining,
Other 16.3 14.5 13.7 13.3
construction, road building). LCV to continue to gain from last mile mobility
Price Chart
• Blended ASPs to rise amid exports push in line with global top-10 vision
• Switch Mobility is targeting meaningful share of business from global EV
addressable market of ~US$70 billion (2030)

ICICI Securities – Retail Equity Research

• We build 28% volume & 38% net sales CAGR over FY21-23E; margins seen
rising to 10% levels by FY23E on the back of operating leverage benefits
and cost, cash, capex actions under Project Reset

5 year CAGR 2 year CAGR

Key Financials FY19 FY20 FY21P FY22E FY23E
(FY16-21P) (FY21P-23E)
Net Sales 29,055.0 17,467.5 15,301.5 -4.2% 22,084.3 28,984.9 37.6%
EBITDA 3,135.7 1,173.6 535.1 -25.0% 1,212.6 2,900.8 132.8%
EBITDA Margins (%) 10.8 6.7 3.5 5.5 10.0
Net Profit 1,983.2 239.5 (313.7) PL 129.8 1,364.9 LP
EPS (₹) 6.8 0.8 (1.1) 0.4 4.6
P/E 19.2 159.3 (121.6) 293.9 28.0
RoNW (%) 24.3 4.7 (4.4) 1.9 17.7
RoCE (%) 25.7 4.5 (1.9) 3.2 16.5
Management

Mr. Dheeraj G Hinduja

Executive Chairman
Mr. Dheeraj Gopichand Hinduja holds a B.Sc. (Hons) degree in Economics & History from the University
College, London, 1993. He has completed his Master’s in Business Administration with specialization in Project
Management from the Imperial College, London University, 1994.
Dheeraj is a third generation member of the Hinduja Family, which owns and controls the Hinduja
Group, with diversified business interests all over the world. Employing over 100,000 people, the Hinduja Group’s
portfolio includes businesses in Automotive, Energy, Infrastructure, Finance & Banking, IT & ITES, Media, Healthcare etc.
Dheeraj has over 20 years of experience at strategic and leadership levels across the spectrum of businesses

Mr. Gopal Mahadevan

Whole-time Director and Chief Financial Officer
Gopal Mahadevan is a Chartered Accountant and a Company Secretary with over 28 years’ experience in the Finance
function across a spectrum of industries.
Gopal has had extensive experience in manufacturing, internet services, financial services and project companies. During
his career, he has also been involved in restructuring and M&A. He has worked with renowned organizations like the
Thermax Ltd, Amara Raja Batteries Ltd, Sify, Sanmar Group and TTK Pharma.

Mr. Anuj Kathuria

Chief Operating Officer
Anuj Kathuria is a graduate in engineering from BITS, Sindri and an MBA from XLRI, Jamshedpur. He also has an advanced
management program (AMP) certification from the prestigious, Harvard Business School.
His illustrious career spanning over 28 years, is studded with diverse experience in the automotive industry covering sales
& marketing, manufacturing, sourcing and supply chain, mergers & acquisitions and program management. Before joining
Ashok Leyland, Anuj worked at Tata Motors, and Tata Daewoo, Korea. During his stint at Tata Motors he was the head of
the World Truck factory.

Dr. N Saravanan
President & Chief Technology Officer
Saravanan is a PhD in Mechanical Engineering and he earned his MBA from the University of Michigan, Ann Arbor.
Dr. Saravanan joined Ashok Leyland in 2005 in the Product Development function, after working for over a decade in the
USA at Ford Motor Company and Intel Corporation. He brings with him rich experience in Vehicle Engineering, Verification
and Validation.

SWOT Analysis
Strengths of Ashok Leyland
• Spare Parts: Ashok Leyland provides services like spare parts, which ensure their customers have additional
benefits for their vehicle maintenance, which increases the company’s sales.
• Bus Segment: Ashok Leyland for bus sales globally comes under 3rd position. Company buses sales most part comes
from State Transport Undertakings biddings because of this reason there is good growth in the company’s bus
business.
• Persistent Product Portfolio: The company’s significant revenue comes from medium and heavy commercial
vehicles like trucks, light commercial vehicles, and buses from export. Other than these segments, the company
supplies defensive vehicles to the Indian Army.
• Strong Manufacturing Capability: The strong manufacturing facilities of Ashok Leyland have spread all over India.
It also has amenities in the UK, Czech Republic, and the UAE. It helps the company to maintain economies of scale.

Weakness of Ashok Leyland

• Interest Rates on Loans: Ashok Leyland has its subsidiary ‘Hinduja Leyland Finance’ provide loans to their
customers. High interest rates lower commercial vehicle sales because people avoid buying big commercial
vehicles.
• Financial Analysis: Company borrowings have seen a significant increase from the financial year 2019 to 2020.
Company EBITDA faced a downfall due to a decrease in sales from 2019 to 2020 causing net profit to decrease.
• Market Share: Ashok Leyland strategy is straightforward. They stick to the same plan and do it very well, but
Ashok Leyland’s problem is that their market share is not as substantial as TATA Motors, so they need to improve
their market share. That is the first big thing.

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Opportunities for Ashok Leyland
• Economic Condition: Good economic conditions will increase the demand for goods and commercial vehicles
because commercial vehicles are used for transportation. Thus, Ashok Leyland has opportunities to increase its
sales.
• Capital Incentives: Ashok Leyland is a capital intensive company. They have to spend so much wealth for
expansion. Ten years forward, the company’s situation can become very strong.
• International Markets: Ashok Leyland must capture the global markets adequately. They do not have solid
international markets near borders. Once they start making their demands or making their needs strong at this
pace, their sales will increase rapidly.
• Electric Vehicles: Ashok Leyland company should start focussing on manufacturing electric vehicles because Delhi
Government has observed that in the next 6-7 years, public transports will be electric vehicles. If this happens,
Ashok Leyland will take a significant advantage because they are Delhi’s top-selling commercial and shared
vehicles. And that is how they will improve their books.

Threats for Ashok Leyland

• Economic Condition: The rise in diesel prices and lockdown due to Covid 19 affected India’s economy, which led
to a decrease in demand for goods and commercial vehicles and hence a decline in the growth of the retail sector.
• Government Norms Affecting Sales: In the financial year, 2020, a 54% drop in domestic sales was observed
because of an adverse effect due to changes in standards by the government, e.g. vehicles can increase load
capacity, so it also affects sales.
• Government Rules: According to government rules, companies need to follow BS6 emission norms which lead
Ashok Leyland to sell all their old BS4 vehicle inventories. Ashok Leyland offered significant discounts to sell their
BS4 stocks.
• Competitors: Tata motors has outstanding market shares in the truck, LCV and Bus segments in the domestic
market. Because of which the company Tata Motors give tough competition to Ashok Leyland.

Tata Motors Ltd is an automobile company that manufactures motor vehicles and operates in 160+ countries across
the world. It is engaged mainly in the business of automobile products comprising all types of commercial and
passenger vehicles including financing of the vehicles sold. Its business segments include automotive operations and
other non- automotive operations. Its automotive segment includes all activities related to the development, design,
manufacture, assembly and sale of vehicles including vehicle financing as well as sale of related parts and accessories.
It manufactures and sells passenger cars, utility vehicles, light commercial vehicles and medium and heavy commercial
vehicles. The non-automotive operations includes IT services, machine tools and factory automation services.

JLR (Jaguar Land Rover) is expected to outperform the industry, driven by a favorable product pipeline with six
launches planned over the next 12-15 months including three new rollouts (Velar, E-Pace and I-Pace), one upgrade
(Evoque) and two refreshes (RR and RR Sport). TML expects JLR’s retail sales to grow 10% in FY18 (v/s +4% in FY18
YTD and +16% in FY17). Its forex hedge losses are likely to start moderating substantially Q4FY18 onwards. Based on
the current spot rates, hedge losses for FY19 will be negligible.

JLR has revised its hedging policy from May 2017, with one-year forward hedging of up to 65% of net forex exposure
(v/s up to 85% hedge earlier). It plans to launch Jaguar I-Pace (full electric variant [EV]) by September 2018. It plans
to offer an EV (including hybrids) of each new JLR model line from 2020.

Competition is very high especially in the US market. This is fairly evident from the high incentives on premium sedans
compared to the relatively low incentives on SUVs. With several new products and refreshes of RR/RR Sport,
incentives are expected to start moderating from Q4FY18.

It expects EBIT margin of 6% in FY18, in line with our estimate and compared to 1.2% in Q1FY18, driven by
moderating incentives from Q4FY18, operating leverage and favorable forex. For the medium-term, it expects an EBIT
margin of 8-10%, in line with our estimate of 9.5% for FY19 and 8.8% for FY20. It targets cost savings of ~Rs.15 bn in
FY18, driving PAT breakeven in FY18. Our estimates for the domestic business do not factor in for this swift
turnaround in FY18. In fact, our current estimates indicate PAT breakeven in FY20.

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Eicher Motors (EML) is the market leader in the >250 cc premium motorcycle segment (FY21 market share at 93.5%) through its aspirational
models under the Royal Enfield (RE) brand, such as Bullet, Classic, Interceptor among others.

• Via its JV with Volvo i.e., VECV (EML has 54.4% stake), the company has a presence in the CV space as well (6.4% FY21 market share).
• Strong net cash positive b/s with healthy return ratios metrics

Q2FY22 Results: The company posted healthy Q2FY22 results that beat estimates.

• Consolidated revenues were at | 2,250 crore, up 13.9% QoQ

• Reported EBITDA margins came in at 20.9%, up 250 bps QoQ
• Consequent consolidated P A T was at | 373 crore, up 57.4% QoQ

Conclusion

While defence forms a small proportion of Ashok Leyland’s revenue (about 3%), it expects strong growth in this domain,
said Philip Capital analyst Dhawal Doshi and Nitesh Sharma in the report. In recent years, the company has launched new
products (including 10x10 trucks for carrying missiles, bullet-proof vehicles, mine-protected vehicles, mounted-gun
vehicles) that have started gaining good traction.
Its order book in this segment has been rising. The company sees its defence revenues growing by 10 times in the next five
years.
Apart from defence vehicles, it sees its exports and after-market sales segments where Ashok Leyland sees robust growth.
It has been seeing strong traction in exports and now dominates 60% share (up from 20%) in the Middle East; it is a leader
in Ukraine. To strengthen its export footprint, Ashok Leyland will set up a plant in Kenya and the Ivory Coast over the next
two years.