Top-line to report healthy CAGR of 10-12% over FY2011-13E: We expect Ashok Leyland (ALL) to report a healthy CAGR of 10-12% in revenues driven by 8-9% increase in volumes over FY2011-13E. Although the near term M&HCV demand momentum has witnessed a slight slowdown due to the macro-headwinds in the form of high interest rates, we expect the M&HCV segment to grow at a healthy CAGR of ~8% over FY2011-13E.
Pantnagar plant to provide respite on the margin front to certain extent: The new tax-free facility at Pantnagar is relatively more profitable, with profitability estimated at around ~25% higher than that of existing plants. Thus, EBITDA margins are expected to hold up in the range of 10% - 10.5% in FY2013E.
JV contribution yet to crystallize: ALL has entered into an agreement to form a JV with Nissan Motor Company for the development, manufacture and distribution of LCV products. As ALL has negligible presence in the LCV space, this partnership would be positive for ALL in the long run.
Outlook and Valuation: We estimate the company to clock EPS of `5 in FY2013E. At `52 ALL is trading at attractive valuations of 10.5x FY2013E EPS. We maintain our Buy rating with a target price of `60, valuing the stock at 12x FY2013E earnings.
Pantnagar plant to provide respite on the margin front to certain extent: The new tax-free facility at Pantnagar is relatively more profitable, with profitability estimated at around ~25% higher than that of existing plants. Thus, EBITDA margins are expected to hold up in the range of 10% - 10.5% in FY2013E.
JV contribution yet to crystallize: ALL has entered into an agreement to form a JV with Nissan Motor Company for the development, manufacture and distribution of LCV products. As ALL has negligible presence in the LCV space, this partnership would be positive for ALL in the long run.
Outlook and Valuation: We estimate the company to clock EPS of `5 in FY2013E. At `52 ALL is trading at attractive valuations of 10.5x FY2013E EPS. We maintain our Buy rating with a target price of `60, valuing the stock at 12x FY2013E earnings.
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