Ashok Leyland's Q4FY20 Results

Ashok Leyland group announces that 4QFY20 performance was better than expected, led by a better mix. While the FY21 outlook is unclear, expansion in LCVs would reduce the pain. Net debt is inching up, but stands comfortable. 

We lower our FY21/FY22E EPS by 96%/20% to factor low volumes, adverse operating leverage, and increased gearing. We maintain our Buy rating in anticipation of recovery 2HFY21 onward, it said in a statement.

Low volumes, op. deleverage lead net loss after 23 quarters

4QFY20 revenue/EBITDA declined ~57%/81% to ~INR38.4b/INR1.83b, with recurring loss of INR118m. FY20revenue/EBITDA/PAT declined 40%/63%/83%.

Volumes declined ~57% YoY (-18% QoQ) to ~25.5k units. Net realization improved 1.3% YoY (17% QoQ) to INR1,505k (est.: INR1,357k), led by a better mix and lower discounts.

As a result, gross margins improved~160bp YoY (+240bp QoQ) to 28.9% (est.: 27%). EBITDA margins declined ~630bp YoY (-80bp QoQ) to 4.8% (est.: 2.6%) due to higher staff cost and adverse operating leverage.

EBITDA declined ~81% YoY (-19% QoQ) to INR1.83b (est.: INR0.88b). This, coupled with higher depreciation / interest cost, resulted in recurring loss of ~INR118m (est.: loss of INR379m).

Highlights from management commentry

-ICDs: These are only given to group companies and are callable/liquid. No incremental ICDs were reported in 1QFY21. The strategy of giving ICDs is to earn a 3–4pp spread on treasury.

-Capex: The major capex cycle is over for now, except M/CE capex. Investments in subs would be largely for Optare (UK-based bus manufacturer).

-With the AVTR launch (modular platform), AL is focusing on selling value to the consumer (best TCO due to best fluid economy) and not on discount selling.

-LCV under Project Phoenix would be launched in the next three months. Additional products in the LCV portfolio would give the dealer more headroom to grow in the existing product (Dost) itself.

-Net debt: This stood at INR20b as of Mar’20 v/s INR7.15b in cash in Mar’19. May’20-end net debt was at ~INR40b as the company completed payments to its vendors. Gross debt as of Mar’20 stood at INR31b.

-Cash burn of INR1.5–1.7b per month was witnessed in lockdown.

-Cost-cutting: A pan-company program was introduced for cutting cost in every aspect. Program K54-2 delivered savings of ~INR5.4b in FY20.