Ashok Leyland Share Price Up, Revenue Ahead Of Estimates
Posted: Nov 09, 2016
In a quarter when volumes are cowed, the earnings expectation also tends to be hushed. But, what came from Ashok Leyland, commercial vehicle maker, was a surprise and, hence, the Dalal Street rewarded its stock with 2.5% gain in Tuesday’s trade. Revenues at Rs 4,912 crores dipped by 7% year-on-year, but were way ahead of analysts estimates at Rs 4,507 crores.
What came as a major shock was the operating profit margin of 11.6%, despite a 14% year-on-year dip in operating profit in Q2. Albeit operating margins were lower than the year ago level of 12.6 %, it exceeded analysts estimates at 11 %. The shock primarily came on the back of a steep enhancement in gross margin.
Gross margins (net revenues less cost of goods sold) at 32 % expanded by 190 basis points in Q2, thanks to a 9.5 % decline in raw material costs. Overall, the net profit expanded from Rs 172 crores a year ago, to Rs 294 crores in Q2 (an improvement of 71 % YoY). However, last year’s net profit was dented because of impairment losses amounting to Rs 157 crores. Meanwhile, Ashok Leyland share price was trading at Rs.87.30 on the NSE.
One of the key reasons that could have come to Ashok Leyland’s rescue was the better-than-anticipated average selling price of commercial vehicles, stating that the recent price hike undertaken was yielding results. Price hike has also partly aided offset some of the pressure on account of lower volumes in the firm’s key segment. While the overall volumes declined by 10% year-on-year (YoY) to 33,440 units, sales volumes of medium and heavy commercial vehicles declined by 15% year-on-year (YoY) to 25,340 units in Q2, while that of light commercial vehicles grew 9% year-on-year to 8,100 units.
However, the question is whether Ashok Leyland can sustain the current margins?
An analyst said that margins are expected to be better in the second half of the fiscal as volumes are expected to pick-up leading to possibility of pre-buying in March quarter. However, he added, further clarity from the management was required to be sure on this aspect. The post-results call with the investors is to be held on Wednesday. But for now, with Q2 being better-than-anticipated, analysts are confident of a reasonable upside (8-12%) in the medium term for the stock if this performance is sustained in the third quarter (Q3) also. Ashok Leyland’s stock has corrected by 13% in the past 6 months.
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