30th January 2017

De-monetisation impact will be temporary. Q3FY17 revenue grew by 8%YoY to Rs4723cr on the back of 9%YoY volume growth in M&HCV units‟ sales. Revenue from M&HCV (Medium & Heavy Commercial Vehicle) accounts for 80% of AL‟s volume is likely to get impacted due to temporary slowdown in the logistics operator‟s business model. AL‟s management is confident on pre buying happening in Feb-Mar with BS-IV implementation from April 2017. We are keeping our volume estimate unchanged with M&HCV volume CAGR 13% over FY17-19E. Rising defense mix and after market mix expected to cushion margin partly in FY18 against raw material inflation. Direct beneficiary on demand recovery M&HCV industry has shown improvement after a gap of three years led by the government initiatives towards de-bottlenecking the stalled infra projects. AL, the largest supplier of logistic vehicles to Indian Army (5% of revenue), will see higher traction from the new defence procurement policy. AL‟s 100% Acquisition on its 3 JV with Nissan Corporation of the LCV business will give positive impetus for the business and also allowing to use the Nissan technology on a 1% royalty basis for 5 years. We expect the AL‟s revenue to grow at 14% CAGR over FY17-19E by factoring 12% volume growth in our estimate for the same period.

Export volume to pick up… AL continues to increase its market share by expanding its distribution network and increasing its global footprints. During 1HFY17 M&HCV export have grown by 24% and expect to register 30% growth by FY17. AL plans to improve its export market share through new launches in electric variant.

ValuationsConsidering the near term headwinds on earning due to demonetisation and higher raw material price we lower our FY18E revenue & PAT estimates by 4.1% & 5.7% respectively. We roll over our valuation to FY19E EPS and value at a P/E 17x with a revised target price of Rs102 and downgrade our rating from Buy to Accumulate.

RETAIL EQUITY RESEARCH

Ashok Leyland Ltd Rating as per Large Cap 12months investment period Auto – Commercial Vehicle

BSE CODE:500477 NSE CODE: ASHOKLEY CMP Rs92 TARGET Rs102 RETURN 11%

Bloomberg CODE: AL IN SENSEX: 27,882

Company Data

Market Cap (cr) Rs26,324

Enterprise Value (cr) Rs26,524

Outstanding Shares (cr) 285

Free Float 50%

Dividend Yield 1.2%

52 week high Rs113

52 week low Rs74

6m average volume (cr) 0.13

Beta 1.1

Face value Rs1

Shareholding % Q1FY17 Q2FY17 Q3FY17

Promoters 50.4 50.4 50.4

FII‟s 28.0 26.6 25.0

MFs/Insti 8.2 7.4 8.9

Public 10.1 11.8 11.9

Others 3.3 3.8 3.8

Total 100.0 100.0 100.0

Price Performance 3mth 6mth 1 Year

Absolute Return 2.5% -3.1% 4.9%

Absolute Sensex -0.2% -0.6% 13.9%

Relative Return* 2.7% -2.5% -9.1% *over or under performance to benchmark index

Y.E Mar (Rs cr) FY17E FY18E FY19E

Sales 19,286 22,004 25,012

Growth (%) 2.5 14.1 13.7

EBITDA 1,998 2,402 2,907

Margin (%) 10.4 10.9 11.6

PAT Adj 1,053 1,364 1,696

Growth (%) (5.3) 29.6 24.4

Adj.EPS 3.7 4.8 6.0

Growth (%) (2.5) 29.6 24.4

P/E 25.0 19.3 15.5

P/B 2.1 1.8 1.5

EV/EBITDA 13.3 11.0 9.1

RoE (%) 18.0 20.5 21.6

D/E 0.1 0.1 0.1

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AL Sensex Rebased

GEOJIT Research Q3FY17 RESULT UPDATE

Accumulate

Demand Scenario in FY18E is key... Ashok Leyland (AL) is the second largest commercial vehicle (CV) manufacturer in India. It has a strong presence in the M&HCV (Medium & Heavy Commercial Vehicle) segment with a domestic market share of ~32.7% as on FY16.

Q3FY17 revenue grew by 8%YoY on the back of a 9%YoY growth in M&HCV unit’s sales. Adj PAT grew by 13.2%YoY.

EBITDA margin declined by 130bpsYoY due to rising raw material cost and discounting owing to demonetization impact.

We marginally lower our revenue & PAT estimate for FY18 by 4.1% & 5.7% respectively.

We expect AL’s revenue to grow at 10% CAGR over FY16-19E along with the implementation of the BS-IV emission norms by FY17.

We roll over our valuation to FY19E EPS and value at a P/E 17x with revised target price of Rs102 and downgrade from Buy to Accumulate.

Saji John Analyst

Quarterly Financials (Standalone) Profit & Loss Account

(Rs cr) Q3FY17 Q3FY16 YoY Growth (%) Q2FY17 QoQ Growth (%)

Sales 4,431 4,114 7.7 4,622 (4.1)

EBITDA 454 449 0.6 537 (13.9)

EBITDA Margin (%) 10.3 10.9 (60bps) 11.6 (130bps)

Depreciation 119 119 - 126 (5.6)

EBIT 335 330 1.5 410 (18.3)

Interest 31 60 (48.0) 34 (8.8)

Other Income 301 270 11.5 377 (20.2)

Exceptional Items - - - -

PBT 264 293 (9.9) 415 (36.4)

Tax 78 79 (1.3) 120 (35.0)

Reported PAT 186 214 (13.0) 294 (36.9)

Adjustment 63.7 6.7 - (6.6) -

Adj PAT 250 220 13.2 288 (13.3)

No. of shares (cr) 285 285 285

EPS (Rs) 0.9 0.8 13.2 1.0 (13.3)

Change in Estimates

Old estimates New estimates Change %

Year / Rs cr FY17E FY18E FY17E FY18E FY17E FY18E

Revenue 19,619 22,954 19,286 22,004 (1.7) (4.1)

EBITDA 2,099 2,631 1,998 2,402 (4.8) (8.7)

Margins (%) 10.7 11.5 10.4 10.9 (30bps) (60bps)

PAT 1,083 1,452 1,053 1,364 (2.7) (5.7)

EPS 3.8 5.1 3.7 4.8 (2.7) (5.7)

Standalone Financials Profit & Loss Account

Y.E March (Rs cr) FY15A FY16A FY17E FY18E FY19E

Sales 13562 18822 19286 22004 25012

% change 36.4 38.8 2.5 14.1 13.7

EBITDA 1027 2166 1998 2402 2907

% change 516.4 111.0 (7.8) 20.2 21.0

Depreciation 416 444 492 470 506

EBIT 610 1722 1506 1931 2401

Interest 394 274 148 123 105

Other Income 124 110 174 220 250

PBT 217 1449 1358 1801 2282

% change (584.8) 164.4 26.1 37.1 25.3

Tax 107 447 479 657 836

Tax Rate (%) 0 0 0 0 0

Reported PAT 335 722 995 1364 1696

Adj* 101 -389 -57 0 0

Adj PAT 234 1111 1053 1369 1696

% change - 375.1 (5.3) 29.6 24.4

No. of shares (cr) 285 285 285 285 285

Adj EPS (Rs) 1 4 3.7 4.8 6.0

% change -145.9 375.1 (5.3) 29.6 24.6

DPS (Rs) 1 1 1 1 1

Cash flow

Y.E March (Rs cr) FY15A FY16A FY17E FY18E FY19E

Net inc. + Depn. 859 1,613 1,967 2,499 3,052

Non-cash adj. 263 631 155 133 130

Changes in W.C 695 (128) (198) (290) 66

C.F.O 1,767 1,676 1,444 1,685 2,413

Capital exp. (211) (147) (209) (550) (540)

Change in inv. 221 584 (250) (300) (300)

Other invest.CF 102 (,499) 0 0 0

C.F - investing 112 388 (459) (850) (840)

Issue of equity 667 0 0 0 0

Issue/repay debt (1,440) (784) (202) (300) (198)

Dividends paid (406) (450) (481) (456) (437)

Other finance.CF (872) (9,679) 0 0 0

C.F - Financing (1,179) (1,233) (683) (756) (635)

Chg. in cash 699 830 303 79 937

Closing cash 705 1,538 1,840 1,900 2,837

Balance Sheet

Y.E March (Rs cr) FY15A FY16A FY17E FY18E FY19E

Cash 705 1538 1820 1900 2837

Accounts Receivable 1258 1251 1215 1326 1508

Inventories 1399 1731 1876 1956 2198

Other Cur. Assets 374 161 185 241 274

Investments 4201 3576 3753 4156 4687

Gross Fixed Assets 8555 8747 8957 9467 9977

Net Fixed Assets 4882 4716 4499 4597 4654

CWIP 120 76 95 135 165

Intangible Assets 373 338 273 207 140

Def. Tax (Net) (510) (536) (543) (553) (578)

Other Assets 0 0 0 0 0

Total Assets 12801 12850 13173 13964 15883

Current Liabilities 1926 2131 2100 2164 2432

Provisions 335 647 528 603 685

Debt Funds 2593 1995 1793 1493 1295

Other Liabilities 2828 2563 2575 2496 2899

Equity Capital 285 285 285 285 285

Rsrvs and Surplus 4834 5230 5892 6923 8287

Shareholder‟s Fund 5119 5514 6177 7208 8572

Total Liabilities 12801 12850 13173 13964 15883

BVPS (Rs) 38 41 46 54 64

Ratios

Y.E March FY15A FY16A FY17E FY18E FY19E

Profitab. & Return

EBITDA margin (%) 7.6 11.5 10.4 10.9 11.6

EBIT margin (%) 4.5 9.2 7.8 8.7 9.5

Net profit mgn.(%) 1.7 5.9 5.5 6.2 6.8

ROE (%) 4.9 20.9 18.0 20.4 21.5

ROCE (%) 3.9 9.0 8.0 9.8 11.0

W.C & Liquidity

Receivables (days) 34.4 24.3 23.3 21.1 20.7

Inventory (days) 47.4 43.1 49.0 46.0 44.4

Payables (days) 66.4 55.8 57.5 51.2 49.1

Current ratio (x) 2.3 2.3 2.5 2.6 2.8

Quick ratio (x) 1.0 1.3 1.4 1.5 1.8

Turnover &Levg.

Gross asset T.O (x) 1.7 2.4 2.4 2.6 2.8

Total asset T.O (x) 1.1 1.5 1.5 1.6 1.7

Int. covge. ratio (x) 1.6 6.3 10.2 15.6 22.8

Adj. debt/equity (x) 0.2 0.2 0.1 0.1 0.1

Valuation ratios

EV/Sales (x) 2.0 1.4 1.4 1.2 1.1

EV/EBITDA (x) 25.9 12.2 13.3 11.0 9.1

P/E (x) 112.6 23.7 25.0 19.3 15.5

P/BV (x) 2.6 2.4 2.1 1.8 1.5

Recommendation Summary (last 3 years)

Dates Rating Target

22nd July 2016 Buy 116 1st December 2016 Buy 92 30th January 2017 Accumulate 102

General Disclosures and Disclaimers

CERTIFICATION

I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect my personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit BNP Paribas Financial Services Limited, hereinafter referred to as GBNPP.

COMPANY OVERVIEW

Geojit BNP Paribas Financial Services Limited (hereinafter GBNPP), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. GBNPP is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time.

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The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.

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GBNPP and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.

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We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the

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Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is 10% or more. Hold - Upside or downside is less than 10%. Reduce - Downside is 10% or more.

Buy - Upside is 15% or more. Accumulate* - Upside between 10% - 15%. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute „Accumulate‟ as Buy and „Reduce‟ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

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Further, the Analyst confirms that: (i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the

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(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not * received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company and is in receipt of compensation from the subject company.” (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report.

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