Ashok Leyland Rating: Buy-Q4FY22 numbers were 6 ahead of expectations

We expected that the results of the AL would exceed the consensus assumptions. Q4FY22 EBITDA / margin 7.76 billion / 8.9% Nomura / 16/36% ahead of consensus estimate. Raw materials / sales came up 78.2%, + 33bp.

qoq (Number: 77.5%). Other costs were 7.9% and staff costs were 5%. Net debt was Rs 7.2 billion (Y 18.9 billion FCF in FY23F).

Management Comment: Demand is expected to increase with the possible continued economic revival and improvement in the Capex cycle. Market share supported by CNG / AVTR range has improved (~ 30% in Q4FY22). The AL FY23F will expand the range of CNG (4 variants), tipper and LCV. It targets double-digit margins, including price increases and cost reductions; The company was able to hold ~ 75% of the price increase (2-2.5% on April 22). Capex at FY23F is planned at Rs 5-6 billion AL’s E-CV branch is planning to raise funds for Switch Mobility (Unlisted).

Our vision: We maintain our vision of a strong CV upcycle (+ 50/15% yoy) at FY23 / 24F, supported by a detailed analysis of our power requirements. Our freight operators profit estimate is 3 years high. The improvement in market share in Q4FY22 is a growing positive. Further, we expect the expansion of CNG to support market participation in FY23F. Price increases and operating leverage margins will lead to improvement. We believe that effective implementation of the Scrapage Policy could reverse our assumptions.

Estimation: We factor MHCV volume at 110k (+49%) / 127k (+16%) – + 6% / flat higher. Due to higher raw material costs, we have slightly reduced the EBITDA margin to 8 / 10.3% (from 8.8% / 10.8%), resulting in a 4% / 3% cut in our EBITDA estimates for FY23 / 24F.

12x FY24F EV / EBITDA based on SOTP-based 168 TP

We maintain our target EV / EBITDA multiple for AL at 12x FY24F. The stock’s current valuation of ~ 9.6x FY24F EV / EBITDA (adjusted for subs) is interesting, as we expect EBITDA to increase 4x over FY23-24F. We do not currently assign any value to AL’s EV subsidiary – Switch, which owns Dana Inc. for a ~ 1% stake (valued at 1.8 billion). Has raised over 18 million. In terms of our coverage, we believe TTMT, BHFC and Sona (all rated bye) will also benefit from strong CV cycles.

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