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Axis Securities
Ashok Leyland (Buy)
CMP: ₹81.25
Target: ₹97
Ashok Leyland (ALL) Q3FY20 standalone revenues fell 36.5 per cent y-o-y to ₹,4016 crore in Q3FY20 vs ₹6,325 crore in Q3FY19 and increased by 2.7 per cent q-o-q on back of 11 per cent fall in realisations and rest on volume decline. EBITDA margins took a hit at 5.6 per cent (vs 10.27 per cent in Q3FY19 and 5.8 per cent in Q2FY20) owing to focus was on inventory reduction and high discounting per vehicle. PAT came in at ₹28 crore (vs ₹381 crore in Q3FY19 and ₹39 crore in Q2FY20) on account interest costs and tax charge.
The performance was dismal but along expected lines. Management’s focus remained on reducing inventory level (wholesale + ALL) in Q3. It has come down from about 27,500 in June to near 6,500 at presently and is at less than 10 days. Ashok Leyland suffered market share loss (down by 0.6 per cent on year-to-date basis) as competitors are giving huge discounts which is unviable according to management. We expect sequential improvement in Q4FY20 but caution that BS6 sales might be delayed as Ashok Leyland has gone on a conservative stance on ramping up production.
consensus EPS of ₹5.25 to arrive at an unchanged target price of ₹97
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