Thursday, February 18, 2010

Stock Idea: Ashok Leyland

Despite the impending fear of an interest rate hike and expectation of an excise duty hike in the Budget, Ashok Leyland has been moving strong on the bourses. If 2009 was a year dominated by the passenger cars sales surge, looks like 2010 would be year when we will see the commercial vehicle segments showing robust growth.
India’s second- biggest truck maker reported an over times YoY rise in truck sales in January 10’ at 7,871 units from 2,444 units a year earlier. And the god news is that it has reduced the number of vehicles in stock by 1,200 in January and this cut in inventory will continue into March too. As per the new plans, the company aims to hold no more than three weeks of stocks.
Its third quarter ended 31st Dec 2009 was its best for the entire fiscal. If it had begun Q1FY10 on a very somber note, the indications are that it will end the year on a high note. In Q3, sales and net profit have almost doubled from that we saw in Q1. There has been a significant improvement in the profit margins too. OPM for Q3 was at 11.41%, up from 10.82% sequentially and from 7.86% in Q1. NPM has also risen, from a meager 0.85% in Q1 and 5.62% in Q2 to 5.76% in Q3. Apart from the surge in sales, what has also helped is the consistent reduction in operating costs. Its interest costs, which were a matter great concern earlier are now significantly low.
For 9MFY10, the company’s net sales stood at Rs.4305.66 crore v/s Rs.5981.07 crore for 12MFY09. Net profit was at Rs.201.01 crore v/s Rs.190 crore. There is no doubt that the company would end FY10 on a very high note. But at the same time also keep in mind impact of the base effect, which will automatically make FY10 look extremely good.
Higher steel and tyre costs might prompt the company to hike its prices, which when compared with Tata Motors, is already on the higher side. It is expected to end FY10, with a NPM, which would be over 10%. The outlook looks bright but it has to watch out for increasing competition from M&M and MAN.
Source: Internet ( by S P Tulsian)

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