Ashok Leyland’s Shares Hit A 4-Year Low

Ashok Leyland announced its Q1FY14 numbers on July 16, 2013 pushing its share prices to a 4-year low. With the dismal situation in the automobile industry, especially in the CV (commercial vehicle) space, this was anticipated.

According to SIAM (Society of Indian Automobile Manufacturers), M&HCV (medium and heavy commercial vehicle) sales declined for 16 consecutive months up to June 2013. In Q1FY14, the overall CV sales volumes declined by 8.12% as compared to the corresponding period in the previous year. In this space, M&HCV sales declined by 15.52% and LCV (light commercial vehicle) sales declined by 3.94%.

Sales of Ashok Leyland were worse than the industry performance. In Q1FY14, its total sales declined by 20.98% as compared to Q1FY13. Its M&HCV sales declined by 26.39% and LCV sales by 5.85%.

In terms of financials, the performance of Ashok Leyland was as poor as its volumes. In Q1FY14, its revenues declined by 21.91% to Rs 2363.81 crore. But the hardest impact was on the profitability of Ashok Leyland.

In Q1FY14, the company reported an operating loss of Rs 71.92 crore as compared to a profit of Rs 151.45 crore in Q1FY13. In the same period, it also reported a net loss of Rs 141.75 crore as compared to a net profit of 66.94 crore in Q1FY13.

Unfavourable macroeconomic conditions, weak industrial output, subdued construction and mining activity, built-up capacities of freight owners, high interest costs and elevated fuel costs have led to a negative impact on the sales of CVs. Moreover, the problems of low capacity utilisation and intense competition have been playing on the industry. This has led to weak sales and a negative outlook till there is structural improvement in the economy.

Since Ashok Leyland’s operations are concentrated in the CV space, and not distributed among other segments to cushion the impact of the slowdown and diversify risks of operation, we maintain our negative outlook on the performance of the company.