Ashok Leyland results for the June 2011 quarter were broadly in line with analysts' estimates. Its operating profit margin fell marginally on a y-o-y basis to 9.8% in the first quarter of FY12, while net sales improved 6.3% to . 2,495.5 crore.
The quarterly results of the country's second largest player in the commercial vehicle (CV) segment have to be viewed in the context of a rather difficult operating environment for the broader CV sector. The company had hiked prices earlier for its CV range, given the higher input prices. However, pressure on its margins in the quarter under review was due to higher employee costs.
The company's total vehicle sales (CVs and passenger buses), including exports, fell 9.9% y-o-y to 19,277 units in the quarter under review. And in its key medium and heavy (M&H) CV segment, the company witnessed a 14.2% y-o-y decline in unit sales in the quarter.
Analysts highlight the impact of rising auto finance rates and sluggish growth in the broader industrial sector, which impacted demand for Ashok Leyland's M&H commercial vehicle range. Also, smaller players have become rather aggressive and have eaten into Ashok Leyland's market share in the M&H vehicle segment.
Higher finance costs also contributed in the 29.6% y-o-y decline in the company's net profit in the June 2011 quarter. Growth in net sales in the first quarter of FY11 was considerably weaker than that reported in the trailing four quarters ended March 2011. The stock fell 2.7% to . 50.7 on Tuesday, in broad contrast to the bullish sentiment on the Street.
Going forward, analysts are increasingly skeptical whether Ashok Leyland would be able to achieve its earlier target of total vehicle sales of 108,000 units during the year ended March 2012, a rise of nearly 14.8% y-o-y. Also, the company had guided for an operating profit margin of around 10.5% during FY12, and once again there is little clarity on that, given key commodity input prices are still at elevated levels. Ashok Leyland trades at a P/E of 11.3 times on a trailing basis and we are neutral on the stock.
