Ashok Leyland – EIC Analysis

Paarth Verma
Rishabh Singh
Rishi Rishav Verma
Sagar Kamboj
Shrey Soni
 Economic Analysis

Monetary Policies
Bank Rate: It is the interest rate charged by the central
bank (RBI) to lend money to the commercial banks.
Current bank rate in India is 6.75%.
Repo Rate: Rate at which the RBI lends money to the
banks for a short term in the event of shortfall of funds.
Current Repo Rate in India is 6.50%.
Reverse Repo Rate: Reverse Repo rate is the rate at which
RBI borrows money from the commercial banks. Current
Reverse Repo Rate in India is 6.25%.
Reverse Repo Rate: Reverse Repo rate is the rate at which
RBI borrows money from the commercial banks. Current
Reverse Repo Rate in India is 6.25%
Cash Reserve Ratio (CRR): It is the certain percentage of
deposits that the commercial banks are required to keep in
form of cash with them. CRR is currently at 4%.
Statutory Liquidity Ratio (SLR): It is the percentage of
total deposits the commercial banks of India are required to
invest in govt. Bonds and other approved securities (in
form of liquid assets). Current SLR ratio is 19.50% p.a.
 Macroeconomic Indicators

Gross Domestic Product (GDP): Gross Domestic Product

(GDP) is a monetary measure of the market value of all the
final goods and services produced in a period of time, often
annually or quarterly. It is projected to grow at 7.5% in
2018-19.
Index of Industrial Production (IIP): It is
an index which shows the growth rates in
different industry groups of the economy in a stipulated
period of time. Its growth for September was 7% (YoY)
Fiscal Deficit: It is when the government’s total
expenditures exceed the revenue that it generates,
excluding money from borrowings. India has a target of
fiscal deficit of 3.3% for 2018-19
Rainfall: The correlation between monsoon outcomes and
food output is significant and positively correlated. Of the
total 36 meteorological subdivisions in the country, 24
received ‘normal’ rainfall, whereas 12 had ‘deficient’
rainfall.
WPI (Wholesale Price Index): Wholesale Price Index (WPI)
represents the price of goods at a wholesale stage i.e. goods that are
sold in bulk and traded between organizations instead of
consumers. WPI is used as a measure of inflation in some
economies. For September 2018, WPI rose to 5.13% from 4.53%
recorded in September 2017.
CPI (Consumers Price Index):The Consumer Price Index (CPI) is a
measure that examines the weighted average of prices of a basket of
consumer goods and services, such as transportation, food and
medical care. It is calculated by taking price changes for each item in
the predetermined basket of goods and averaging them.CPI rose from
3.69% in August to 3.77% in September.
AUTOMOBILES
INDUSTRY
ANALYSIS
 EXECUTIVE SUMMARY

 4th largest auto market in 2017 with sales increasing 9.5 per cent year-on-year to 4.02 million units
(excluding two wheelers) in 2017.
4th largest automobile  7th largest manufacturer of commercial vehicles in 2017.
market
 Presence of established domestic and international original equipment manufacturers (OEMs).

 Strong market in terms of both, the domestic demand and exports.

 Automobile sector split into four segments , each having few market leaders.

Segmented Market  Two-wheelers and passenger vehicles dominate the domestic demand.

 Two-wheelers accounted for 81 per cent of domestic demand in 2017-18.

 Automobile exports grew 26.56 per cent during April-July 2018. It is expected to grow at a CAGR of 3.05 per
cent during 2016-2026.

Positive growth  Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18
trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers are expected to grow 9 per cent in 2018.
prospects
 Strong policy support from government.

 Indian auto industry is expected to see 8-12 per cent increase in its hiring during FY19.
 MARKET OVERVIEW

Automobile Sector

Two-wheelers Passenger vehicles Commercial Vehicles Three-wheelers

Mopeds and electric Light commercial

Passenger cars Passenger carriers
scooters vehicles

Medium & heavy

Scooters Utility Vehicles Goods carriers
commercial vehicles

Multi-purpose
Motorcycles
vehicles
 MARKET OVERVIEW

 The automotive manufacturing industry comprises the production of commercial vehicles, passenger cars, three & two-wheelers.
 India became the 4th largest auto market in 2017 with sales (excluding two-wheelers) increasing 9.5 per cent year-on-year to 4.02 million
units in
2017. Overall domestic automobiles sales increased at 7.01 per cent CAGR between FY13-18 with 24.97 million vehicles getting sold in
FY18.
 Domestic automobile production increased at 7.08 per cent CAGR between FY13-18 with 29.07 million vehicles manufactured in the
country in FY18. During April-July 2018, automobile production increased 16.69 per cent year-on-year to reach 10.88 million vehicle units.

 Auto sales in July 2018 witnessed a year-on-year growth rate of 7.97 per cent across segments, driven by 46.24 per cent year-on-year
growth in three-wheeler sales.
 MARKET OVERVIEW

 Two-wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-
size cars. Two-wheelers and passenger cars accounted for 81 per cent and 13 per cent of over 24.97 million vehicles sold in FY18,
respectively.

 Overall automobile exports reached 4.04 million vehicles in FY18, implying a CAGR of 6.86 per cent between FY13-18. Two-wheelers
made up
69.7 per cent of the exported vehicles, followed by passenger vehicles at 18.5 per cent, three-wheelers at 9.4 per cent and commercial
vehicles at
2.4 per cent.
 Overall automobile exports increased 26.56 per cent year-on-year in FY19*.
 CLUSTERS AND LEADING COMPANIES

List of companies
 Ashok Mazda  Tata Motors  JCB
Leyland  Amtek Auto  Bajaj Auto  Yamaha
 Force  Eicher  Hero Group  Mahindra
North Motors  Honda SIEL  Escorts  Suzuki
 Piaggio  Maruti  ICML Motorcycles
 Swaraj Suzuki

 Ashok  M&M  Tata Motors  Mercedes

Leyland  Eicher  Volkswagen Benz
 Bajaj Auto  Skoda  Renault-  Tata Hitachi
West
 FIAT  Bharat Nissan  Volvo Eicher
 GM Forge  John Deere

 TataMotors  International
 Hindustan Auto
Motors Forgings
East
 Simpson &  JMT
Co  Exide

 Ashok  Volvo  Bosch  Daimler

Leyland  Sundaram  TVS Motor  Caterpillar
 Ford Fasteners Company  Hindustan
South
 M&M  Enfield  Renault- Motors
 Toyota  Hyundai Nissan
Kirloskar  BMW  TAFE

Over the past few years four specific regions in the country have become large auto manufacturing clusters, each present witha
different set of players.
 RECENT TRENDS

 With sales of around 40,000 luxury cars in 2017, India became the 27th most attractive luxury market in the
world. The luxury car market in India is expected to grow at 25 per cent CAGR till 2020.

 BMW Group India recorded its highest ever annual sales in 2017 at 9,800 units.
 Mercedes-Benz crossed 16,000 annual sales for the first time in India and sold 16,236 units in 2017-18, recording
Luxury Vehicles a 22.5 per growth during the year.

 Two leading luxury car manufacturers, BMW and Mercedes-Benz, recorded their best-ever half yearly sales in
India during January-June 2018. Sales of BMW grew 13 per cent year-on-year to 5,171 units and sales of
Mercedes-Benz grew 12.4 per cent year-on-year to 7,171 units.

 Premium motorbike sales in India crossed one million units in FY18.

 Carmakers such as BMW, Audi, Toyota, Skoda, Volkswagen & Mercedes-Benz have started providing
customised finance to customers through NBFCs
New Financing Options
 Major MNC & Indian corporate houses are moving towards taking cars on operating lease instead of buying them

 Mahindra has launched its new electric car and Tesla motors is also set to enter the Indian market. Suzuki Motors
is setting up a battery plant in Gujarat. Electric buses from Tata Motors are in testing phase.

 India's electric vehicle (EV) sales increased to 25,000 units during FY 2016-17 and are poised to rise further on
the back of cheaper energy storage costs and the Government of India’s vision to see 6 million electric and hybrid
Electric Vehicles
vehicles in India by 2020.

 Sales of electric two-wheelers are estimated to have crossed 55,000 vehicles in 2017-18

 In June 2018, Tata Motors created a separate vertical for electrical vehicles to tap into the market potential.
 GROWTH DRIVERS

 Rising income and a large young population .

Growing demand  Greater availability of credit and financing options.

 Demand for commercial vehicles increasing due to high level of activity in infrastructure sector.

 Clear vision of Indian government to make India an auto manufacturing hub.

Policy Support  Initiatives like ‘Make in India’, ‘Automotive Mission Plan 2026’, and NEMMP 2020 to give a huge boost to the
sector.

 Improving road infrastructure.

Support infrastructure
 Established auto ancillary industry giving the required support to boost growth.
and high investments
 5 per cent of total FDI inflows to India went into the automobiles sector.
 POLICIES AND INITIATIVES

Support from the Indian government in the form of new policies and initiatives has been crucial in development and growth of Indian automobile sector.

 Setting up of R&D centres at a total cost of US$ 388.5 million to enable the industry to be on par with global
NATRiP standards.

 Nine R&D centres of excellence with focus on low-cost manufacturing & product development solutions.

Department of Heavy  Worked towards reduction of excise duty on small cars and increase budgetary allocation for R&D
Industries & Public  Weighted increase in R&D expenditure to 200 per cent from 150 per cent (in-house) & 175 per cent from
Enterprises 125 per cent (outsourced).

The Automotive Mission

 AMP 2026 targets a 4-fold growth in the automobiles sector in India which includes the manufacturers of
Plan 2016-26
automobiles, auto components & tractor industry over the next 10 years.
(AMP 2026)

 Planning to implement Faster Adoption & Manufacturing Of Electric Hybrid Vehicles (FAME) till 2020 which
would cover all vehicle segments, all forms of hybrid & pure electric vehicles. Under the scheme, the
Government of India is planning to provide grants of up to Rs 105 crore (US$ 16.33 million) to each of the
FAME selected city with population of more than a million, for buying electric buses, cars and three-wheelers in
FY18. Additional funds will be provided for charging infrastructure.

 The Government of India has shortlisted 11 cities in December 2017 to have electric vehicle based public
transportation systems under this scheme.
 OPPORTUNITIES

 Strong support from the government; setting up of NATRIP centres.

India is fast emerging  Private players, such as Hyundai, Suzuki, GM, keen to set up R&D base in India.
as a global R&D hub  Strong education base, large skilled English-speaking manpower. Comparative advantage in terms of cost.

 Firms both national and foreign are increasing their footprints with over 1,165 R&D centres.

 Mahindra & Mahindra targeting on implementing digital technology in the business.

Opportunities for
 Bajaj Auto, Hero Honda & M&M plan to jointly develop a technology for 2-wheelers to run on natural gas.
creating sizeable
 Tata Motors to launch MiniCAT, a car running on compressed air,
market segments
 Hyundai is planning to enter the hybrid vehicles segment, to explore alternative fuel technology & to avail the
through innovations
government incentives.

 General Motors, Nissan & Toyota announced plans to make India their global hub for small cars.

Small-car  Passenger vehicle market is expected to touch 10 million units by 2020. Sales crossed 3.2 million in FY18.
manufacturing hub  Strong export potential in ultra low-cost cars segment (to developing & emerging markets).

 Maruti Suzuki launched facelift version of Alto 800, after the success of earlier model
 Impact of Budget (2018 -19) on Automobile Sector:

Impact
1.Impact onof BudgetDemand
Automotive (2018 -19)
- Rural andon Automobile
agriculture Sector:
sector push:
The budget has focused a lot on increasing rural income and investing in agricultural growth. The FM
re-emphasized the Government's commitment to doubling farm income 2022. The Minimum
support price would be maintained at a minimum of 1.5 times the cost of production.

2. Increased investment in infrastructure to improve rural connectivity:

The Government hopes to activate economic development through better connectivity, the
infrastructure spend is budgeted to be increase by almost Rs. 1 Lakh crore. The focus will be on
improving the road network through the Bharat mala network of building/ widening almost 35,000
km of road ways.

3. Support for MSME:

Lower corporate income tax of 25% for company's upto Rs.250 crore in revenues will benefit
companies in the Automotive value chain including automotive component suppliers.

4. Personal income tax benefit is marginal:

No significant personal income tax relief was a disappointment for the consumers. Increasing
deduction for senior citizen on bank and fixed deposit would not have any impact on the automotive
industry.
 Industry Comparison

Full Year (Rs Cr.)

Company Name NOC Year End Equity Sales NP

Automobiles 8 1,069.6 91,012.1 1,330.0

Ashok Leyland Mar-18 293.6 26,650.1 1,542.4

Force Motors Mar-18 13.2 3,430.2 145.2

Hind.Motor Fin. Mar-18 0.3 132.3 -29.6

Man Force Trucks Mar-18 100.0 124.0 -96.8

SML ISUZU Mar-18 14.5 1,135.1 8.4

Tata Intl.DLT Mar-18 10.7 193.0 2.2

Tata Marc.Motor. Mar-18 60.0 516.1 14.1

Tata Motors Mar-18 577.5 58,831.4 -255.8

 Company Analysis

Ashok Leyland is an Indian automobile company

headquartered in Chennai, India. It is owned by
the Hinduja Group.
It was founded in 1948 by Raghunandan Saran. It is the
second largest commercial vehicle manufacturer in India,
fourth largest manufacturer of buses in the world and
12th largest manufacturer of trucks globally.
 Company Analysis

• The Company has 23 Subsidiaries, 6 Associates and 2

Joint ventures.
• The company has maintained its profitable track record
for 60 years.
• It is one of the largest private sector employers in India,
with about 12,000 employees working in 9 factories
and offices spread across the globe.
• The company has a strong market presence in SAARC
countries like Bangladesh, Sri Lanka and Nepal, and in
the Middle East countries where it exports 3600-4000
units a year.
SWOT ANALYSIS

Strengths
Weaknesses
Strong product portfolio
Heavily dependent on the
The leader in domestic domestic market
market
Termination of JV with
Robust manufacturing Nissan
capabilities
Opportunities Threats
Growing global Intense competition
automotive industry Environmental
Expanding Product Regulations
portfolio Volatility in supply affects
Exports profitability
 ASHOK LEYLAND Income Statement 2017-18

No. of months
12 March-2017 12 March-2018
year ending %Change
Net Sales Rs m 228,710 296,196 29.5%
Other income Rs m 1,307 1,999 52.9%

Total Revenues Rs m 230,017 298,195 29.6%

Gross profit Rs m 32,939 42,484 29.0%
Depreciation Rs m 5,728 6,459 12.8%
Interest Rs m 10,488 12,317 17.4%
Profit before tax Rs m 18,030 25,707 42.6%
Tax Rs m 1,961 7,511 283.0%
Profit after tax Rs m 16,371 18,265 11.6%
Gross profit
% 14.4 14.3
margin
Effective tax rate % 10.9 29.2

Net profit margin % 7.1 6.1

 Income Statement Analysis

1. Operating income during the year rose 29.5% on a year-on-year

(YoY) basis.
2. The company's operating profit increased by 29.0% YoY during
the fiscal. Operating profit margins witnessed a fall and stood at
14.3% in FY18 as against 14.4% in FY17.
3. Depreciation charges and finance costs increased by 12.8%
YoY and 17.4% YoY, respectively.
4. Other income grew by 52.9% YoY.
5. Net profit for the year grew by 11.6% YoY.
6. Net profit margins during the year declined from 7.1% in FY17
to 6.1% in FY18.
 ASHOK LEYLAND Balance Sheet as on March 2018

No. of Mths Year Ending 12 Mar-17* 12 Mar-18* % Change

Networth Rs m 63,929 74,206 16.1

Current
Rs m 103,992 141,915 36.5
Liabilities
Long-term
Rs m 88,764 102,281 15.2
Debt
Total
Rs m 266,683 335,180 25.7
Liabilities

Current
Rs m 110,396 144,216 30.6
assets
Fixed Assets Rs m 52,682 53,206 1.0
Total Assets Rs m 266,683 335,180 25.7
 Balance Sheet Analysis

1. The company's current liabilities during FY18 stood at Rs 142

billion as compared to Rs 104 billion in FY17, thereby witnessing
an increase of 36.5%.
2. Long-term debt stood at Rs 102 billion as compared to Rs 89
billion during FY17, a growth of 15.2%.
3. Current assets rose 31% and stood at Rs 144 billion, while fixed
assets rose 1% and stood at Rs 53 billion in FY18.
4. Overall, the total assets and liabilities for FY18 stood at Rs 335
billion as against Rs 267 billion during FY17, thereby witnessing a
growth of 26%.
 Key Ratio Analysis

No. of Mths Year Ending 12 Mar-17* 12 Mar-18*

Current ratio x 1.1 1.0
Debtors’ Days Days 20 14
Interest coverage x 2.7 3.1
Debt to equity
x 1.4 1.4
ratio
Return on assets % 10.1 9.1
Return on equity % 25.6 24.6
Return on capital
% 18.9 21.6
employed
 Liquidity Analysis of Ashok Leyland

The Current Ratio reveals the relationship between current assets

and current liabilities. This ratio also reveals that how efficiently the
working capital of the firm is used. If Current Ratio is equal to 2, it
indicates that the concern has the ability to meet current
obligations.
 Solvency Ratios

Current Ratio: The company's current ratio deteriorated and stood at

1.0x during FY18, from 1.1x during FY17. The current ratio
measures the company's ability to pay short-term and long-term
obligations.

Interest Coverage Ratio: The company's interest coverage ratio

improved and stood at 3.1x during FY18, from 2.7x during FY17.
The interest coverage ratio of a company states how easily a
company can pay its interest expense on outstanding debt. A higher
ratio is preferable.
Analysis of Returns in Ashok Leyland

The profitability and efficiency of the business is

measured to find out the return that the firm has
earned by employing capital and assets. This analysis
measures the efficiency by comparing the capital
employed and it return at various stages. This analysis
is considered to be much important as its gives the
percentage of returns earned by employing capital
and assets.
 Profitability Ratios

Return on Equity (ROE): The ROE for the company declined and down at 24.6%
during FY18, from 25.6% during FY18. The ROE measures the ability of a firm to
generate profits from its shareholders capital in the company.

Return on Capital Employed (ROCE): The ROCE for the company improved
and stood at 21.6% during FY18, from 18.9% during FY17. The ROCE measures
the ability of a firm to generate profits from its total capital (shareholder capital
plus debt capital) employed in the company.

Return on Assets (ROA): The ROA of the company declined and down at 9.1%
during FY18, from 10.1% during FY17. The ROA measures how efficiently the
company uses its assets to generate earnings.
 Leverage Analysis of Ashok Leyland
The long-term solvency of the firms is found using leverage analysis.
Solvency refers to the ability of the firm to meet its long term obligations.
The long term creditors of a firm are primarily interested in knowing the
firm’s ability to pay regularly interest on long term borrowings, repayment
of the principal amount at the maturity and the security of their loans. The
leverage analysis indicates the firm’s ability to meet the fixed interest and
costs and repayment schedules associated with its long-term borrowings.
Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Total Debt / Equity (X) 0.07 0.22 0.34 0.63 1.19

Interest Coverage Ratio 18.09 11.72 7.61 1.87 -0.32

(%)
Interest Coverage Ratio 13 11.03 5.84 1.59 -0.05
(Post Tax) (%)
 Current Valuations for ASHOK LEYLAND

The earnings per share (EPS) of the company stands at Rs 6.2, an

improvement from the EPS of Rs 5.8 recorded last year.

The price to earnings (P/E) ratio, at the current price of Rs 128.5,

stands at 23.1 times its trailing twelve months earnings.

The price to book value (P/BV) ratio at current price levels stands at
4.6 times, while the price to sales ratio stands at 1.1 times.
The company's price to cash flow (P/CF) ratio stood at 14.8 times its
end-of-year operating cash flow earnings.
 ASHOK LEYLAND Share Price Performance

Over the last one year, ASHOK LEYLAND share price has moved
up from Rs 102.4 to Rs 128.5, registering a gain of Rs 26.1 or around
25.5%.

Meanwhile, the S&P BSE AUTO Index is trading at Rs 24,676.8

(up 0.2%). Over the last one year it has moved up from 23,544.3 to
24,676.8, a gain of 1,133 points (up 4.8%).

Overall, the S&P BSE SENSEX is up 22.5% over the year.