Security Analysis & Portfolio Management

Ashok Leyland

Submitted By Joe Anand Roll No.b1171 MBA B

Ashok Leyland
The origin of Ashok Leyland, a Hinduja group company can be traced to the urge for selfreliance, felt by independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the assembly of Austin Cars. The Company's destiny and name changed soon with equity participation by British Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955. Since then Ashok Leyland has been a major presence in India's commercial vehicle industry with a tradition of technological leadership, achieved through tie-ups with international technology leaders and through vigorous in-house R&D. Access to international technology enabled the Company to set a tradition to be first with technology. Be it full air brakes, power steering or rear engine busses, Ashok Leyland pioneered all these concepts. Responding to the operating conditions and practices in the country, the Company made its vehicles strong, over-engineering them with extra metallic muscles. 'Designing durable products that make economic sense to the consumer, using appropriate technology', became the design philosophy of the Company, which in turn has molded consumer attitudes and the brand personality. The Hinduja Group is a transnational conglomerate that provides a wide range of products in over fifty countries worldwide. Today, the Hinduja Group has become one of the largest transnational business conglomerates in the world with diversified operations, spanning all the continents. The Group employs over 25,000 people and has offices in many key cities of the world and all the major cities in India. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 5,00,000 vehicles we have put on the roads have considerably eased the additional pressure placed on road transportation in independent India. In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models from Ashok Leyland, tailor-made for high-density routes. In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO. (Since July 2006, the Hinduja Group is 100% holder of LRLIH). The blueprint prepared for the future reflected the global ambitions of the company, captured in four words: Global Standards, Global Markets. This was at a time when liberalization and globalization were not yet in the air. Ashok Leyland embarked on a major product and process up gradation to match world-class standards of technology. For over five decades, Ashok Leyland has been the technology leader in India's commercial vehicle industry, moulding the country's commercial vehicle profile by introducing technologies

and product ideas that have gone on to become industry norms. From 18 seater to 82 seater double-decker buses, from 7.5 tons to 49 tone in haulage vehicles, from numerous special application vehicles to diesel engines for industrial, marine and genset applications, Ashok Leyland offers a wide range of products. Eight out of ten metro state transport buses in India are from Ashok Leyland. With over 60 million passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network! Product range of the company includes: Buses Trucks Engines Defence & Special Vehicles Associates Companies: Automotive Coaches & Components Ltd (ACCL) Lanka Ashok Leyland Hinduja Foundries IRIZAR-TVS Ashok Leyland Project Services Limited Milestones:1966 - Introduced full air brakes 1967 - Launched double-decker bus 1968 - Offered power steering in commercial vehicles 1979 - Introduced multi-axle trucks 1980 - Introduced the international concept of integral bus with air suspension 1982 - Introduced vestibule bus 1992 - Won self-certification status for defence supplies 1993 - Received ISO 9002 1997 - India's first CNG powered bus joined the BEST fleet

2001 - Received ISO 14001 certification for all manufacturing units 2002 - Launched hybrid electric vehicle2003 - Dheeraj Hinduja Elected Vice Chairman of Ashok Leyland Board 2004 - The Government of National Capital Territory of Delhi and Ashok Leyland signed an agreement for setting up a 'state-of-the-art' Driver Training Institute at Burari 2005 - State-of-the-art Driver Training Institute opens in Delhi 2006 - Ashok Leyland and Bosch have joined hands with the Indian Institute of Technology Madras (IITM) to set up the Ashok Leyland and Bosch Centre of Excellence in Engineering Design at the IITM campus 2007 - The company unveiled 4921 TT, a 6x4 tractor with a gross vehicle weight of 49 tones 2008 - The company signed an agreement for a joint venture with John Deere, for manufacturing and marketing of construction equipment. 2009 - Ashok Leyland and Bank of Baroda signed a MoU wherein Bank of Baroda will fund Ashok Leylands end-customers as well as finance its dealers inventory 2010 - Ashok Leyland has bagged an order for 600 vehicles from VRL Logistics that comprise 500 numbers of 3123 Multi-Axle Vehicle (MAV) in the 8x2 configuration, a newly developed, first of its kind for the Indian commercial vehicle industry, along with 100 nos. of the Companys 12-metre buses 2011 - The company launched DOST - its first entry in Indias fast expanding LCV segment Awards/Achievements In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it became the first in India's automobile history to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing units in 2002. It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is specific to the auto industry.

ECONOMIC ANALYSIS
During FY 2012-13, the Indian economy experienced a low growth rate of about 5-5.5%.Yearon-year GDP growth rate in the 3rd quarter touched 4.5%, the second lowest in recent years.

Agricultural growth at 1.8% year-on-year was lower compared to 3.6% of the previous fiscal because of the delayed onset of monsoon that resulted in food grain production contracting by about 3.5%. Industrial sectors, too, continued to reel under the severe slowdown. The general IIP index contracted for 6 months out of 11, the manufacturing index for 5 months out of 11and the mining index for 10 months out of 11. The general index, therefore, grew by a low0.9% during the period April to February. The manufacturing index demonstrated a mere 1%growth during the same period. The mining index showed a de-growth of 2.5%. As a result, SO has estimated manufacturing GDP growth of just 1.9% for the full year (2.7% last fiscal) and a mining growth of 0.4% for the full year (-0.6% last fiscal). Going ahead, most market analysts expect FY 2013-14 GDP to be around 6%, assuming a normal monsoon. The Reserve Bank of India remains focused on containing inflation, and is expected to continue following a conservative policy on interest rates. Some positive movement is visible in the mining policy while the manufacturing slowdown appears to be slowly bottoming out. Lower crude prices are also expected to help the government meet its fiscal targets. However, much work remains to be done to free up core sectors and restart growth, and recovery is expected to be slow. Long term prospects for the Indian economy, however, continue to remain bright, given the favorable demographics and the directional commitment towards liberalization. In 2012, the global economy continued to perform weakly. World output was down from 4%in 2011 to 3.2% in 2012. Emerging and developing economies touched a low of 5.1%, reflecting a sharp drop from 6.4% in the previous year. Apart from the Middle East, Africa and ASEAN, most economies shrank significantly. The Euro zone shrank by 0.6%. Going forward, outlook for the global economy has both areas of concern as well as some bright spots. IMF expects emerging and developing economies to grow relatively strongly at5.3% and 5.7% for 2013 and 2014 respectively. While US is recovering faster and is expected to clock 1.9% & 3% for the same period, the Euro zone is expected to continue lagging, with bleak scenarios of -0.3% & 1.1% for 2013 & 2014 respectively. Even the stronger economies in Europe, such as Germany and France, have poor growth forecasts. Against this background, the overall global economic growth will remain muted.

INDUSTRY ANALYSIS
Commercial Vehicle industry

Contrary to predictions made last year, the Commercial Vehicle (CV) industry fell despite the Light Commercial Vehicle (LCV) category performing well. The industry also saw the entry of new players into the market. The overall CV market registered a de-growth of 2% in April-March 2013 as compared to the corresponding period last year. The overall volumes went down from 809,499 vehicles to793,150, vehicles. The Medium & Heavy Commercial Vehicles (M&HCVs) segment declined by 23% to an overall volume of 268,623 vehicles while the LCV segment grew at 14%to reach 524,887 vehicles. The LCV segment has been one of the growing segments in the entire automobile space. The 2 3.5 T GVW segment, within LCVs, is driving growth with a year-on-year increase of72% in volumes. This is on the back of strong demand for transportation of consumer goods within cities and replacement demand from upper-end three wheelers. Reflecting the downtrend in the economy, multi-axle rigid trucks fell by over 32%compared to the previous year to reach 96,424 vehicles. These vehicles are used to transport a wide range of goods such as agricultural produce, cement, other materials used in construction and industrial goods. This drop was due to an overall slowdown in industrial and construction activity and the resultant caution among transporters. It was also in part due to the shift to rigid vehicles with higher capacity (8x2) for greater operating efficiencies. This trend was reflected in the tractortrailer segment as well which registered a drop of 35% to reach 18,593 vehicles. The ICV (Intermediate Commercial Vehicle) trucks which are in the 10-12 tone capacity range also fell from 67,104vehicles to 57,571 vehicles, a drop of over 14%. Sale of tippers also fell by 28%, mainly due to poor economic activity and the ban on mining in Karnataka and Goa. The segment level drop was also reflected consistently across the four regions of the country. Among them, the Eastern region recorded the steepest fall of almost 35% in M&HCV sales over last year. This could be attributed mainly due to lack of mining activity across the region. 2012-13 was also a poor year for Indian exports, with sale of commercial vehicles dropping by 13% from 92,258 vehicles to 79,944 vehicles with key markets like Sri Lanka dropping drastically and procuring more from China.

The Total Industry Volumes registered in 2011-12 and 2012-13 are provided below: Domestic 2012-13 2011-12 Change (%) M & HCV Passenger M & HCV Truck LCV Passenger LCV Truck Total Cv 46,553 221,710 48,153 476,734 793,150 49,882 299,334 48,868 411,415 809,499 (6.7) (25.9) (1.5) 15.9 (2.0) Exports 2012-13 2011-12 Change (%) 7,110 11,909 3,477 57,448 79,944 9,209 19,286 4,206 59,557 92,258 (22.8| (38.3| (17.3) (3.5) (13.4)

The tepid economic environment and the high base, are bound to have an impact on Total Industry Volume (TIV) in the coming fiscal. Several industry analysts have projected growth rates at 4-8%. SIAM has projected an annual growth rate of 3-5% for medium &heavy duty vehicles and about 12-14% for light vehicles.

COMPANY ANALYSIS
Medium and Heavy Commercial Vehicles Against a backdrop of a major slump in the CV market, Ashok Leyland grew its share in the domestic market in 2012-13 by 3%. Your Company sold 70,916 M&HCVs in the domestic market which was 13% less than the previous year. This included 18,976 M&HCV buses and51,940 M&HCV trucks, 10% less and 14% less respectively, compared to previous year. Your Company grew market share across most segments and regions. One of the biggest gains was in the ICV goods segment with your Company increasing its sales volumes by nearly 55%, resulting in 5% gain in market share. It must be noted that ICV goods, in the long term, remains one of the fastest growing segments. The financial crunch and slowdown of economy witnessed in Sri Lanka, as well as the overall global economic situation, impacted Ashok Leyland's international volumes this year. Your Company exported 8,778 vehicles in 201213, 32% lower than the previous year.SriLanka, a key overseas market, fell by over two-thirds compared to last year. However, your Company grew in other regions across the world, notably in the Middle East, where it registered a growth of 15%. The Power Solutions Business earned revenues of ^403 Crores in the year 2012-13,achieving a 27% increase compared to the previous year.

Spare Parts business grew by a healthy 18% in 2012-13, with an all time high turnover of Rs. 1,004 Crores. The Defence business suffered due to cut-backs and budget constraints of the government resulting in sales of 275 vehicles and 2,463 kits reflecting a drop of 26% and 17%respectively. In FY 2012-13, your Company produced 112,163 vehicles (including 35,401 nos. of LCV'Dost'), a 9% growth compared to the previous year. Your Company significantly expandedits dealer network especially in areas where hitherto it had only limited coverage. Full service outlets grew to over 400 and, for the first time, the number of outlets in North exceeded the number in South. To address the challenges faced in the domestic market, your Company laid considerable emphasis on product development and marketing efforts, targeted at the fastest growing segments and regions which resulted in promising growth in the last quarter of the fiscal.Your Company has lined up several ground-breaking products for core segments in the upcoming fiscal, in the ICV as well as MDV segments apart from the Neptune engine that will be launched on multi-axle haulage vehicles. Substantial focus has been given to improving customer satisfaction levels with targeted initiatives across all hubs that included better organisation of the sales force,customer lifecycle management and enhancement of service levels. Finally, your Company remains committed to build capabilities in the identified five focus areas wherein it chose to invest heavily - quality, people, brand, innovation and efficiency. Your Company has taken on challenging targets in each of these areas and has kicked off several initiatives to achieve them. In summary, your Company has prepared well for the challenging economic scenario expected next year as well as increasing competition in the M&HCV space. Light Commercial Vehicles Business In 2012-13, your Company completed its first full year of participation in the fast-growing LCV segment in India. The first product, Ashok Leyland 'Dost', has contributed to transforming the SCV segment, by shifting the market emphasis from sub 2tonnes to 2-3.5 tonnes GVW. In FY 2012-13, your Company sold close to 35,000 'Dost'vehicles. Today, 'Dost' is the second largest selling product in its segment, with a pan India market share of 18.5%, despite being launched only in 11 States. In States where it is present, 'Dost' enjoys market leadership across most, and a market share of 25.6%. Company has also just started exporting 'Dost' to SAARC countries. To support the sale and service of LCVs, your Company has built a new LCV-oriented network of 100 touch points within 18 months.

In the upcoming financial year, your Company is planning to launch several variants of 'Dost' including a CNG version, the 'Partner' range of trucks and buses in the 4-6Tsegment, and the 'Stile' - a Multi-Functional Vehicle for commercial applications. The Joint Venture Company, in which your Company is an equal partner with Nissan, is preparing for a new manufacturing facility near Chennai dedicated for LCV. Through these efforts, your Company would have a complete LCV product portfolio by the end of 2013-14 to meet a variety of evolving customer requirements.

Financial performance

Year End Equity Networth Enterprise Value Capital Employed Gross Block Sales Other Income PBIDT PBDT PBIT PBT RPAT APAT CP Rev. Earnings in FE Rev. Expenses in FE Book Value (Rs) EPS (Rs.) Dividend (%) Payout (%) Ratio Analysis Debt-Equity Current Ratio Invtry Turnover Debtors Turnover Interest Cover PBIDTM (%) PBDTM (%) APATM (%) ROCE (%) RONW (%)

Mar 13 266.07 3,158.46 10,181.73 7,594.18 6,694.68 13,947.98 396.90 1,228.37 851.49 847.59 470.71 433.71 163.07 814.49 1,517.76 742.24 11.87 1.53 60.00 39.26

Mar 12 266.07 2,898.97 11,127.25 6,073.42 5,943.07 14,196.41 200.51 1,298.04 1,042.79 945.23 689.98 565.98 562.27 918.79 1,645.95 796.58 10.90 1.96 100.00 50.89 1.23 0.77 6.76 10.53 1.47 6.70 4.00 1.17 8.10 5.38

Mar 11 133.03 2,656.68 9,958.15 5,303.41 5,385.61 12,392.78 44.45 1,258.15 1,069.23 990.72 801.80 631.30 629.92 898.73 1,176.57 734.21 19.97 4.42 200.00 45.24

Mar 10 133.03 2,335.58 9,191.25 4,616.02 4,685.46 8,035.12 91.17 850.73 748.88 646.62 544.77 423.67 383.61 627.78 644.45 518.04 17.56 2.94 150.00 51.10 1.02 0.87 6.40 11.85 3.70 9.14 7.35 3.99 16.62 20.37

Mar 09 133.03 2,109.04 4,277.90 4,067.18 3,574.09 6,783.99 91.23 547.18 386.86 368.77 208.45 190.00 178.79 368.41 983.06 589.40 15.85 1.26 100.00 79.47

EV/EBIDTA Rate of Growth (%) Net Worth Sales PAT M Cap

8.29 8.95 -1.75 -23.37 -27.56

8.57 9.12 14.55 -10.35 6.51