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Rating

Up from Reduce
Buy
Target price
Increased from 13
INR 38
Closing price
26 May 2014
INR 32
Potential upside
+19.3%

Anchor themes
With a stable and reform-oriented
government, we expect a sharp
revival in MHCV industry volumes
over the next 2-3 years. This
should lead to improved pricing
power which augurs well for the
company's profitability.

Nomura vs consensus
Our FY15/16F EBITDA estimates
are 12%/22% ahead of
consensus. We expect
consensus to upgrade estimates
to build in a strong 4Q and
potential recovery in industry
volumes.

Research analysts

India Autos & Auto Parts
Kapil Singh - NFASL
kapil.singh@nomura.com
+91 22 4037 4199
Nishit Jalan - NSFSPL
nishit.jalan@nomura.com
+91 22 4037 4362







Key company data: See page 2 for company data and detailed price/index chart
Ashok Leyland ASOK.NS AL IN
EQUITY: AUTOS & AUTO PARTS

Building in sharp revival over FY16-17F
Operating leverage, lower discounts to aid margins
Action: Upgrade to Buy; TP raised to INR38
Ashok Leyland (AL) reported 4QFY14 EBITDA margin of 6% vs. consensus of
2.2% (NMR 4.4%). The key reason for the positive surprise was an
improvement in gross margins, as product mix improved and discounts
declined. With the formation of a new strong and stable government, we
believe the growth outlook for CVs has improved substantially. We thus raise
our MHCV industry volume growth estimates to 15%/30% y-y for FY15/16F,
up from 0%/30% earlier, and introduce FY17F estimates with 20% y-y growth.
Note that, given a low base, these are not very aggressive estimates. Our
FY17F volume estimates are close to the volumes achieved in FY12.
Thus, swifter implementation of government initiatives to kickstart the
investment cycle could easily lead to upside to our estimates. With a sharp
recovery in volumes, we estimate discounts will come off rapidly. Also, better
utilisation of its Pantnagar plant in a tax-free zone and benefits of cost
reduction initiatives undertaken during the downcycle should further aid
margin expansion, we believe. Thus, we expect margins to improve to its
historical up-cycle average of ~10% in FY16F.
Catalysts: Volume and margin recovery
We believe monthly MHCV industry volumes should grow strongly over the
next three years, aided by the new governments policy to kickstart reforms.
AL has very high financial and operating leverage. Therefore, we estimate
its earnings to rise multi-fold over the next three years, as volumes jump by
~70% over the period.
Valuation: TP of INR38 offers 19% potential upside
We value AL at 8x FY17F EV/ EBITDA which is discounted back to J une-16.
While our earlier TP was based on implied EV/EBITDA of 8.5x on FY16F
EBITDA, we now believe that FY17 is a better year to base the valuation
multiple, as it fully captures recovery of the CV cycle. Also, we value its
investments in IndusInd Bank and Hinduja Leyland Finance at INR1/share and
INR1.5/share, respectively, as AL plans to monetise its non-core assets.
Year-end 31 Mar FY13 FY14F FY15F FY16F
Currency (INR) Actual Old New Old New Old New
Revenue (mn) 124,812 95,134 99,434 101,427 116,438 128,226 148,122
Reported net profit (mn) 4,337 -4,488 294 932 268 1,223 5,596
Normalised net profit (mn) 1,442 -6,184 -4,763 -3,068 268 1,223 5,596
FD normalised EPS 54.18c -2.32 -1.79 -1.15 10.08c 45.95c 2.10
FD norm. EPS growth (%) -74.5 -529.0 -430.4 na na na 1,987.0
FD normalised P/E (x) 58.8 N/A na N/A 316.0 N/A 15.1
EV/EBITDA (x) 14.5 N/A 78.4 N/A 16.2 N/A 8.6
Price/book (x) 1.9 N/A 1.9 N/A 1.9 N/A 1.7
Dividend yield (%) 1.9 N/A na N/A na N/A 2.4
ROE (%) 10.0 -10.6 0.7 2.3 0.6 2.9 11.8
Net debt/equity (%) 95.2 132.8 102.9 121.7 103.9 116.8 83.8
Source: Company data, Nomura estimates

Global Markets Research

27 May 2014
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | Ashok Leyland 27 May 2014



2
Key data on Ashok Leyland
Relative performance chart
Source: Thomson Reuters, Nomura research

Notes:


Performance
(%) 1M 3M 12M
Absolute (INR) 36.7 102.9 37.6 M cap (USDmn) 1,440.7
Absolute (USD) 40.9 113.7 30.5 Free float (%) 0.5
Rel to MSCI India 29.1 87.9 17.6 52-week (INR) 35.85/11.75

Income statement (INRmn)
Year-end 31 Mar FY12 FY13 FY14F FY15F FY16F
Revenue 129,043 124,812 99,434 116,438 148,122
Cost of goods sold -98,169 -95,042 -79,796 -88,633 -110,234
Gross profit 30,874 29,770 19,638 27,805 37,888
SG&A -11,637 -14,058 -11,746 -13,192 -15,330
Employee share expense -10,204 -10,755 -9,997 -10,450 -11,904
Operating profit 9,033 4,957 -2,105 4,163 10,654
EBITDA 12,561 8,765 1,666 8,104 14,721
Depreciation -3,528 -3,808 -3,770 -3,941 -4,067
Amortisation 0 0 0 0 0
EBIT 9,033 4,957 -2,105 4,163 10,654
Net interest expense -2,553 -3,769 -4,529 -4,493 -4,330
Associates & J CEs
Other income 404 624 665 665 665
Earnings before tax 6,884 1,812 -5,969 335 6,989
Income tax -1,240 -370 1,206 -67 -1,393
Net profit after tax 5,644 1,442 -4,763 268 5,596
Minority interests
Other items
Preferred dividends
Normalised NPAT 5,644 1,442 -4,763 268 5,596
Extraordinary items 16 2,896 5,057 0 0
Reported NPAT 5,660 4,337 294 268 5,596
Dividends -2,661 -1,596 0 0 -2,060
Transfer to reserves 2,999 2,741 294 268 3,536
Valuations and ratios
Reported P/E (x) 15.0 19.5 288.4 316.0 15.1
Normalised P/E (x) 15.0 58.8 -17.8 316.0 15.1
FD normalised P/E (x) 15.0 58.8 na 316.0 15.1
Dividend yield (%) 3.1 1.9 na na 2.4
Price/cashflow (x) 7.2 20.6 11.4 19.7 11.6
Price/book (x) 2.0 1.9 1.9 1.9 1.7
EV/EBITDA (x) 9.1 14.5 78.4 16.2 8.6
EV/EBIT (x) 12.6 25.7 na 31.5 11.9
Gross margin (%) 23.9 23.9 19.7 23.9 25.6
EBITDA margin (%) 9.7 7.0 1.7 7.0 9.9
EBIT margin (%) 7.0 4.0 -2.1 3.6 7.2
Net margin (%) 4.4 3.5 0.3 0.2 3.8
Effective tax rate (%) 18.0 20.4 na 19.9 19.9
Dividend payout (%) 47.0 36.8 0.0 0.0 36.8
ROE (%) 13.8 10.0 0.7 0.6 11.8
ROA (pretax %) 8.2 4.0 -1.6 3.2 7.8
Growth (%)
Revenue 15.5 -3.3 -20.3 17.1 27.2
EBITDA 3.5 -30.2 -81.0 386.6 81.6
Normalised EPS -10.6 -74.5 -430.4 na 1,987.0
Normalised FDEPS -10.6 -74.5 -430.4 na 1,987.0
Source: Company data, Nomura estimates
Cashflow statement (INRmn)
Year-end 31 Mar FY12 FY13 FY14F FY15F FY16F
EBITDA 12,561 8,765 1,666 8,104 14,721
Change in working capital 3,411 -3,714 3,378 88 -2,380
Other operating cashflow -4,229 -938 2,399 -3,895 -5,058
Cashflow from operations 11,743 4,113 7,442 4,298 7,284
Capital expenditure -7,548 -8,756 -2,476 -2,500 -3,000
Free cashflow 4,195 -4,643 4,967 1,798 4,284
Reduction in investments -2,741 -8,567 -4,521 -2,500 0
Net acquisitions 0 0 1
Dec in other LT assets -6,157 1,239 -2,141 0 0
Inc in other LT liabilities 1,230 407 -1,306 0 0
Adjustments 115 147 2,240 0 0
CF after investing acts -3,358 -11,416 -761 -702 4,284
Cash dividends -3,092 -1,868 0 0 0
Equity issue -13 -13 0 0 0
Debt issue 5,296 12,575 737 792 -4,227
Convertible debt issue 0 0 1 0 0
Others 0 0 0 0
CF from financial acts 2,191 10,695 738 792 -4,227
Net cashflow -1,166 -721 -23 90 56
Beginning cash 3,028 1,861 1,140 1,117 1,207
Ending cash 1,862 1,140 1,117 1,207 1,264
Ending net debt 29,117 42,414 45,783 46,485 42,201

Balance sheet (INRmn)
As at 31 Mar FY12 FY13 FY14F FY15F FY16F
Cash & equivalents 1,861 1,140 1,117 1,207 1,264
Marketable securities
Accounts receivable 12,308 14,194 12,990 14,451 19,351
Inventories 22,306 18,960 11,887 13,224 16,822
Other current assets 8,099 9,672 9,717 10,617 12,444
Total current assets 44,575 43,966 35,711 39,499 49,881
LT investments 13,809 22,376 26,896 29,396 29,396
Fixed assets 54,617 59,708 58,414 56,973 55,905
Goodwill
Other intangible assets 0 0 0 0 0
Other LT assets 6,157 4,917 7,059 7,059 7,059
Total assets 119,157 130,967 128,080 132,927 142,242
Short-term debt
Accounts payable 25,710 24,854 22,142 25,928 32,983
Other current liabilities 14,676 11,931 9,790 9,790 10,680
Total current liabilities 40,386 36,785 31,931 35,717 43,663
Long-term debt 30,979 43,554 46,900 47,692 43,465
Convertible debt
Other LT liabilities 5,669 6,077 4,770 4,770 4,770
Total liabilities 77,034 86,416 83,601 88,180 91,898
Minority interest
Preferred stock
Common stock 2,661 2,661 2,661 2,661 2,661
Retained earnings 39,463 41,890 41,818 42,086 47,682
Proposed dividends
Other equity and reserves
Total shareholders' equity 42,123 44,551 44,479 44,747 50,343
Total equity & liabilities 119,157 130,967 128,080 132,927 142,242
Liquidity (x)
Current ratio 1.10 1.20 1.12 1.11 1.14
Interest cover 3.5 1.3 -0.5 0.9 2.5
Leverage
Net debt/EBITDA (x) 2.32 4.84 27.49 5.74 2.87
Net debt/equity (%) 69.1 95.2 102.9 103.9 83.8
Per share
Reported EPS (INR) 2.13 1.63 11.04c 10.08c 2.10
Norm EPS (INR) 2.12 54.18c -1.79 10.08c 2.10
FD norm EPS (INR) 2.12 54.18c -1.79 10.08c 2.10
BVPS (INR) 15.83 16.74 16.72 16.82 18.92
DPS (INR) 1.00 0.60 0.00 0.00 0.77
Acti vity (days)
Days receivable 34.0 38.8 49.9 43.0 41.8
Days inventory 82.8 79.2 70.5 51.7 49.9
Days payable 91.0 97.1 107.5 99.0 97.8
Cash cycle 25.8 20.9 13.0 -4.3 -6.2
Source: Company data, Nomura estimates
Nomura | Ashok Leyland 27 May 2014



3
MHCV industry Even after building in a steep recovery;
FY17F volumes are close to FY12 peak levels
Volumes of the MHCV (medium and heavy commercial vehicles) industry have declined
quite sharply over the past two years overall volumes are down ~43% from the peak
volumes of FY12. However, with a stable and reform-oriented government and strong
policy actions, we believe that the recovery in industry volumes can be equally steep.
Overall, we expect strong recovery in industry volumes over the next three years 15%
y-y in FY15F, 30% in FY16F and another 20% in FY17F. Note that even after building in
such a strong recovery, FY17F industry volumes will only come close to the peak
volumes of FY12. We believe that, in a bull case scenario, if economic growth rebounds
sharply, then MHCV industry volumes should surpass previous peak volumes by FY17F.

Fig. 1: Domestic MHCV industry volumes

Source: SIAM Auto, Nomura estimates

The SAAR of domestic MHCV volumes has already improved somewhat over the past 3-
4 months, and currently indicates 10-12% volume growth in FY15F.

Fig. 2: SAAR of domestic MHCV industry volumes

Source: SIAM Auto, Nomura research



-40%
-30%
-20%
-10%
0%
10%
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100,000
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MHCVs (Units) - LHS YoY (%) - RHS
160,000
185,000
210,000
235,000
260,000
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335,000
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385,000
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(Nos)
Nomura | Ashok Leyland 27 May 2014



4
Market share has remained largely stable in FY14
We note AL has largely been able to maintain its market share at ~25% levels over the
past 5-6 years. In FY14, AL had a market share of 25.8% vs. 26.3% in FY13. Going
ahead, we expect AL should be largely able to maintain market share at current levels.

Fig. 3: Market share of the domestic MHCV industry (%)

Source: Society of India Automobile Manufacturers (SIAM), Nomura research
Raising our FY15-16F estimates on higher volumes
In line with our view of a strong recovery in MHCV industry volumes over the next three
years, we raise our volume estimates for Ashok Leyland as well. We now build in volume
growth of 15% in FY15F (flat earlier) and 30% in FY16F (remains similar). Overall, we
have increased our FY15-16F volume estimates by ~23%, as the decline in FY14
volumes (24% decline) has been lower than our estimates (29% decline). With improving
industry conditions, the pricing environment should also improve which should lead to
better profitability, in our view. Therefore, we increase our margin estimates to 7.0% for
FY15F (4.5% earlier) and 9.9% for FY16F (7.7% earlier).
Overall, we now expect EPS of INR0.1 for FY15F (loss of INR1.2 earlier) and INR2.1 for
FY16F (INR0.5 earlier). Consensus EPS estimates are currently much below our
estimates we expect consensus to raise estimates to build in the strong 4Q results and
improvement in industry growth prospects post the elections and formation of a new
stable government.

Fig. 4: Revisions to our estimates

Source: Company data, Nomura estimates

61.9
63.0
61.2
62.5
63.2
59.6 59.3
53.4
54.9
27.1
27.8 27.8
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TTMT AL Eicher
FY14 FY15F FY16F FY17F FY14F FY15F FY16F FY14 FY15F FY16F
Volumes (CVs ex-Dost) 60,304 69,350 90,154 103,678 56,583 56,583 73,558 6.6 22.6 22.6
YoY growth (%) (24.3) 15.0 30.0 15.0 (29.0) - 30.0
LCV 'Dost' volumes 25,385 25,385 30,462 34,118 31,425 31,425 37,710 (19.2) (19.2) (19.2)
Total Volumes 85,689 94,735 120,617 137,796 88,009 88,009 111,269 (2.6) 7.6 8.4
Revenues (INR m) 99,434 116,438 148,122 171,093 95,134 101,427 128,226 4.5 14.8 15.5
EBITDA (INR m) 1,666 8,104 14,721 18,189 (147) 4,584 9,864 76.8 49.2
Margins (%) 1.7 7.0 9.9 10.6 (0.2) 4.5 7.7 1.8 2.4 2.2
Adj EPS (INR) -1.4 0.1 2.1 3.3 -2.3 -1.2 0.5
Old % dif f er ence New
Nomura | Ashok Leyland 27 May 2014



5
Fig. 5: Nomura vs. consensus

Source: Bloomberg, Nomura estimates
Upgrade to Buy; TP raised to INR38
We use SOTP methodology to arrive at our TP of INR38. We value the standalone
business at INR35.4/share based on 8x FY17F EBITDA (middle of historical trading
range) of INR18.2bn which is discounted back to J une-14 @ 13% cost of equity. We
value ALs holdings in IndusInd Bank shares at INR1/share based on the current stock
price of INR547. We value ALs holding (~67% stake) in Hinduja Leyland Finance at
INR2/share based on 1.5x FY13 book value of INR5.26bn.
Our TP moves up to INR38 (from INR13), following the sharp increase in our earnings
estimates and corresponding reduction in net debt estimates.
While our earlier TP was based on implied EV/EBITDA of 8.5x on FY16F EBITDA, we
now believe that FY17 is a better year to base the valuation multiple as it fully captures
the full recovery of the CV cycle. Also, we now value its investments in IndusInd and
Hinduja Leyland Finance as the company plans to monetise its non-core assets.

Fig. 6: AL Target price calculation

Source: Bloomberg, Nomura estimates

Fig. 7: India Autos Comp sheet

Note: * EPS and P/E Adjusted for subsidiary values
Prices as of 26-May 2014.
Source: Bloomberg, Nomura estimates

(INR m)
FY15F FY16F FY15F FY16F FY15F FY16F
Sales 116,438 148,122 118,382 143,803 (1.6) 3.0
EBITDA 8,104 14,721 7,214 12,037 12.3 22.3
EBITDA margin (%) 7.0 9.9 6.1 8.4 0.9 1.6
Adj PAT 268 5,596 31 3,867 44.7
EPS 0.1 2.1 0.0 1.5 44.7
Consensus Nomur a Dif f er ence(%)
St andalone business INR mn
FY17F EBITDA 18,189
EV at 8x FY17F EBITDA 145,516
Net debt - FY16F 42,201
Equity value 103,315
Equity value/sh 38.8
Equity value/sh - J une-16 - A 35.4
Invest ment s
Holding in IndusInd Bank - B 1.0
Hinduja Leyland Finance (@ 1.5x FY13 book) - C 2.0
Tar get Pr ice - A+B+C 38.0
Mkt Cap Pr ice EPS CAGR
Company Ticker ($mn) Rat ing INR FY14-16F FY14F FY15F FY16F FY15F FY16F FY15F FY16F FY15F FY16F FY15F FY16F FY15F FY16F
Ashok Leyland AL IN 1,443 Buy 31.9 n.a. (1.8) 0.1 2.1 n.a 15.1 16.2 8.6 0.6 11.8 7.0% 9.9% -0.8% 5.1%
Bajaj Auto BJ AUT IN 9,665 Neutral 1,961.2 7% 114.3 122.2 131.1 16.0 15.0 10.7 9.7 33.8 30.9 19.7% 19.0% 5.9% 6.6%
Hero MotoCorp HMCL IN 7,824 Neutral 2,300.5 21% 102.6 135.0 151.3 17.0 15.2 10.7 9.7 40.2 37.1 14.3% 14.3% 3.8% 6.0%
M&M* MM IN 12,893 Buy 1,229.2 9% 62.2 65.5 74.3 13.0 11.4 8.4 7.2 20.9 20.5 13.6% 13.8% 3.1% 4.1%
Maruti Suzuki MSIL IN 12,046 Buy 2,341.3 27% 94.5 118.3 152.4 19.8 15.4 9.5 7.2 15.2 17.1 12.9% 13.6% 4.1% 6.8%
Tata Motors TTMT IN 22,536 Buy 444.1 5% 46.9 46.6 51.7 9.5 8.6 4.2 3.7 25.2 22.4 14.6% 14.9% -5.0% -0.9%
Exide EXID IN 1,967 Neutral 135.9 13% 5.7 6.4 7.3 21.2 18.5 12.4 10.8 13.9 14.6 13.6% 13.9% 3.3% 3.8%
Bharat Forge BHFC IN 1,875 Buy 473.0 30% 17.8 24.5 30.2 19.3 15.7 9.5 8.1 21.7 22.8 19.8% 20.0% 3.5% 5.6%
Amara Raja AMRJ IN 1,152 Buy 396.1 9% 22.2 22.9 26.2 17.3 15.1 10.4 8.5 25.4 23.8 16.0% 16.1% -0.6% 6.1%
EPS P/ E EV / EBITDA EBITDA mar gin FCF Yield ROE (%)
Nomura | Ashok Leyland 27 May 2014



6
Key risks
Weaker-than-expected MHCV industry volumes: We expect strong revival in domestic
MHCV volumes over the next three years. However, if volumes are weaker than
expected, there could be downside risks to our estimates.
Market share loss for AL due to high competition: If AL loses significant market
share or discounting does not come down meaningfully due to high competition, there
could be downside risks to our estimates.
4QFY14 results: Significantly above our expectations
Above or below expectations?
Ashok Leylands 4QFY14 EBITDA came in at INR1.8bn, significantly higher than our
estimate of INR1.35bn and consensus of INR0.65bn. Margins came in at 6% vs. our
expectation of 4.4% and consensus of 2.2%. RM/sales declined by 440bp q-q to 75.3%,
as against our expectation of 77%.
Adjusted net profit was ~INR625mn vs. consensus estimate of a loss of INR741mn and
our loss estimate of INR366mn. There was a net one-off gain of INR3.76bn on: 1) the
sale of long-term investments of INR2.2bn; 2) the sale of immovable property of
INR1.6bn, and; 3) a one-time loss of INR32mn on its VRS scheme. Our numbers are
adjusted for the same. As per our calculations, standalone net debt is around INR46.6bn.

Fig. 8: 4QFY14 results - comparison with our forecasts and consensus

Source: Company data, Bloomberg, Nomura estimates

Key consolidated financials
For the first time, the company reported consolidated financials for FY14. Consolidated
EBITDA was ~INR4.22bn, implying EBITDA of INR2.56bn for subsidiaries/J Vs. The
consolidated loss was INR1.65bn while standalone PAT was INR0.3bn, implying a
INR1.9bn loss for other subs/J Vs (INR0.73/share). As per our estimates, consolidated
net debt was around INR75-80bn.

Fig. 9: FY14 results standalone and consolidated numbers

Source: Company data, Bloomberg, Nomura estimates

Key takeaways from the conference call
Industry outlook AL believes that demand has bottomed and things can improve over
the next 1-2 quarters. Utilisation for fleet operators is ~60% currently.
Over the next 2-3 years, depending on reforms undertaken by the new government,
there can be a strong recovery in industry volumes, in our view.
In 4Q, discounts declined by ~INR20,000/vehicle q-q to INR180,000/vehicle. The
company has consistently taken price increases: 1% in Feb, 1% in March and 2% in
Apr-14.
Actual Consensus Nomura Consensus Nomura
Net Sales 30,768 29,643 30,744 3.8% 0.1%
EBITDA 1,839 655 1,349 180.8% 36.4%
Margin 6.0% 2.2% 4.4%
Adj Net Profit 625 (741) (366)
INR mn % difference from
INR mn Consol St andalone Other s
Revenue 114,867 99,434 15,433
EBITDA 4,220 1,666 2,555
PBT befor exceptionals (8,210) (5,969) (2,241)
Reported PAT (1,641) 294 (1,935)
Nomura | Ashok Leyland 27 May 2014



7
In 4Q, margins were helped by a better product mix increased share of higher
tonnage vehicles.
Over the past one year, the company has undertaken cost reduction program and
taken steps to reduce overheads and manpower costs. The company believes this
should yield 100-150bp improvement in margins from current levels.
Standalone net debt is ~INR47bn; around INR15bn lower from the peak levels seen in
Aug-13. AL has reduced working capital to 8 days from 40 days earlier led particularly
by lower inventory levels (both raw material and finished goods). FY15F target net
debt/equity for the company is 1:1.
As of Mar-14, consolidated debt is INR85bn but INR30bn is due to its financing
subsidiary, Hinduja Leyland Finance.
The company has completed the reorganisation of Ashley Holdings and Ashley
Investments these entities are now merged with Ashley Project Services which is a
subsidiary of Ashok Leyland.
The company guides for capex of INR1-1.5bn in FY15F, and investment of INR2-2.5bn
in J Vs/subs for FY15F.
Exports continue to do well and the company expects strong growth in FY15F. Over the
medium-term, the company believes that exports can account for 20-25% of total
volumes
Under the J awaharlal Nehru National Urban Renewal Mission (J NNURM) scheme, AL
will have around 60% market share of the new orders. The company believes that
orders under this scheme will give sales volume of ~3,000 units in FY15F
Key numbers
Net sales at INR30.8bn vs. our estimate of INR30.7bn.
EBITDA margin of 6%, compared with our estimate of 4.4%.
RM/sales at 75.3% vs. our estimate of 77%.
Employee cost/sales at 8% vs. our estimate of 8.3%.
Other expenses/sales at 10.7% vs. our estimate of 10.3%.
Interest expenses of INR1.13bn vs. our estimate of INR1.15bn.
Other income was in line at INR157mn.


Fig. 10: 4QFY14 results


Source: Company data, Nomura estimates
INR mn 4QFY13A 3QFY14A 4QFY14A YoY QoQ 4QFY14F
Net Sales 37,285 19,532 30,768 -17.5% 57.5% 30,744
Net Raw Materials 28,245 15,568 23,164 -18.0% 48.8% 23,673
Staff Welfare 2,821 2,396 2,473 -12.4% 3.2% 2,546
Adjusted Other Expenditure 4,235 2,537 3,292 -22.3% 29.8% 3,176
Total Cost 35,302 20,501 28,928 -18.1% 41.1% 29,395
Oper at ing Pr of it 1,983 (969) 1,839 1,349
OPM (%) 5.3 -5.0 6.0 0.7 10.9 4.4
Non-Operating Income 115 154 157 154
Extraordinary Income/(Exp) 1,344 923 3,761 2,025
Interest 828 1,153 1,126 1,153
Depreciation 1,000 883 1,034 900
PBT 1,614 (1,928) 3,598 1,475
Tax 114 (256) (36) 221
Effective Tax Rate (%) 7.1 13.3 -1.0
Repor t ed PAT 1,500 (1,672) 3,634 1,254
Adj PAT 157 (2,595) 625 (366)
Adj EPS 0.06 -0.98 0.23 -0.14
Nomura | Ashok Leyland 27 May 2014



8
Fig. 11: Ratios


Source: Company data, Nomura estimates



4QFY13A 3QFY14A 4QFY14A YoY QoQ 4QFY14F
RM/Sales 75.8 79.7 75.3 (0.5) (4.4) 77.0
Staff Cost/Sales 7.6 12.3 8.0 0.5 (4.2) 8.3
Other Expenses/Sales 11.4 13.0 10.7 (0.7) (2.3) 10.3
Total Cost/Sales 94.7 105.0 94.0 (0.7) (10.9) 95.6
Realisation per vehicle (INR) 1,075,135 1,058,481 1,181,195 9.9% 11.6% 1,180,283
RM/Vehicle (INR) 814,477 843,673 889,267 9.2% 5.4% 908,818
Nomura | Ashok Leyland 27 May 2014



9
Appendix A-1
Analyst Certification
We, Kapil Singh and Nishit J alan, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Disclosures
Ashok Leyland AL IN INR 32 26-May-2014 Buy N/A

Ashok Leyland (AL IN) INR 32 (26-May-2014)
Rating and target price chart (three year history)
Buy (Sector rating: N/A)
Date Rating Target price Closing price
23-J an-14 Reduce 17.70
23-J an-14 13.00 17.70
18-J ul-13 16.00 15.35
14-May-13 22.00 22.15
09-Nov-12 27.00 25.70
16-May-12 Neutral 25.40
16-May-12 26.00 25.40
20-Sep-11 34.00 26.15
For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We use SOTP valuation methodology to arrive at our TP of INR38. We value the standalone business
at INR3.54/sh based on 8x FY17F EBITDA of INR18.2bn which is discounted back to J une-14 @ 13% cost of equity. We value
the holding in IndusInd Bank shares at INR1/sh based on current stock price of INR547. We value ALs holding (~67% stake) in
Hinduja Leyland Finance at INR2/sh based on 1.5x FY13 book value of INR5.26bn. The benchmark index for this stock is MSCI
India.

Risks that may impede the achievement of the target price (1) Weaker-than-expected MHCV industry volumes: We expect
strong revival in domestic MHCV volumes over the next 3 years. However, if volumes are weaker than expected, there could be
downside risks to our estimates. (2)Market share loss for AL due to high competition: If AL loses significant market share or
discounting does not come down meaningfully due to high competition, there could be downside risks to our estimates.

Important Disclosures
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email grpsupport@nomura.com for help.

Nomura | Ashok Leyland 27 May 2014



10
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
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Distribution of ratings (Global)
The distribution of all ratings published by Nomura Global Equity Research is as follows:
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44% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54% of companies with
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Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America, and
Japan and Asia ex-Japan from 21 October 2013
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
subject to limited management discretion. An analysts target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.

STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia ex-
Japan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.

SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow J ones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.

Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A
'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price
have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is
acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled
as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should
not expect continuing or additional information from Nomura relating to such securities and/or companies.

SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.

Target Price
A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be
impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
Nomura | Ashok Leyland 27 May 2014



11

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