Stock Analysis - Ashok Leyland.

I started screening for a quality business, which I understand and there are long-term competitive advantages and possibilities to generate free cash flow.

In my mind, I decided to focus on the automotive industry in India because it is going through a recession and has been in the discussion for bad reasons (high interest rates, inflation, low sales, etc.). It is not uncommon to find a less valuable and reasonably strong business in an area that is undergoing temporary recession or recession.

I restrict my screening to the automobile sector. Also, within the automobile area, I decided to concentrate or limit on screening for commercial automotive manufacturer.

My screening process within the commercial vehicle manufacturer company area had been narrowed to those companies who have earned a return on equity of 15% higher, with internal accretion (lower credit level and negligible equity dilution) And the sound has increased through working capital management.

The screening process led me to Ashok Leyland.

Company Profile 

Ashok Leyland, is Hinduja Group flagship company and one of India's second largest commercial vehicle manufacturer company. Recently, Ashok Leyland has been ranked as the 38th best brand in India. The company has 9 manufacturing plants, 7 is in India, 1 in UAE, and 1 is in Unite Kingdom with the joint venture with Alteams  Group, which gives the company an international footprint.

Ashok Leyland product portfolio is full of diversity, the company has a good range of trucks and buses available, currently the company is focused on the production of electric buses. The company is also focusing on making medium commercial vehicles.

Company performance

The commercial vehicle industry in India grew up by 23% in the financial year 2017-18 as compared to same period of last year. The Medium and Heavy Vehicle Commercial (M&HCV) segment showed a growth of 12% and Light Commercial Vehicle (LCV)  segment showed a healthy growth of 25% during the financial year 2017-18 over the same period last year.

• Ashok Leyland continued to steadily grow sales and revenues across all its business division.
• M&HCV sales grew 15.8% to 131,432 unites (116,534 in domestic and 14,898 in export market).
• LCV achieved record sales of 43,441 vehicles, with a growth of 37% over the pervious year.
• Company achieved market share growth in almost in all segment and region of the country, leading to a record full year sales of 102,826 M&HCV trucks.
• Company exported 8,000 vehicles, primarily to South Asian and African markets. 

The image below shows the company's product sales well.

Fundamental analysis.

We will conduct the fundamental analysis of Ashok Leyland's business on the basis of the following points.

#Sales trend

Let's see, for the last 10 years, 5 years, 3 years, what has been the growth of Ashok Leyland sales.

             10 years : 12.71%

             5  years   : 16.03%

             3  years  : 23.55%

 We will also see the trends of the TTM (Trailing Twelve Month).

On Mar’18, Ashok Leyland posted a sales figure of Rs. 26,248 Crore. Its reported TTM Sales of Rs. 29,772 Crore.

So in terms of TTM vs last reported earning, there is growth in sales of 35.24%.

In terms of sales growth, falling stock price is not a cause for worry, by then, the increase in sales seems to be fair.

The above image shows a clear picture of share price trend along with nifty and sensex.

Let’s jump to another business fundamental.

#Net profit.

Let's see how the increase in net profits has been growing in the past 10 years, 5 years, and 3 years.

We will also include TTM ( Trailing Twelve Month).

10 years growth  : 13.09%

5 years growth    : 56.73%

3 years growth    : 82.45%

On Mar’18, Ashok Leyland posted a PAT figure of 1,563 crore. Its reported TTM PAT is 1,947 crore.

So in terms of TTM vs last reported annual earning we can see growth in PAT 3.8%.

It is probable that Ashok Leyland will post good profits after tax in March 2019 compared to March 2018.

#ROE (Return on Equity) trend.

Let's see how Ashok Leyland's ROE trends are in the last 5 years, 3 years, 10 years.

10 years :  14.87 %

5 years  :    14.71%

3 years  :  21.98 %

TTM     :     23.22%

When we observed these figure we can say that company’s ROE is above 15% in last 10 years. Which are a good sign in any way.

By reading the company's balance sheet, we get to know the following points.

1. Company has good consistent profit growth of 56.73% over past 5 years.
2. Company is virtually debt free.
3. Company has been maintaining a healthy divided pay out of 50.40%.

However, the decision to increase the excel load by the government has affected the company's sales, apart from this, some rating companies have put down Ashok Leyland's share target price 120, the stock is currently closed at 105. In terms of capitalization, the company's market capitalization is slightly overvalued.

Tell me in the comments section below that do you think I have made a mistake in buying Ashok Leyland and why should I sell the stock instead.

I'm listening to.

Caution -  My analysis can be harmful for your wealth, I am invested in Ashok Leyland. But, by analysing this stock, I mean not to give investment advice to anyone. This analysis only for education purpose don’t take this as a buy or sell stock recommendations. Do not act blindly on someone's investment advice, before making any decision, take the opinion of your investment adviser and do your own homework.