FINANCIAL STATEMENT ANALYSIS REPORT

A REPORT ON ANALYSIS OF FINANCIAL STATEMENTS OF ASHOK LEYLAND

SUBMITTED BY:

GAURANG PATEL ROLL NO. : 08075 BATCH No.: 2008-10

SUBMITTED TO: PROF. PARAG RIJWANI FACULTY – FINANCE AREA

N. R. INSITITUTE OF BUSINESS MANAGEMENT, GLS Campus, Ahmedabad.

PRFEACE As the world is growing rapidly, the businesses are also moving to become the huge one. And by that result, more and more people want to become a master in these businesses. The main purpose in the finance field is to know how the financial analysis is done. We all know that finance is the blood of any business and without it no business can run. Financial analysis of a company is very difficult and the most important task and by doing this I am able to know the whole financial position and financial structure of the company. Simply by looking at how much cash a company has does not provide enough information. The financial statements need to be analyzed to measure a company’s performance and to compare it with other firm’s in the same industry. The resulting information is intended to be useful to owners, potential investors, creditors, analysts, and others as the analysis evaluates the past performance, future potential and financial position of the firm. This report is an analysis of financial statements of Ashok Leyland. This report has been prepared with an objective to develop analytical skills required to interpret the information (explicit as well as implicit) provided by the financial statements and to measure the company’s performance during the past few years. The financial statements are analyzed using traditional evaluation techniques such as horizontal analysis, vertical analysis and trend analysis. Details are given in chapter 3 of this report. Ratios are an important tool in analyzing the financial statements and so in chapter 4, 5 and 6 ratios are analyzed to measure the company’s profitability, solvency & liquidity. Sincere attempts have been made to make this report error free but if any errors and omissions are found then I apologize for that.

Gaurang Patel

ii

ACKNOWLEDGEMENT This is a great opportunity as well as great honor to submit this Project to you, I am firstly thanks to my college to give me this kind of course outline and makes me grateful by doing this project. I sincerely thank all who have contributed to success this Report. Firstly I thanks to our faculty, Mr. Parag Rijwani for makes us able to doing this kind of work and giving us new experience. And help us a lot whenever we needed. He also provides an important data and makes us to understand the terms and theory of Finance as well as gives us guidance. Last but not the least, I am grateful to our institute, NR Institute of Business Management and Gujarat Law Society including all their members and participants for providing such excellent infrastructure equipped with ultra modern facilities which served as a great source of convenience and information.

iii

EXECUTIVE SUMMARY The Company has set itself the task of consolidating and enhancing its position in the Indian commercial vehicle market, both in terms of volumes as well as in customer satisfaction, in the medium term. The Company is executing various initiatives in terms of process and product improvements to achieve this goal. After six straight years of positive growth rate, domestic demand for M&HCVs showed a decline during FY08 and stood lower by 2% YoY. Ashok Leyland also suffered a similar decline in its M&HCV portfolio.

(Rs m)

4QFY07

4QFY08

Change

FY07

FY08

Change

Net sales

22,910

25,620

11.8%

71,682

77,291

7.8%

Expenditure

20,261

22,663

11.9%

64,655

69,251

7.1%

Operating profit (EBDITA)

2,649

2,957

11.6%

7,027

8,040

14.4%

EBDITA margin (%)

11.6%

11.5%

9.8%

10.4%

169

116

-31.3%

708

740

4.5%

Other income Interest (net)

19

91

384.8%

53

497

832.9%

Depreciation

481

486

1.0%

1,506

1,774

17.8%

2,318

2,496

7.7%

6,176

6,509

5.4%

Profit before tax Extraordinary income/(expense)

(30)

(22)

(131)

(84)

Tax

573

669

16.7%

1,632

1,732

6.1%

1,715

1,806

5.3%

4,413

4,693

6.4%

Profit after tax/(loss) Net profit margin (%) No. of shares (m) Diluted earnings per share (Rs)* Price to earnings ratio (x)**

7.5%

7.0%

6.2%

6.1%

1,323.9

1,330.3

1,323.9

1,330.3

3.3

3.5 11.5

All segments and geographies combined, and then volumes for the full year remained flat. Here, apart from passenger M&HCVs, sales of LCV and exports also helped prop up

iv

volumes. In value terms, growth stood at 8% YoY for the full year, thanks mainly to improved product mix and a series of price hikes that the company undertook during the fiscal. Income from vehicles was Rs 68,819 mn. 4.1% over the previous year level of Rs 66,092 mn. In addition the Company made investments in a vehicle manufacturing / assembly plant at Ras Al Khaimah, Design Engineering services business viz., Defiance Testing and Engineering Services Inc. USA and Albonair GmbH, Germany which is engaged in the development of fuel emission treatment / control systems.

v

TABLE OF CONTENTS TOPIC Preface Acknowledgment Executive Summary

PAGE NO. ii iii iv

Chapter – 1 Company Profile About Ashok Leyland Product Range

1 1 3

Chapter – 2 Concept of Financial Statement Analysis

4

Chapter – 3 Traditional Performance Evaluation Techniques 3.1 Horizontal Analysis 3.2 Vertical Analysis 3.3 Trend Analysis

8 21 24

Chapter – 4 Analysis of Profitability 4.1 Gross Profit Ratio 4.2 Net Profit Ratio 4.3 Asset Turnover 4.4 Return on Asset 4.5 Return on Equity

26

Chapter – 5 Analysis of Solvency 5.1 Debt to Equity 5.2 Interest Coverage Ratio

29

Chapter – 6 Analysis of Liquidity 6.1 Current Ratio 6.2 Quick Ratio 6.3 Debtor Turnover Ratio 6.4 Average Collection Period 6.5 Inventory Turnover

31

Chapter – 7 Cash flow statement analysis

34

Chapter – 8 Recommendations & Suggestion

40

vi

CHAPTER-1 COMPANY PROFILE

About Ashok Leyland Ashok Leyland is a commercial vehicle manufacturing company based in Chennai, India. It is the second largest commercial vehicle company in India in the medium and heavy commercial vehicle (M&HCV) segment with a market share of 28% (2007-08).Ashok Leyland is a market leader in the bus segment. The company was established in 1948 as Ashok Motors, with an aim to assemble Austin cars. Manufacturing of commercial vehicles was started in 1955 with equity contribution from the British company, Leyland Motors. Today the Company is the flagship of the Hinduja Group, a British-based and Indian originated transnational conglomerate. Ashok Leyland is a technology leader in the commercial vehicles sector of India. Its annual turnover exceeded USD 2 billion in 2007-08. Selling close to around 83,000 medium and heavy vehicles in 2007-08, Ashok Leyland is India's largest exporter of medium and heavy duty trucks out of India. It is also one of the largest Private Sector Employers in India - with about 12,000 employees working in 6 factories and offices spread over the length and breadth of India Over the years, Ashok Leyland vehicles have built a reputation for reliability and ruggedness. This was mainly due to the product design legacy carried over from British Leyland. 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 Fiat SpA, part of the Fiat Group and Europe's leading truck manufacturer. This resulted in Ashok Leyland launching the "Cargo" range of trucks. These vehicles used Iveco engines and for the first time AL vehicles had factory-fitted cabs. The Cargo trucks are no longer in production and the use of Iveco engine was discontinued, but the Cargo cab continues to be used on the eComet range of trucks. Ashok Leyland also had a collaboration with Hino Motors, Japan from whom the technology for the Hseries engines was bought. Many indigenous versions of H-series engine was developed with 4 and 6 cylinder and also conforming to BS2 and BS3 emission norms in India. These engines proved to be extremely popular with the customers primarily for their excellent fuel efficiency. Most current models of Ashok Leyland come with H-series engines. 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. In 2006, Ashok Leyland became the first automobile company in India to receive the TS16949 Corporate Certification.

1

Branch office: No. 1 Sardar Patel Road, Guindy, Chennai – 600 032, India. Tel: 0091 44-2220 6000 Fax: 0091 44-2220 6000

Management Team Ashok Leyland is currently headed by Mr R. Seshasayee who is the Managing Director since 1998. Under his leadership, the company has expanded from a purely India-centric company to a company with global focus. Mr. Seshasayee was also the President of CII (Confederation of Indian Industry), the apex body representing Indian Industry for the year 2006-2007. The following are the other functional heads at Ashok Leyland 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Mr. Vinod Dasari - Chief Operating Officer. Mr. K. Sridharan - Chief Financial Officer. Mr. N. Mohanakrishnan - Executive Director - Internal Audit Mr. Rajive Saharia - Executive Director - Marketing Mr. Shekar Arora - Executive Director - Human Resources Mr. B. M. Udayashankar - Executive Director - Manufacturing Mr. Anup Bhat - Executive Director - Strategic Sourcing Mr. Rajindar Malhan - Executive Director - International Operations Mr. R.R.G.Menon - Executive Director - Product Development Mr. A. K. Jain - Executive Director - Project Planning

Achievements •

Eight out of ten metro state transport buses in India are from Ashok Leyland. At60 million passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network.

•

Ashok Leyland has a near 98.5% market share in the Marine Diesel Engines Markets in India.

•

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified with Environmental Management System.

•

In the 2006-07 financial year, the company sold a record 83,101 vehicles which is an all time high for Ashok Leyland.

•

It is one of the leading suppliers of defense vehicles in the world and also the leading supplier of logistics vehicles to the Indian Army.

2

Products • • • • • • • • • • • • • • • • • •

Luxura i-Bus Viking BS-I - city bus Viking BS-II - city bus Viking BS-III -city bus Cheetah BS-I Cheetah BS-II Panther 12 M Stag Mini Stag CNG 222 CNG Lynx Double Decker Vestibule Airport Tarmac Coach Olympian Gensets

Goods segment • • • • • • • • • • • • • • • • • • • •

Bison Haulage Tusker Super 1616 Comet CO 1611 1613 H Comet Gold 1613 Comet Tipper(4X2) Taurus 2516- 6 X 4 Tipper 2214 Bison Tipper Tusker Super 2214 - 6 X 2 Tusker Gold 2214 (6X2) Taurus 2516 - 6X4 2516 H (6X2) Taurus 2516 - 6 X 2 4018 Tractor Artik 30.14 Tractor Tusker Turbo Tractor 3516 ecomet 912 ecomet 111i 4921

3

CHAPTER-2 CONCEPTS Financial Statement Analysis Objectives:  Assessment of the firm’s past, present and future financial conditions  Done to find firm’s financial strengths and weaknesses  Primary Tools: • Financial Statements • Comparison of financial ratios to past, industry, sector and all firms

Financial Statements:    

Balance Sheet Income Statement Cash flow Statement Statement of Retained

Sources of Data:    

Annual reports Via mail, SEC or company websites Published collections of data Investment sites on the web

Techniques of Financial Statement Analysis:    

Horizontal Analysis Vertical Analysis Trend Analysis Ratio Analysis

Horizontal Analysis:  

This technique is also known as comparative analysis. It is to calculate amount changes & percentage changes from the previous years to current years.

Trend Analysis: 

It is carried out by first assigning a value of 100 to the financial statement items in a past financial year used as a base year and then expressing financial statement items in the following year as a percentage of the base year value.

Vertical Analysis: 

Vertical/Cross-sectional/Common size statements came from the problems in comparing the financial statements of firms that differ in size.

4



 

In the balance sheet, for example, the assets as well as the liabilities and equity are each expressed as a 100% and each item in these categories is expressed as a percentage of the respective totals. In the common size income statement, turnover is expressed as 100% and every item in the income statement is expressed as a percentage of turnover (sales). From the vertical analysis, an analyst can compare the percentage mark-up of asset items and how they have been financed. The strategies may include increase/decrease the holding of certain assets. The analyst may as well observe the trend of the increase in the assets and liabilities over several years.

Ratio Analysis: Objectives to Ratio Analysis:      

Standardize financial information for comparisons Evaluate current operation Compare performance with past performance Compare performance against other firms or industry standards Study the efficiency of operations Study the risk of operations

Rationale behind Ratio Analysis:  

A firm has resources It converts resources into profits through • •



production of goods and service sales of goods and services

Ratios •

Measure relationships between resources and financial flows

•

Show ways in which firm’s situation deviates from    



Its own past Other firms The industry All firms

Ratios can be classified into the following categories: • • •

Profitability Ratio Liquidity Ratio Solvency Ratio

5

Profitability Ratio: 

Profitability ratios measure the overall performance of the firm by determining the effectiveness of the firm in generating profit, and are calculated by establishing relationship between profit figures on the one hand, and sales and assets on the other.

Return on Total Assets: This is measure of profitability from a given level of investments. It is an excellent indicator of overall performance of a company. It is also called return on capital employed or return on investment. It measures how efficiently the capital is employed. Return on Total Assets = Net Income after Tax / Average Total Assets *100 Return on Equity: It measures the profitability of equity funds invested in firm. It is regarded as a very important measure because it reflect the productivity of the ownership capital employed in the firm Return on Equity = Net Income after Tax - Dividend on Preference Share / Average Shareholders Equity *100

Solvency Ratio: The capacity of a company to discharge its obligations towards long-term lender indicates the financial strength and ensures its long-term survival. It is important for an analyst to study the solvency of a company. Debt Coverage Ratio The ratio measures the capacity of a company to pay the installment of the principal due and the interest liability it has incurred on its long-term borrowing, out of its cash profits. It is also known as Times-debt service Covered. Debt Coverage Ratio = Internally Generated Funds / Average Debt Interest Cover Ratio The ratio measures the capacity of a company to pay the interest liability it has incurred on its longterm borrowing, out of its cash profits. It is also known as Times-interest Covered. Interest Cover Ratio = Earning Before Interest & Tax / Interest Expenses

Liquidity Ratio:

6

Liquidity is the ability of a company to meet its short-term obligations when fall due. A company should have enough cash % other current assets, which can be converted in to cash so that it can pay its suppliers & lenders on time.

Current Ratio Current ratio indicates the firm’s ability to pay its current liabilities, i.e. day-to-day financial obligations. It shows the strength of credit, strength of working capital & capacity to carry on effective operations. Higher ratio i.e. more than 2:1 indicates sound solvency position. Current Ratio = current Assets / current liabilities. Debtor's Turnover This ratio shows how many times sundry debtors (accounts receivable) turn over during the year. It is defined as: Debtor's Turnover = Average Debtors / Sales

7

CHAPTER-3 TRADITIONAL PERFORMANCE EVALUATION TECHNIQUES 3.1 Horizontal Analysis 3.1.1 Horizontal Analysis of Balance Sheet for the year 2008-07 Table 1 Horizontal Analysis of Balance Sheet For the year 2008-07 Particulars

(Rs in millions) Change Change (Rs) (%)

Mar, 08

Mar, 07 (Rs)

1330.34 20159.48 21489.82

1323.87 17621.81 18945.68

6.47 2537.67 2544.14

0.49% 14.40% 13.43%

Loan Funds: A) Secured Loans B) Unsecured Loans Total

1902.4 6972.61 8875.01

3602.16 2801.82 6403.98

-1699.76 4170.79 2471.03

-47.19% 148.86% 38.59%

Deferred Tax Liability

2538.2

1969.29

568.91

28.89%

32903.03

27318.95

5584.08

20.44%

29424.38 14168.88 15255.5

26201.97 13131.64 13070.33

3222.41 1037.24 2185.17

12.30% 7.90% 16.72%

Sources of funds A) Share Capital B) Reserves and Surplus Total

TOTAL Application of Funds Fixed Assets: A) Gross Block B) Less: Depreciation C) Net Block

8

E) Capital work-in progress

5292.45

2374.91

2917.54

122.85%

Investments Current assets, loans and advances A) Inventories B) Sundry debtors C) Cash & bank balances D) Loans & advances

6099

2210.94

3888.06

175.86%

12239.14 3758.35 4513.7 8241.37

10703.21 5228.75 4349.39 6695.79

14.35% -28.12% 3.78% 23.08%

Total

28752.56

26977.14

1535.93 -1470.4 164.31 1545.58 1,775.4 2

Less: Current liabilities and provisions

6.58%

A) Liabilities

19267.09

16516.25

B) Provisions

3452.31

1042.3

Total

22719.4

17558.55

Net current assets

6033.16

9418.59

2,750.8 4 2,410.0 1 5,160.8 5 (3,385.4 3)

244.18

(21.2 6)

-8.71%

27318.95

5,584.0 8

20.44%

Misc. Expenses

TOTAL

222.92

32903.03

16.66% 231.22% 29.39% -35.94%

9

Chart 1: Horizontal Analysis of Balance Sheet For 2008-07

.

10

3.1.2. Horizontal Analysis of Balance Sheet For the year 2007-06 Table 2 Horizontal Analysis of Balance Sheet For the year 2007-06

Particulars


Mar, 07

Mar, 06 (Rs)

1323.87 17621.81 18945.68

1221.59 12902.94 14124.53

102.28 4718.87 4821.15

8.37% 36.57% 34.13%


3602.16 2801.82 6403.98

1846.91 5072.37 6919.28

1755.25 -2270.55 -515.3

95.04% -44.76% -7.45%


1969.29

1796.89

172.4

9.59%

27318.95

22840.7

4478.25

19.61%

26201.97 13131.64 13070.33 2374.91

21384.99 11952.28 9432.71 1414.17

4816.98 1179.36 3637.62 960.74

22.53% 9.87% 38.56% 67.94%

2210.94

3681.78

-1470.84

-39.95%

10703.21 5228.75

9025.61 4243.37

1677.6 985.38

18.59% 23.22%


TOTAL Application of Funds Fixed Assets: A) Gross Block B) Less: Depreciation C) Net Block E) Capital work-in progress Investments

Current assets, loans and advances A) Inventories B) Sundry debtors

11

C) Cash & bank balances D) Loans & advances Total

4349.39 6695.79 26977.14

6028.76 3026.39 22324.13

Less: Current liabilities and provisions A) Liabilities

16516.25

11468.95

B) Provisions Total Net current assets

1042.3 17558.55 9418.59

2616.21 14085.16 8238.97

244.18

73.07

27318.95

22840.7

Misc. Expenses TOTAL

-1679.37 3669.4 4,653.01

5,047.30 (1,573.91 ) 3,473.39 1,179.62 171.11 4,478.25

-27.86% 121.25% 20.84%

44.01% -60.16% 24.66% 14.32% 234.17% 19.61%

Chart 2 Horizontal Analysis of Balance Sheet For the year 2007-06

3.1.3 Horizontal Analysis of Balance Sheet for the year 2006-05 12

Table 3 Horizontal Analysis of Balance Sheet For the Year 2006-05 Particulars


Mar, 06

Mar, 05 (Rs)

1221.59 12902.94 14124.53

1189.29 10489.36 11678.65

32.3 2413.58 2445.88

2.72% 23.01% 20.94%


1846.91 5072.37 6919.28

2634.96 6169.1 8804.06

-788.05 -1096.73 -1884.78

-29.91% -17.78% -21.41%


1796.89

1708.48

88.41

5.17%

TOTAL

22840.7

22191.19

649.51

2.93%

21384.99 11952.28 9432.71 1414.17

20022.5 11084.04 8938.46 851.55

1362.49 868.24 494.25 562.62

6.80% 7.83% 5.53% 66.07%

Investments

3681.78

2291.9

1389.88

60.64%

Current assets, loans and advances A) Inventories B) Sundry debtors C) Cash & bank balances D) Loans & advances

9025.61 4243.37 6028.76 3026.39

5680.81 4587.66 7966.82 3337.34

58.88% -7.50% -24.33% -9.32%

22324.13

21572.63

3344.8 -344.29 -1938.06 -310.95 751.5 0


Application of Funds Fixed Assets: A) Gross Block B) Less: Depreciation C) Net Block E) Capital work-in progress

Total

3.48%

Less: Current liabilities and provisions 13

A) Liabilities

11468.95

9611.87

B) Provisions

2616.21

2044.8

14085.16

11656.67

8238.97

9915.96

1,857.0 8 571.4 1 2,428.4 9 (1,676.9 9)

193.32

(120.2 5)

-62.20%

22191.19

649.5 1

2.93%

Total Net current assets

Misc. Expenses

TOTAL

73.07

22840.7

19.32% 27.94% 20.83% -16.91%

Chart 3 Horizontal Analysis of Balance Sheet For the Year 2006-05

3.1.4 Horizontal Analysis of Income Statement For the year 2008-07

14

Table 4 Horizontal Analysis of Income Statement For the year 2008-07 (Rs in millions) Particulars

Mar, 08

Mar, 07

Change

Change

(Rs)

(Rs)

(Rs)

(in %)

Income 77,291.23

71,681.76

5,609.47

7.83%

Other Income

739.99

708.03

31.96

4.51%

Total Income

78,031.22

72,389.79

5,641.43

7.79%

57,646.34

54,631.91

3,014.43

5.52%

Employee Expenses

6,162.00

4,807.00

1,355.00

28.19%

Other Expenses

5,443.00

5,216.00

227.00

4.35%

497.4

53.32

444.08

832.86%

1773.61

1505.74

267.87

17.79%

71,522.35

66,213.97

5,308.38

8.02%

6381.5

6045.06

336.44

5.57%

provision for taxation - current tax

1014

1350.5

-336.50

-24.92%

- Deferred tax

604.4

230.2

374.20

162.55%

70

51.5

18.50

35.92%

4693.1

4412.86

280.24

6.35%

5022.74

3616.86

1,405.88

38.87%

Sales less returns

Expenditure Cost of material

Financial expenses Depreciation Total Expenditure Profit before tax

- Fringe benefit tax Profit after tax Balance profits carried to balance sheet

Chart 4 Horizontal Analysis of Income Statement For the Year 2007-06

15

3.1.5 Horizontal Analysis of Income Statement For the Year 2007-06 Table 5 Horizontal Analysis of Income Statement For the Year 2007-06 16

(Rs in millions) Particulars

Mar, 07

Mar, 06

Change

Change

(Rs)

(Rs)

(Rs)

(in %)

Income 71,681.76

52,476.57

19,205.19

36.60%

Other Income

708.03

329.74

378.29

114.72%

Total Income

72,389.79

52,806.31

19,583.48

37.09%

54,631.91

37,690.87

16,941.04

44.95%

Employee Expenses

4,807.00

4,038.00

769.00

19.04%

Other Expenses

5,216.00

5,347.00

-131.00

-2.45%

53.32

164.53

-111.21

-67.59%

1505.74

1260.06

245.68

19.50%

66,213.97

48,500.46

17,713.51

36.52%

6045.06

4523

1,522.06

33.65%


1350.5

1130.5

220.00

19.46%

- Deferred tax

230.2

72.3

157.90

218.40%

51.5

47

4.50

9.57%

Profit after tax

4412.86

3273.2

1,139.66

34.82%

Balance profits carried to balance sheet

3616.86

2303.7

1,313.16

57.00%

Sales less returns



- Fringe benefit tax


17

3.1.6 Horizontal Analysis of Income Statement For the Year 2006-05 Table 6 Horizontal Analysis of Income Statement For the Year 2006-05

18


Mar, 06

Mar, 05

Change

Change

(Rs)

(Rs)

(Rs)

(in %)

Income 52,476.57

41,818.97

10,657.60

25.49%

Other Income

329.74

537.55

-207.81

-38.66%

Total Income

52,806.31

42,356.52

10,449.79

24.67%

37,690.87

29,728.47

7,962.40

26.78%

Employee Expenses

4,038.00

3,541.00

497.00

14.04%

Other Expenses

5,347.00

4,321.00

1,026.00

23.74%

164.53

27.98

136.55

488.03%

1260.06

1092.14

167.92

15.38%

48,500.46

38,710.59

9,789.87

25.29%

4523

3550.1

972.90

27.40%


1130.5

895

235.50

26.31%

- Deferred tax

72.3

-59

131.30

-222.54%

47

0

47.00

Profit after tax

3273.2

2714.1

559.10

20.60%

Balance profits carried to balance sheet

2303.7

1784.13

519.57

29.12%

Sales less returns



- Fringe benefit tax


19

3.2 Vertical Analysis 3.2.1 Vertical Analysis of Balance Sheet

20

Table 7 Vertical Analysis of Balance Sheet (Rs in millions) Particulars

Mar, 08

Mar, 07

Mar,06

Mar,05

21489.82

18945.68

14124.53

11678.65

(%)

65.31%

69.35%

61.84%

52.63%

Loan Funds:

8875.01

6403.98

6919.28

8804.06

(%)

26.97%

23.44%

30.29%

39.67%

32903.03

27318.95

22840.7

22191.19

100%

100%

100%

100%

15255.5

13070.33

9432.71

8938.46

Sources of funds Shareholders’ funds

TOTAL (%) Application of Funds Fixed Assets: (%)

46.37%

47.84%

41.30%

40.28%

28752.56

26977.14

22324.13

21572.63

(%)

87.39%

98.75%

97.74%

97.21%

Less: Current liabilities and provisions

22719.4

17558.55

14085.16

11656.67

(%)

69.05%

64.27%

61.67%

52.53%

32903.03

27318.95

22840.7

22191.19

100%

100%

100%

100%

Current assets, loans and advances

TOTAL (%)

Chart 7 Vertical Analysis of Balance Sheet For the Year 2008

21



22


3.3 Trend Analysis

Table 9 Trend Analysis of Balance Sheet 23


Mar,05

Mar,06

Mar, 07

Mar, 08

Sources of funds Shareholders’ funds

11678.65

14124.53

18945.68

21489.82

(%)

52.63%

61.84%

69.35%

65.31%

Loan Funds:

8804.06

6919.28

6403.98

8875.01

(%)

39.67%

30.29%

23.44%

26.97%

22191.19

22840.7

27318.95

32903.03

100%

100%

100%

100%

Fixed Assets:

8938.46

9432.71

13070.33

15255.5

(%)

40.28%

41.30%

47.84%

46.37%

21572.63

22324.13

26977.14

28752.56

97.21%

97.74%

98.75%

87.39%

11656.67

14085.16

17558.55

22719.4

52.53%

61.67%

64.27%

69.05%

22191.19

22840.7

27318.95

32903.03

100%

100%

100%

100%

TOTAL (%) Application of Funds

Current assets, loans and advances (%) Less: Current liabilities and provisions (%) TOTAL (%)

Chart 11 Trend Analysis of Balance Sheet Sources of Funds

24

Chart 12 Trend Analysis of Balance Sheet Application of funds

4. ANALYSIS OF PROFITABILITY

25

Profitability Ratios To analyze the profitability of a company profitability ratios are used. These ratios measure the operating or income performance of a company. The goal of a business is to make a profit, so this type of ratio examines how well a company is meeting that goal. The commonly used ratios to evaluate profitability are: • • • • •

Gross Profit ratio Net Profit ratio Return on Assets Asset Turnover Return on Equity

PARTICULARS GROSS PROFIT NET SALES PAT AVG. TOTAL ASSETS AVG. EQUITY SHARE HOLDER'S FUND

2004-05

2005-06

12090. 5 41818. 97 2714.1 19776. 61 11098. 31

14785. 7 52476. 57 3273.2 35253. 66 22515. 94

2006-07

17,049.85 71681.76 4412.86 40743.05 25079.82

2007-08

19,644. 89 77291. 23 4693.1 50016. 41 20217. 75

Chart 13 Profitability Ratio Analysis

26

4.1. Gross Profit Ratio = Gross Profit × 100 Net Sales GROSS PROFIT NET SALES

GROSS PROFIT RATIO (%)

2004-05

2005-06

2006-07

2007-08

12090. 5 41818. 97

14785. 7 52476. 57

17,049.8 5

19,644.8 9

71681.76

77291.23

2004-05

2005-06

2006-07

28.91

28.18

23.79

2007-08

25.42

Analysis The GP ratio is showing continuously decreasing trend, starting from 2004/05 in 28.91% to 23.79% in the financial year 2006/07. This shows that a company is loosing its productivity in maintaining its gross profit margin. In 2007-08 the ratio again slightly been increased from 23.79 to 25.42.

4.2. Net Profit = PAT Sales

× 100

PAT NET SALES

NETPROFIT(%)

2004-05

2005-06

2006-07

2714.1 41818. 97

3273.2 52476. 57

4412.86

4693.1

71681.76

77291.23

2004-05

2005-06

6.49

6.24

2006-07

6.16

2007-08

2007-08

6.07

Analysis The NP ratio is showing declining trend from 6.49% in the year 2004/05 to 6.07% in the year 2007/08 which shows that there is increased amount of expenses in the form that increasing in the prices of row material.

4.3. Assets Turnover Ratio =

Net Sales Avg. Total Assets

AVG. TOTAL ASSETS NET SALES

2004-05

2005-06

19776. 61 41818. 97

35253. 66 52476. 57

2004-05

2005-06

2006-07

2007-08

40743.05

50016.41

71681.76

77291.23

2006-07

2007-08

27

ASSET TURN OVER (times)

2.11

1.49

1.76

1.55

Analysis This ratio measures how efficiently a company uses its assets. The asset turnover ratio is decreasing. Although the return on asset for the year 2008 is highest but the asset turnover ratio is least for this year. The company is not using its assets optimally.

4.4. Return of Assets = Profit after tax Average Total Assets PAT AVG. TOTAL ASSETS

RETURN ON ASSETS (%)

× 100

2004-05

2005-06

2006-07

2714.1 19776. 61

3273.2 35253. 66

4412.86

4693.1

40743.05

50016.41

2006-07

2007-08

2004-05

2005-06

13.72

9.28

10.83

2007-08

9.38

Analysis This ratio is used to measure a company’s success in using its assets to earn income for owners and creditors, those who are financing the business. There is a steep fall in the year 2006, after that there is a satisfactory utilization of the assets as the graph shows.

4.5. Return on Equity = PAT × 100 Avg. Common Shareholders’ equity PAT AVG. EQUITY SHARE HOLDER'S FUND

RETURN ON EQUITY(%)

2004-05

2005-06

2006-07

2714.1 11098. 31

3273.2 22515. 94

4412.86

4693.1

25079.82

20217.75

2004-05

2005-06

24.46

14.54

2006-07

17.60

2007-08

2007-08

23.21

Analysis The ROE of the company is 42.46% in the 2004/05 which has been decreased to 17.60% in the 2006/07 and then slightly increased to 23.21% in the 2008/07.Also one point here to be noted is that ROE of the company is higher than the ROA, which may be due to the concept called trading on equity.

28

5. ANALYSIS OF SOLVENCY PARTICULARS SECURED+UNSECURED LOANS EQUITY SHARE HOLDER'S FUND PBIT INTEREST ON LONG TERM DEBT

2004-05

2005-06

8804.0 6 11678. 65 3882.8 7 236.94

6919.2 8 14124. 53 4594.1 8 288.33

2006-07

6403.98 18945.68 6402.11 226.29

2007-08

8875.0 1 21489. 82 7197.0 6 688.19

Chart 14 Solvency Ratio Analysis

5.1. Debt - Equity Ratio =

Loan funds Total shareholders

29

DEBT TO EQUITY RATIO

2004-05

2005-06

0.75

0.49

2006-07

0.34

2007-08

0.41

Analysis This ratio is used to compare the amount of debt a company has with the amount the owners have invested in the company. It compares the amount of creditors’ claims to the owners’ claims to the assets of the firm. Trend shows that in 2005 the company was highly leverage but after it has managed to control this ratio in the year 2006 and 2007.

5.2. Interest coverage ratio= Profit before interest & tax Interest expense

INTEREST COVERAGE RATIO

2004-05

2005-06

16.39

15.93

2006-07

28.29

2007-08

10.46

Analysis This ratio suggests that whether company manages to earn sufficient income to cover its expenses. The ratio of the company indicates that company depends much on borrowed funds. The high interest ratio means that company depends more on debt funds.

30

6. ANALYSIS OF LIQUIDITY Liquidity Ratios: LIQUIDITY RATIO PARTICULARS CURRENT ASSETS CURRENT LIABILITIES QUICK ASSETS SALES AVG. DEBTOR DEBTORS + BR COGS AVG. INVENTORY

2004-05

2005-06

21572. 63 11656. 67 15891. 82

22324. 13 14085. 16 13298. 52

Rs in millions 2006-07

26977.14 17558.55 16273.93

2007-08

28752. 56 22719. 4 16513. 42

41818.97

52476.57

71681.76

77291.23

4321.93 4321.93 29,728.47

4415.51 4415.51 37,690.87

4736.06 4736.06 54,631.91

4493.55 4493.55 57,646.34

5375.1 1

7353.2 1

9864.41

11471. 17

Chart 15 Liquidity Ratio Analysis

31

6.1 Current Ratio =

CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

Current Assets Current Liabilities 2004-05

2005-06

21572. 63 11656. 67

22324. 13 14085. 16

1.85

1.58

2006-07

2007-08

26977.14

28752.56

17558.55

22719.4

1.54

1.27

Analysis This ratio is used to measure a company’s ability to pay current liabilities with current assets. This ratio helps creditors to determine if a company can meet its short- term obligations. The gradual decrease shows that company’s liquidity has worsened. The company should rethink over its credit policy.

6.2. Quick Ratio = Current Assets – Inventories Current Liabilities

CURRENT LIABILITIES QUICK ASSETS

2004-05

2005-06

11656. 67 15891. 82

14085. 16 13298. 52

2006-07

2007-08

17558.55

22719.4

16273.93

16513.42

32

QUICK RATIO

2004-05

2005-06

1.36

0.94

2006-07

0.93

2007-08

0.73

Analysis This ratio is used to measure a company’s ability to meet its short-term obligations. This ratio is similar to the current ratio. However by limiting the numerator to very liquid current assets, it is a stricter test. It is often called as the acid test ratio. The quick ratio is worse than the current ratio. This means that the current ratio was because of inventory. The liquid asset other than inventory of the company needs considerable attention.

6.3. Debtor turnover ratio= Sales Average Debtors 2004-05 SALES AVG. DEBTOR

DEBTORS TURNOVER RATIO

2005-06

2006-07

2007-08

41818.97

52476.57

71681.76

77291.23

4321.93

4415.51

4736.06

4493.55

2004-05

2005-06

9.68

11.88

2006-07

15.14

2007-08

17.20

Analysis: This ratio indicates the number of times each year the debtors turn into cash. It shows the effectiveness of the firm’s collection and credit policy. The high ratio indicates the ability of firm’s collection of cash from the debtors. The trend of the past three years indicates that the firm has managed to improve its credit policy.

6.4. Average collection period= Average Debtors Sales/360

2004-05

37.21

AVG. COLLECTION PERIOD(Days)

2004-05 SALES AVG. DEBTOR

2005-06

30.29 2005-06

2006-07

23.79 2006-07

2007-08

20.93 2007-08

41818.97

52476.57

71681.76

77291.23

4321.93

4415.51

4736.06

4493.55

Analysis This ratio shows that the average collection period is going lower from 37.21 days in the year 2004-05 to 20.93 days in the 2008-07.It means that lower capital is getting blocked up from 20004-05 to 200807.It shows the improvement in the credit policy of the company.

6.5. Inventory Turnover Ratio =

Cost of Goods Sold___ 33

Average Inventory

COGS AVG. INVENTORY

2004-05 29,728.47

2005-06 37,690.87

2006-07 54,631.91

2007-08 57,646.34

5375.1 1

7353.2 1

9864.41

11471.17

2004-05

2005-06

5.53

5.13

INVENTORY TURNOVER(TIMES)

2006-07

2007-08

5.54

5.03

Analysis This ratio is used to measure how quickly a company is selling its inventory. This ratio tells how many times each year a firm’s inventory is turned over. The inventory turnover of the company over the period of four years has remained stable more or less.

7. CASH FLOW STATEMENT ANALYSIS Cash Flow Statement for the year ended March 31, 2008-2007

2008 Cash low from operating activities Profit before tax Adjustments for: Depreciation, amortisation and impairment Other amortisations Foreign exchange (gains)/losses Interest expense net of interest capitalisation Interest income

(Rs. Millions) 2007

6,381.5

6,045.06

1,773.61 143.49 (63.60) 615.01 (214.67)

1,505.74 164.76 (65.30) 196.46 (160.94)

34

Income from investments (Profit)/Loss on disposal of fixed assets/long term investments Diminution in value of investments written back – net Transfer from General Reserve – Employee benefits Operating profit before working capital changes Adjustments for changes in :

Inventories Debtors Advances Current liabilities and provisions Cash generated from operations Income tax including Fringe benefit tax paid Net cash low from operating activities before extraordinary expenditure Compensation under Voluntary retirement scheme Net cash low from operating activities after extraordinary expenditure Cash low from investing activities Payments for assets acquisition Proceeds on sale of fixed assets Purchase of Investments Sale/redemption of investments Income from investments – Interest – Dividend Changes in advances

Net cash low used in investing activities Cash low from financing activities Long term borrowings – Raised – Repaid Changes in short term borrowings Debenture/Loan raising expenses paid Interest paid – net Dividend paid and tax thereon Interim dividend and tax thereon Net cash low from financing activities Net cash inflow/(outflow) Opening cash and cash equivalents Closing cash and cash equivalents Net increase/(decrease) in cash and cash equivalents

(22.85) (375.86)

8,236.63

(1,535.93 ) 1,426.87 261.52 3,596.82 11,985.91 (1,280.65 ) 10,705.26 (48.41) 10,656.85 (6,209.04 ) 113.65 (373.82) 474.95 106.61 22.85 (2,231.98 ) (8,096.78 )

3,672.1 (404.71) 993.32 (68.94) (546.59)

3,645.18 6,205.25 1,952.02 8,157.27 6,205.25

(98.85) (323.15) (168.13) (781.54) 6,314.11

(1,677.60) (1,005.76) (1,047.41) 4,102.54 6,685.88 (1,356.00) 5,329.88 (330.37) 4,999.51

(6,812.87) 108.49 (50.64) 817.93 59.43 129.39 (1,473.70)

(7,221.97)

2,162.35 (829.95) (2.47) (181.67) (1,792.34) (2,264.32) (2,908.40) (5,130.86) 7,082.88 1,952.02 (5,130.86)

Analysis:

35

Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is 5831.43 millions. Cash and cash equivalents after the adjustment of cash credits balances related to unclaimed dividend is Rs 4491.75 millions. The statement of cash flow reveals a net cash outflow from operations of Rs. 10705.26 millions whereas the company shows a net profit of Rs 6381.50 million. There is a sharp decrease in the inventories of the company. I.e. Rs 1535.93 million and debtors have increased Rs 1426.87 million. Further compensation under voluntary retirement scheme is Rs 48.41 million. And a net profit on the sale of investment is Rs 474.95 million. Profit on disposal of fixed assets would be Rs 375.86 million for the year 2008. The conversion of Foreign Currency Convertible Notes into equity shares has not been considered in the above statement. Cash flows from Investing activities includes acquisition of 100% shares in Albonair GmbH (cost Rs. 1.59 million) and Defiance Testing & Engineering Services (cost Rs. 141.05 million) and disposal of 60% (Rs. 0.95 million) and 51% (Rs. 71.94 million) shares respectively therein. The company has used more cash in operations than all of the cash it received from its investing and financing activities resulting into a net increase in cash.

Cash Flow Statement for the year ended March 31, 2007-2006

2007 Cash flow from operating activities Profit before tax Adjustments for: Depreciation, amortisation and impairment Other amortisations Unrealized foreign exchange gains / (losses) Interest expense net of interest capitalisation Interest income Income from investments (Profit)/Loss on disposal of fixed assets / long term investments

(Rs. Millions) 2006

6,045.06

4,523.

1,505.74 164.76

1,260.06 132.84

-65.3 196.46 -160.94 -98.85 -323.15

102.05 288.33 -193.87 -87.47 -66.61

36

Diminution in value of investments written back - net Transfer from General Reserve - Employee benefits Profit on sale of undertaking Operating profit before working capital changes

-168.13 -781.54 – 6,314.11

– – -301.66 5,656.67

-1,677.6 -1,005.76 -1,047.41 4,102.54 6,685.88 -1,356. 5,329.88 -330.37

-3,477.99 -179.55 314.73 2,051.52 4,365.38 -1,135.68 3,229.7 -9.53

4,999.51

3,220.17

-6,812.87 108.49 – -50.64 557.64 44.78 129.39

-2,646.86 54.34 620. -138.66 479.68 48.95 56.93

Changes in advances Net cash flow used in investing activities Cash flow from financing activities Long term borrowings – Raised – Repaid Changes in short term borrowings Debenture / Loan raising expenses paid Interest paid – net

-1,473.7 -7,496.91

189.77 -1,335.85

2,162.35 -829.95 – -2.47 -167.02

186.69 -1,162.88 -76.79 – -166.96

Dividend paid and tax thereon Interim dividend and tax thereon Net cash flow from financing activities Net cash inflow / (outflow) Opening cash and cash equivalents Closing cash and cash equivalents Net increase / (decrease) in cash and cash equivalents

-1,792.34 -2,264.32 -2,893.75 -5,391.15 8,503.22 3,112.07 -5,391.15

-1,356.1 – -2,576.04 -691.72 9,194.94 8,503.22 -691.72

Adjustments for changes in : Inventories Debtors Advances Current liabilities and provisions Cash generated from operations Income tax including Fringe benefit tax paid Net cash flow from operating activities before extraordinary expenditure Compensation under Voluntary retirement scheme Net cash flow from operating activities after extraordinary expenditure Cash flow from investing activities Payments for assets acquisition Proceeds on sale of fixed assets Proceeds on sale of undertaking Purchase of long term and other Investments Sale / redemption of long term investments Income from investments – Interest – Dividend

Analysis: Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is 5340.51 millions. Cash and cash equivalents after the adjustment of cash credits balances related to unclaimed dividend is Rs 1953.31 million.

37

The statement of cash flow reveals a net cash outflow from operations of Rs. 4999.51 millions whereas the company shows a net profit of Rs 6045.06 million. There is a sharp decrease in the inventories of the company. I.e. Rs 1677.60 million and debtors have decreased Rs 1005.76 million. Further compensation under voluntary retirement scheme is Rs 330.37 million. Loss on disposal of fixed assets would be Rs 323.15 million for the year 2008. The conversion of Foreign Currency Convertible Notes into equity shares has not been considered in the above statement. Cash flows from Investing activities includes acquisition of 100% ownership interest in Avia Ashok Leyland Motors s.r.o. (subsidiary) of Rs. 0.38 million and disposal of 60% interest therein of Rs. 0.23 million.

The borrowing of the company has been increased because of that company is not able to repay net amount efficiently. It results into decrease in cash.

Cash Flow Statement for the year ended March 31, 2006-2005 2006 Rs. Millions Cash flow from operating activities Profit before tax Adjustments for: Depreciation Other amortisations Unrealised foreign exchange gains / losses Interest expense Interest income Income from investments (Profit) / Loss on disposal of fixed assets / long term investments Profit on sale of undertaking

2005 Rs. Millions

4,523.

3,550.1

1,260.06 132.84 102.05 288.33 -193.87 -87.47 -66.61 -301.66

1,092.14 152.81 -61.34 236.94 -258.39 -106.78 -351.35 –

38

Operating profit before working capital changes Adjustments for changes in: Inventories Debtors Advances Current liabilities and provisions Cash generated from operations Income tax including Fringe benefit tax paid Net cash flow from operating activities before extraordinary expenditure Compensation under voluntary retirement scheme Net cash flow from operating activities after extraordinary expenditure Cash flow from investing activities Payments for assets acquisition Proceeds on sale of fixed assets Proceeds on sale of undertaking Purchase of long term and other investments Sale / redemption of long term investments Income from investments - interest - Dividend Changes in advances Net cash flow used in investing activities Cash flow from financing activities Long term borrowings - Raised - Repaid Changes in short term borrowings Debenture / Foreign currency convertible notes issue and loan raising expenses paid Interest paid - net Dividend paid and tax thereon Net cash flow from financing activities Net cash inflow / (outflow) Opening cash and cash equivalents Closing cash and cash equivalents Net increase / (decrease) in cash and cash equivalents

5,656.67

4,254.13

-3,477.99 -179.55 314.73 2,051.52 4,365.38 -1,135.68 3,229.7 -9.53 3,220.17

-611.4 -120.32 -1,013. 2,675.05 5,184.46 -693.29 4,491.17 -17.71 4,473.46

-2,646.86 54.34 620. -138.66 479.68 48.95 56.93 189.77 -1,335.85

-1,824.56 48.56 – -92.6 154.16 42.7 106.78 10.49 -1,554.47

186.69 -1,162.88 -76.79

4,975.34 -1,131.07 76.79

– -166.96 -1,356.1 -2,576.04 -691.72 9,194.94 8,503.22 -691.72

-112.86 4.16 -1,008.54 2,803.82 5,722.81 3,481.9 9,204.71 5,722.81

Analysis: Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is 553.06 millions. Cash and cash equivalents after the adjustment of cash credits balances related to unclaimed dividend is Rs 6015.53 million. The statement of cash flow reveals a net cash outflow from operations of Rs. 3220.17 millions whereas the company shows a net profit of Rs 4523.00 million. There is a sharp decrease in the inventories of the company. I.e. Rs -3477.99 million and debtors have decreased Rs 179.55 million. Further compensation under voluntary retirement scheme is Rs 9.53 million. Profit on disposal of fixed assets would be Rs 66.61 million for the year 2008. The conversion of Foreign Currency Convertible Notes into equity shares has not been considered in the above statement.

39

The borrowing of the company has been increased because of that company is not able to repay net amount efficiently. It results into decrease in cash.

RECOMMENDATIONS & SUGGESTIONS Ashok Leyland is the second largest manufacturer of medium and heavy commercial vehicles (M/HCV) in India. It had a 24% market share in the domestic medium and heavy vehicles (M&HCV) segment in FY07 and a marginal presence in the LCV segment (light commercial vehicles). Ashok Leyland is also a key player in the passenger bus segment with almost 49% share in FY07. CVs contributed to 92% of revenues in FY07 while engines and spare parts contributed to the balance. Transportation- A structural change: The CV segment in India is going through a structural shift. With the government's thrust on road development projects, road sector has gained significant advantage over railways that has been a mainstay for transportation of coal, food grain and cement till now. If one considers the trends of the developed nations, almost two-third of the non-bulk goods are transported through roads. The completion of the Golden Quadrilateral (aimed at connecting the four metros) and East-West-North-South corridor will result in availability of a network of 15,000 kms of connectivity. This will give a major fillip to road transport. Bus segment is a growth story: The bus segment has the potential to witness the exponential growth witnessed in the goods commercial vehicles during last three years. We agree with the view of

40

the management about the potential that the bus segment has. Our belief stems from the fact that the State Transport Undertakings (STUs) are operating at significantly high utilisation levels (120% to 130% of their capacity). Though the STUs are facing resource crunch due to number of reasons, we believe that renewal of fleet is an eventuality in the long run. Aggressive expansion plans: In order to cash in on the industry growth story, the company has lined up an aggressive expansion plan whereby it will be more than doubling its capacity over the next 2-3 years by making an investment in the region of Rs 40 bn. Included in the expansion plan is a brand new integrated plant for 50,000 vehicles per annum in the state of Uttaranchal, which will not only help it save on transportation costs but will also provide certain fiscal incentives. Sector: The growth of the auto industry is directly linked to the growth in the industrial activity, which in turn is a function of domestic GDP growth. Given the projected strong economic growth in the country, the CV sector is likely to witness robust growth rate in the long term. Sales: Net sales of the company have averaged Rs 46 bn in the last five years and are expected to climb higher, given the long-term growth prospects of the economy. Current ratio: Ashok Leyland’s average current ratio during the period FY03 to FY07 has been 1.5 times. This indicates that the company is comfortably placed to pay off its short-term obligations, which gives comfort to its lenders. Debt to equity ratio: A highly leveraged business is the first to get hit during times of economic downturn, as companies have to consistently pay interest costs, despite lower profitability. We believe that a debt to equity ratio of greater than 1 is a highrisk proposition. Considering Ashok Leyland’s average debt to equity ratio of 0.6 over the past five fiscals Long term EPS growth: We expect the company's net profits to grow at a compounded rate of around 8% over the period FY08 to FY10 (CAGR of 38% during FY02 to FY07). Based on a normal scenario, we consider a historical compounded growth of over 20% in net profits over a 5-year period as healthy for a company.

Margin of safety: This is to determine the value of the stock relative to its price and the returns over a risk free rate. Margin of safety of a stock lies in its earning power, which is calculated as EPS divided by market price (reciprocal of P/E). Considering Ashok Leyland's P/E of 10.0 times its trailing twelvemonth earnings, the earning power is 2%, which is fairly low. Valuations Ashok Leyland is currently trading at Rs 13 implying a P/E multiple of 4.40 times. Based on valuation criteria, the sell limit for the stock as per FY10 cash flow comes to around Rs 50 per share. This implies a point-to-point upside of 43% or alternatively, a CAGR of 18% from the prevailing share price. Thus, at the current juncture, investors could do well to BUY the stock from a March 2010 perspective.

41

FINANCIAL STATEMENT ANALYSIS REPORT

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