26 November 2014

ANNUAL
REPORT
THREADBARE

ART ASHOK LEYLAND FY14

Our analysis of Ashok Leylands (AL) FY14 annual report indicates
that incremental loans and advances/investments in group
companies is the lowest in last four years and stood at INR29.4b in
FY14 (~90% of FY14 net worth). Management has indicated that it
will closely monitor all future investments in subsidiaries/
promoter group companies. AL is monetizing its non-core
investments and focusing on improving its cash conversion cycle to
pare debt. Goodwill on consolidation stood at INR7.8b (28% of net
worth), which could be at risk if subsidiaries performance
deteriorates further.
n

Incremental
investments/loans
to
subsidiaries/group
companies is lowest in last four years; future investments to
be closely monitored: ALs incremental investments/loans to
group companies was ~INR4b in FY14, taking the total net
exposure to INR29.4b in FY14 (90% of net worth). Management
stated that there would be no further investments in unrelated
businesses. Also, it would keep a close watch on any future
investment in subsidiaries and JVs.
Focus on cash conversion cycle drives improvement: Cash
conversion cycle improved from 18 days in FY13 to negative 2
days in FY14 due to reduction in inventory days and increase in
payable days. Further, 1HFY15 saw the cash conversion cycle
increasing to 17 days, primarily due to higher inventory days.
Monetization of non-core assets with a focus on deleveraging:
During FY14, AL sold non-core assets of INR7.1b to pare its
debts in FY14. It further sold immovable properties in 1HFY15 at
a profit of INR1.1b. Further, management has stated that it will
continue to scout for monetization of any non-core assets.
Simplifies corporate structure; restructuring results in capital
reserve of INR0.9b; reports consolidated financials for the first
time: During FY14, to simplify its corporate structure, AL
merged its investment SPVs with the standalone entity. The
scheme of merger resulted in the creation of capital reserve of
INR0.9b in the financial statements (post Avia write-off of
INR2.5b). AL also presented its consolidated financial
statements for the first time in the FY14 annual report.
Attendance at board meetings: AL has been regularly holding
board meetings in accordance with the prescribed laws. All
directors have attended at least 50% of the meetings (at least
three for FY14), except Mr Shardul S Shroff, who attended just
one meeting.

The ART of annual report analysis

Investments/loans to
subsidiaries / group companies
at INR29.4b in FY14; future
investments to be closely
monitored
Monetization of non-core asset to pare debt
Corporate restructuring in FY14 results in
capital reserve of INR0.9b (post write-off of
Avia of INR2.5b)
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b) / (USD b)

AL IN
51
2,845.9
56/15
9/44/146
145.1/2.3

Financial summary (INR b)

Y/E March
2014A
2015E
Sales
99.4
125.5
EBITDA
1.7
9.4
NP
(4.8)
1.2
Adj. EPS (INR)
(1.8)
0.4
EPS Gr. (%)
NA
NA
BV/Sh. (INR)
16.7
18.8
RoE (%)
(10.7)
2.4
RoCE (%)
(1.5)
6.1
Payout (%)
Valuations
P/E (x)
(28.5)
121.5
P/BV (x)
3.1
2.7
EV/EBITDA (x)
105.2
19.6
Div. Yield (%)
E: MOSL Estimates (Analyst estimates)

2016E
168.6
17.3
7.8
2.7
NA
20.9
13.7
13.3
18.3
18.7
2.4
10.3
1.0

Shareholding pattern (%)

As on
Promoter
DII
FII
Others

Sep-14
38.8
13.3
33.8
14.1

Jun-14
41.5
12.7
30.2
15.6

Sep-13
38.6
12.4
29.2
19.8

Note: FII Includes depository receipts

Auditors name
Deloitte Haskins & Sells LLP and
M.S. Krishnaswami & Rajan

ART will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe ART's wide canvas - from accounting and auditing issues to operating
performance to management insights to governance matters - will help readers paint a clearer picture of the stock's investment worthiness.

Ashish Gupta (Ashish.Gupta@MotilalOswal.com); +91 22 3982 5544

Piyush Chaplot (Piyush.Chaplot@MotilalOswal.com); +91 22 3312 4975
Investors are advised to refer through disclosures made at the end of the Research Report.

ART| Ashok Leyland FY14

ART #1

ACCOUNTING/AUDITING AND KEY FINANCIAL INSIGHTS

Incremental investments, loans to subsidiaries/group companies
moderates in FY14; all future investments to be closely monitored
n

n
n

Albonair group companies

and Avia is held for sale at
their net realizable value

Investments continue in JVs

in FY14; operational
performance of JVs
continues to be poor

ALs incremental investments/ loans to group companies was ~INR4b in FY14 to

INR29.4b in FY14 (90% of net worth), from INR25.6b in FY13 (~81% of net
worth).
The increase in FY14 was led by investments, loans and advances in Ashok
Leyland Nissan Vehicle (~INR1.1b) and Albonair GmbH (~INR2.6b).
Investment in unrelated energy businesses: There were no incremental
investments in unrelated associates. Unrelated investments are in Hinduja
Energy of INR1.9b and Ashok Leyland Wind Energy (ALWE) of INR0.8b. The
increase in ALWE is due to merger of investment companies. The management
has stated that it does not intend to make any further investment in unrelated
businesses.
Investments held for sale: Albonair GmbH and Albonair India are held for sale as
at FY14 end with net carrying values of INR3.6b and INR211.4m respectively.
Since, the sale value of these investments are not finalized, the company is
unable to comment on the recoverability of these investments. Further, net
investments in Avia stood at INR646m in FY14.
Investments in JVs: ALs cumulative investment in Nissans JV (3 JVs) stood at
INR4.7b and John Deeres at INR1.5b in FY14. All the JVs, being in nascent
stages, are incurring losses; however, the company has continued its
investments in these JVs. Among these JVs, Ashley Alteams India (AAIL) and
Nissan Ashok Leyland Technologies are EBITDA positive, whereas others are
EBITDA negative. Further, AL has impaired more than 50% of investments
(INR294m) of AAIL. One of the JVs, Automotive Infotronics, has gone into
liquidation. Total net assets of Automotive Infotronics were INR130.9m in FY14.

Exhibit 1: Investments, loans and advances made in group companies (subsidiaries /

associates / JVs / others) lowest in FY14 in past four years (INR b)
On a cash flow basis,
investments made in group
companies in FY14 is the
lowest in past four years

5.8

6.3

9.6

5.0

FY11

FY12

FY13

FY14

Note: Numbers from the standalone cash flow statement is considered

Source: Company Annual Report, MOSL

26 November 2014

ART| Ashok Leyland FY14

Exhibit 2: Standalone investment in group entities at INR29.4b, 90% of net worth (INR m)

Roped in strategic investor

in 3QFY15 in Defiance
Technologies reducing their
stake to 62% from 100%

No additional investment in
Hinduja Energy (India)
during FY14

Additional investment of
INR1.1b in Ashok Leyland
Nissan Vehicles in FY14

Part of the increase in

individual investments is on
account of merger of
investment companies

26 November 2014

Particulars
FY11
FY12 FY13 (A) FY14 (B)
(B-A)
Hinduja Leyland Finance (Equity)
1,092
570
305
7,785
7,480
Optare plc
503
845
1,004
2,008
1,004
Equity investments
503
584
584
1,499
915
Loans and advances
0
261
419
509
89
Avia Ashok Leyland Motors sro *
1,684
1
0
646
646
Equity investments
1,307
1
0
16
16
Loans and advances
377
0
0
629
629
Albonair GmbH *
596 1,097
1,708
3,616
1,908
Equity investments
596
596
596
3,616
3,020
Loans and advances
0
501
1,112
0
-1,112
Albonair (India) Pvt Ltd (Equity) *
40
40
40
211
171
Defiance Technologies
314
326
479
1,154
675
Equity investments
314
234
234
819
585
Loans and advances
0
92
245
335
90
Defiance Testing and Engineering Services Inc
671
807
585
0
-585
Equity investments
69
69
341
0
-341
Loans and advances
602
738
244
0
-244
Hinduja Foundries
459
459
3,459
3,459
0
Equity investments
242
242
242
242
0
Preference shares
217
217
3,217
3,217
0
Hinduja Energy (India) (Equity)
0
0
1,871
1,871
0
Ashok Leyland Wind Energy (Equity)
0
0
0
780
780
IndusInd Bank (Equity)
921 1,514
980
381
-598
Ashok Leyland Nissan Vehicles (Equity)
1,688 2,071
2,536
3,729
1,193
Ashok Leyland John Deere Construction (Equity)
424
609
1,104
1,536
432
Nissan Ashok Leyland Powertrain (Equity)
544
735
735
740
5
Nissan Ashok Leyland Technologies (Equity)
255
255
255
261
5
Ashley Alteams India (Equity)
350
400
147
281
134
Ashley Holdings
1,585 3,349
4,875
0
-4,875
Equity investments
1,435 3,199
4,725
0
-4,725
Preference shares
150
150
150
0
-150
Ashley Investments
1,596 3,377
4,893
0
-4,893
Equity investments
1,446 3,227
4,743
0
-4,743
Preference shares
150
150
150
0
-150
Other Investments
1,157 1,064
592
912
320
Non equity
20
20
20
38
18
Equity investments
537
462
401
874
472
Loans and advances
600
582
171
0
-171
TOTAL INVESTMENTS
13,880 17,518 25,567
29,370
3,802
EQUITY INVESTMENTS
11,763 14,808 19,840
24,642
4,803
NON-EQUITY (PREFERENCE SHARES/OTHERS)
537
537
3,537
3,255
-282
LOANS AND ADVANCES
1,580 2,173
2,191
1,473
-718
Investment as % of net worth
52%
61%
81%
90%
Note: *Investments classified as held for sale; Source: Company Annual Report, MOSL

ART| Ashok Leyland FY14

Exhibit 3: Consolidated: Investments in associates and other entities remain high at 25% of
net worth (INR m)
Particulars
Hinduja Foundries
- Preference shares
- Equity investments
Hinduja Energy (Equity)
Ashok Leyland (UAE) (Equity)
IndusInd Bank (Equity)
Lanka Ashok Leyland (Equity)
Others (Equity)
Others (Non equity)
Total
Investment as % of net worth

Consol (FY14)
3,217
242
1,871
494
381
242
9
446
6,902
24.5%
Source: Company Annual Report, MOSL

Additional exhibits on unrelated businesses/JVs

Exhibit 4: Investment in unrelated businesses at 6.8% of consolidated net worth (INR m)
No major incremental
investments in FY14 in
unrelated businesses

Particulars
Hinduja Energy (India) Ltd
Ashok Leyland Wind Energy
Ashley Aviation Ltd
Total
As a % of net worth

Nature
Associate
Subsidiary
Associate

FY13
FY14 Consol (FY14)
1,871
1,871
1,871
0
780
0
20
38
38
1,891
2,689
1,909
6.0%
8.2%
6.8%
Source: Company Annual Report, MOSL

Exhibit 5: Performance of Ashok Leyland Nissan Vehicle deteriorates over years (INR m)
Ashok Leyland Nissan
Vehicle posting losses since
past four years

Particulars
FY11
FY12
FY13
FY14*
Share capital
3,905
NA
NA
NA
Reserve and surplus
-1,655
Net worth
-137
1,773
2,077
2,250
Turnover
21
1,157
5,782
5,366
PBT/PAT
-11
-161
-311
-890
Note: * - FY14 figures have been presented considering company's share of 51% for comparability;
Source: Company Annual Report, MOSL

Exhibit 6: All JVs continue to incur losses at PAT level in FY14 (INR m) (AL's share in JV)
2 out of 5 JVs reported
positive EBITDA in FY14

Particulars
Share capital
Reserves and surplus
Net worth
Turnover (net)
EBITDA
PBT

26 November 2014

Ashok
Leyland
Nissan
Vehicles
3,905
-1,655
2,250
5,366
NA
-890

Ashok
Leyland John
Deere
Construction
1,536
-1,099
437
329
-305
-391

Nissan Ashok
Leyland
Technologies

Nissan Ashok Ashley

Leyland Alteams
Powertrain
India

260
740
575
-862
-134
-547
-602
606
28
559
1,092
602
162
-27
40
-142
-50
-99
Source: Company Annual Report, MOSL

ART| Ashok Leyland FY14

Exhibit 7: Investment provided or loss on sale of investments lower during FY14 (INR m)
Particulars
Ashley Alteams
Automotive Infotronics (under liquidation)
AVIA Ashok Leyland Motors s.r.o
Ashley Bio-Fuels
Ashley Transport Services
Total

FY12
FY13
FY14
0
(278)
(16)
0
(112)
(31)
(1,514)
(12)
(49)
(75)
0
0
(59)
0
0
-1,648
-402
-96
Source: Company Annual Report, MOSL

Cash conversion cycle improves in FY14 on back of lower inventory days;

rises again in 1HFY15 in anticipation of recovery
Cash conversion cycle has
improved during FY14,
though it increased again in
1HFY15

Cash conversion cycle turned negative 2 days for FY14 as compared to 18 days in
FY13. Further, inventory days reduced to 57 days during FY14 from 76 days in
FY13.
Payable days have also increased marginally to 106 days for FY14 from 99 days
in FY13. However calculation of payable days includes acceptances, which in our
view is quasi-debt and hence shouldnt be forming part of the cash conversion
cycle. However, break-up for acceptances is not disclosed.
In 1HFY15, cash conversion cycle increased again to 17 days primarily due to
higher inventory days at 68 (in anticipation of recovery) and lower payable days
at 98.

Exhibit 8: Cash conversion cycle increases in 1HFY15 on back of higher inventory and lower
payable days (number of days)
FY12
86

FY13

FY14

1HFY15

107 99 106
98
76
57

68
48 47
35 42

14 18

17
-2

Inventory days

Receivable days

Payable days

Cash conversion cycle

(Days)

Note: For 1HFY15, sales and COGS has been extrapolated for 12 months for the purpose of cash
conversion cycle; Source: Company Annual Report, MOSL

Monetization of non-core assets to pare debts

n

n
n

26 November 2014

AL continues to sell its non-core assets in order to bring down its overall debt
position. During FY14, AL realized INR7.1b on account of sale of such assets
(FY13: INR4.1b).
Further, during 1HFY15, AL sold a part of its immovable property for a profit of
INR1,090m.
The management would continue to scout for monetization of any such noncore assets (energy businesses, aviation, etc).

ART| Ashok Leyland FY14

Exhibit 9: Sale of non-core assets by the company to reduce its debt (INR m)
Particulars
FY13
FY14
1HFY15 #
IndusInd Bank
3,058
3,612
0
Hinduja Leyland Finance
1,060
0
0
Defiance Technologies
0
0
0
Defiance Testing and Engineering Services Inc. USA
0
1,015
0
ICICI Bank
28
0
0
Sale of immovable properties*
0
2,036
1,090
Others
0
470
0
Total
4,146
7,132
1,090
Note: * FY14 sale proceeds include receivables of INR1,062m; # - Amount stated is only profit on sale
of immovable property and not proceeds on sale; Source: Company Annual Report, MOSL

Simplifies corporate structure, restructuring results in capital reserve of

INR0.9b; reports consolidated financials for the first time
Consolidated financial
statements presented
for the first time in FY14
annual report

Merger of investment arms

results in creation of capital
reserve of INR0.9b (post
w/off of Avia of INR2.5b)

26 November 2014

Structure for consolidation during FY14

n During FY14, AL, for the first time, consolidated its financial statements with 13
subsidiaries, five joint ventures (JVs) and four associates.
n Before consolidation on March 31, 2014, AL merged its investment arms viz.,
Ashley Holdings (AHL), Ashley Investments (AIL) and Ashok Leyland Project
Services (ALPS) into one of the group operating entities viz., Ashley Services
(ASL) w.e.f April 1, 2013. ASL, a resultant company after amalgamation, was
then merged w.e.f July 1, 2013, with AL (holding company).
n For the above consolidation, three of the subsidiaries viz., Avia Ashok Leyland
Motors Ltd s.r.o (Avia), Albonair GmbH and Albonair India Pvt Ltd have been
excluded from consolidation as these entities are held for sale i.e; these
entities are kept for sale within next 12 months.
Scheme of merger of three investment companies
n Under the scheme of merger of AHL, AIL and ALPS with ASL, all the assets
including investments and liabilities of the three investment companies were
transferred and recorded at their respective fair value by ASL.
n As per the scheme, the difference between the excess of fair value of assets
over the face value of equity and preference shares allotted by ASL shall after
taking into account, the credit on account of cancellation of equity share capital
be credited to Capital Reserve account.
n As a result, ASL recognized INR3.3b as capital reserve on April 1, 2013 and issued
equity and preference shares worth INR9.8b in lieu of the merger of three
investment companies to AL.
n Accordingly, ASL became the wholly-owned subsidiary of AL pursuant to the
issue of shares.

ART| Ashok Leyland FY14

Exhibit 10: Flowchart of merger of investment companies
Ashok Leyland
Effective date - July
1, 2013

Merger

Approval date Mar 21, 2014

Ashley Services Ltd

Wholly-owned subsidiary
Approval date July 15, 2013

Effective date - Apr

1, 2013
Merger

Ashley Holding Ltd

Ashley Investments
Ltd

Ashok Leyland Project

Services Ltd

Source: Company Annual Report, Scheme of arrangements, MOSL

Exhibit 11: Shares to AL on merger of AHL, AIL & ALPS in ASL

(m)
Particulars
AHL
AIL
ALPS
Shares held by AL
472
474
3
Total number of equity shares
946
949
22
AL shareholding (%)
49.95
49.95
15.40
Total shares issued by ASL to AL
950
Source: Company Annual Report, Scheme of arrangements, MOSL

Exhibit 12: AL's investment in ASL during FY14

Amt
Particulars
(INR m)
Equity shares
9,502
2% redeemable non-convertible pref. shares Series 'A'
65
6% redeemable non-convertible pref. shares Series 'B'
235
Issued by ASL as per scheme of arrangement
9,802
Additional investments during FY14
1,606
Share application money pending allotment
765
Investments in ASL as on Sept 30, '13
12,173
Source: Company Annual Report, Scheme of arrangements, MOSL

ASL operations during FY14

n
n
n
n

AL additionally invested INR1.6b in ASL during FY14.

Pursuant to the amalgamation scheme, during FY14, ASL recorded diminution
on one of the subsidiaries investment (Avia) of INR2.4b.
The loss in P&L of INR2.4b was then set-off against the capital reserve of
INR3.3b and INR0.9b (INR3.3b INR2.4b) was recorded as net capital reserve.
AL then merged the wholly-owned subsidiary ASL with itself.

Exhibit 13: Fair value of INR5.4b added on amalgamation of investment companies

Particulars
Amt (INR m)
AHL net assets - Book value (A)
3,719
AIL net assets - Book value (B)
3,758
ALPS net assets - Book value (C)
176
Book value of net assets (D = A+B+C)
7,653
Less: share cancelled of ASL (E)
-1
BV of net assets over shares cancelled (F = D-E)
7,652
Purchase consideration
Equity shares
9,502
2% redeemable non-convertible preference shares Series 'A'
65
6% redeemable non-convertible preference shares Series 'B'
235
Total purchase consideration (G)
9,802
Capital reserve/(Goodwill) as per calculations (H=F-G)
-2,150
Actual capital reserve recorded as per amalgamation (I)
3,256
Fair value added on amalgamation (I-H)
5,406
Note: (A),(B) and (C) Net assets of companies have been computed after netting-off merging
companies investments ; Source: Company Annual Report, MCA, MOSL

26 November 2014

ART| Ashok Leyland FY14

Exhibit 14: Capital reserve created on amalgamation of INR879m (INR m)
Particulars
Opening net worth (incl revaluation reserve)
Add: Profit for the year
Less: Dividend (including tax)
Add/Less: Other adjustments
Capital reserve created on amalgamation
Debenture issue expenses adjusted from securities premium
Adjustment on sale of revalued assets
Net movement in hedge reserves
Adjustment for depreciation on revalued assets
Other adjustments
Closing net worth (incl revaluation reserve)

FY13
42,123
4,337
-1,868

FY14
44,551
294
0

0
879
-13
-12
-10
-1,076
189
32
-157
-152
-51
-39
44,551
44,478
Source: Company Annual Report, MOSL

Technical know-how capitalized of INR1.3b in FY14; intangible assets under

development (ITUD) of INR106m w/off in FY14
n
n

AL had capitalized intangible assets of INR1.4b in FY14 (FY13: INR1b) primarily

on acquisition of technical know-how of INR1.3b (FY13: INR0.1b) in FY14.
AL also had intangible assets under development (ITUD) balance of INR264m at
FY14 end (FY13: INR1,263m). Further, the company has written-off INR106m
(0.1% of revenue) during FY14 and disclosed it as R&D expenditure.

Exhibit 15: Significant additions in technical know-how in FY14 (INR m)

Particulars
Computer software
Technical knowhow
Intangible assets additions
ITUD closing balance

FY12
FY13
FY14
813
850
84
425
115
1,346
1,237
965
1,430
1,130
1,263
264
Source: Company Annual Report, MOSL

Goodwill on consolidation at 28 % of consolidated net worth

n

Future w/off or provisions

on any investments may
result in goodwill
impairment

Goodwill stood at INR7.8b on account of consolidation of subsidiaries, 27.8% of

consolidated net worth.
In case of any future w/offs or provisions on any investments/loans and
advances in subsidiaries, there is a risk of goodwill being impaired which might
impact the profitability of the company.

Contingent liabilities increases on back of sales tax demands; majority of

such cases ruled in favor of company in FY15
n

n
n

26 November 2014

ALs contingent liability jumped to INR3.2b in FY14 from INR2b in FY13; ~10% of
FY14 standalone net worth (FY13: 6.3%). The increase was primarily due to sales
tax demands increasing to INR1.2b in FY14 from INR0.4b in FY13.
This was primarily on account of entry tax demands in some states. However,
the company has received favorable judgment in many of such cases in FY15.
On account of the higher sales tax demand, the company also paid higher
amount as protest money. This has increased from INR272m in FY13 to
INR468m in FY14.

ART| Ashok Leyland FY14

Exhibit 16: Contingent liabilities jumps primarily due to higher sales tax demands (INR m)
Particulars
Sales tax
Others
Guarantees
Total contingent liabilities (INR m)
Sales tax paid under protest

FY11
319
272
3,793
4,384
238

FY12
311
287
4,759
5,357
238

FY13
FY14 Consol (FY14)
375
1,168
1,168
279
246
246
1,350
1,827
16
2,004
3,241
1,430
272
468
468
Source: Company Annual Report, MOSL

Exhibit 17: Contingent liabilities at 9.9% of net worth

Contingent liabilities (INR m)

% to net worth

16.5%

18.5%

6.3%

9.9%

5.1%

4,384

5,357

2,004

3,241

1,430

FY11

FY12

FY13

FY14

Consol (FY14)

Note: Net worth is after excluding the revaluation reserve;

Source: Company Annual Report, MOSL

Capitalization of forex differences to result in higher depreciation in future

years
During FY14, AL capitalized
forex loss of INR2.3b in
carrying value of assets

As per Indian Accounting Standard-11, companies had an option to either

expense the foreign exchange losses in P&L or capitalize it. AL, in FY09, had
opted for capitalization of these forex differences (done by many companies).
Accordingly, forex differences on translation or settlement of long term foreign
currency monetary items, insofar as it relates to acquisition of depreciable
assets are adjusted to the cost of fixed assets and depreciated over the
remaining useful life of such assets. In other cases, these are accumulated in
Foreign currency monetary item translation difference a/c (FCMITD) and
amortized as income or expense over the balance term of such items, but not
beyond March 31, 2020.
During FY14, AL capitalized forex loss of INR2.3b (FY13: INR1.6b) in carrying
value of assets; 138.2% FY14 EBITDA (FY13: 18.5%). Also, AL capitalized forex
loss in FCMTD of INR44m in FY14 (FY13: INR39m) to be amortized over the
period of loan.
This will lead to higher depreciation charge over the years; however finance cost
will be lower in the years of capitalization of forex differences.

Exhibit 18: Capitalization of exchange difference as percentage of EBITDA (INR m)

Particulars
Exchange differences capitalized in
- Tangible assets
- Intangible assets
- Reserves
Exchange differences capitalized
% of sales
% of EBITDA

26 November 2014

FY11
-92
-1
0
-94
-0.1%
-0.8%

FY12

FY13

FY14

2,096
1,558
2,205
28
28
52
-35
39
44
2,088
1,625
2,301
1.6%
1.3%
2.3%
16.6%
18.5%
138.2%
Source: Company Annual report, MOSL

ART| Ashok Leyland FY14

Exhibit 19: Forex loss stands at 2.3% of sales in FY14 (INR m)
Exchange differences capitalized

1.6%

-0.1%
-94
FY11

% of sales

2.3%

1.3%

2,088

1,625

2,301

FY12

FY13

FY14

Source: Company Annual Report, MOSL

Loan raising expense amortized over period of loan; debenture issue

expenses adjusted against securities premium
n

As disclosed in the annual report, AL has a policy of amortizing the expenditure

incurred on issue of loans over the period of such loans. This might result in a
higher P&L charge despite lower cash cost in certain years. During FY14, AL
incurred cash cost of INR88m while amortizing INR51m through P&L.
Further, as per the companys accounting policy, it adjusts the expenses
incurred on issue of debentures against the Securities Premium Account.

Exhibit 20: Treatment of unamortized loan raising/debenture issue expenses (INR m)

Particulars
O/s unamortized loan raising expenses (net)
Expenses amortized during the year
Cash expenses for the year
Expenses on issue of debentures adjusted through reserves

FY11
FY12
FY13
FY14
29
73
120
143
16
22
38
51
7
90
114
88
0
13
13
12
Source: Company Annual Report, MOSL

Other financial highlights

n

On a consolidated basis, cash deposits and stamps on hand stood high at

INR439m. These cash deposits and stamps represent cash and cheques in hand
lying with Hinduja Leyland Finance. This has been realized subsequent to the
year-end.

Exhibit 21: Cash deposits and stamp on hand figured high due to cheques in hand with
Hinduja Leyland Finance (INR m)
Particulars
Cash deposits and stamp on-hand

26 November 2014

Standalone
2

Subsidiaries (derived)
Consolidated
437
439
Source: Company Annual Report, MOSL

During FY14, AL has given inter-corporate deposits (ICDs) of INR300m. These

deposits are given within the AL group and the same have been received post
FY14-end (i.e. during FY15). These ICDs are at arms length price and interestbearing.
During FY14, the company has correctly changed its accounting policy to adjust
the amount in revaluation reserve of revalued assets against the carrying value
of such assets and recognize the consequent profit/sale thereof. This resulted in
FY14 profits being higher on sale/disposal of immovable properties by INR1.1b.
10

ART| Ashok Leyland FY14

Exhibit 22: Revaluation reserve adjusted on sale of revalued assets (INR b)
Particulars
Opening balance
Less: Adjustment of depreciation
Less: Adjustment on sale of revalued assets
Add: Other adjustments
Closing balance

FY11
13.3
0.3
0.0
0.0
13.1

FY12
FY13
FY14
13.1
13.1
13.0
0.2
0.2
0.2
0.0
0.0
1.1
0.2
0.0
0.0
13.1
13.0
11.7
Source: Company Annual Report, MOSL

Exhibit 23: Average borrowing cost marginally down in FY14

Finance cost (INR b)
8.0%

9.1%

Avg borrowing cost (%)

10.8%

9.5%

10.2%

1.9

2.6

4.0

4.6

8.1

FY11

FY12

FY13

FY14

Consol (FY14)

Source: Company Annual Report, MOSL

Exhibit 24: Higher interest cost results in increase in finance cost (INR m)
Particulars
Interest expense
Int exp relating to vehicle financing
Other borrowing costs
Total finance cost

FY11
1,771

FY12
2,244

136
1,907

324
2,568

FY13
3,523

FY14
4,009

Consol (FY14)
4,719
2,863
516
589
611
4,039
4,598
8,055
Source: Company Annual Report, MOSL

Exhibit 25: Free cash flow post interest remained negative during FY14 (INR m)
Particulars
EBITDA (Operations)
Add/Less: Non-cash adjustments
Less: Direct taxes paid
Operating profit before w/cap changes
Inventories
Trade receivables
Loans and advances
Other current assets
Trade payables
Current liabilities and provisions
Cash generated from operations before exceptional Items
Add/(Less): Exceptional Items
Cash generated from operations
Less: Financial cost
Operating cash flow post Interest
Less: Capital expenditure
Less: Investment in long-term investments
Free cash flow
Proceed from sale of long term investment
Net cash flow

26 November 2014

FY11 FY12
FY13 FY14 Consol
12,137 12,561 8,765 1,666
4,220
194 -109
103 495 -2,270
-1,503 -1,500 -1,100 -297
-966
10,828 10,952 7,768 1,864
984
-5,707 -217 3,346 7,073
6,572
-1,606 -592 -1,909 1,168
2,623
-1,263 -3,360
-311 -845 -4,033
0
143
88 147
-737
0 4,134
0
0
0
3,665
110 -1,699 -3,376 -5,978
5,917 11,170 7,283 6,031
-571
0
0
0 -467
-469
5,917 11,170 7,283 5,564 -1,040
-1,542 -2,166 -3,628 -4,358 -5,078
4,375 9,004 3,654 1,206 -6,118
-3,526 -6,978 -6,492 -2,198 -4,081
-9,052 -5,543 -9,282 -5,379 -5,440
-8,203 -3,517 -12,120 -6,371 -15,638
14 2,511 4,146 5,097
5,206
-8,189 -1,006 -7,973 -1,274 -10,432
Source: Company Annual Report, MOSL

11

ART| Ashok Leyland FY14

Exhibit 26: Net deferred tax liability decreases on higher unabsorbed depreciation (INR m)
Particulars
Deferred tax liability
Depreciation / Research and development expenditure
Other timing difference
Sub-total(A)
Deferred tax asset
Voluntary retirement scheme compensation
Carry forward of losses-unabsorbed depreciation
Provision for compensated absences
Other timing difference
Sub-total(B)
Deferred tax liability (net)

FY11

FY12

FY13

FY14

4,650
23
4,673

5,103
59
5,163

5,754
123
5,877

6,072
170
6,242

-8
-3
-2
-128
0
0
-287
-1,679
0
-206
-216
-197
-226
-49
-99
-170
-234
-259
-604
-2,174
4,439
4,904
5,274
4,068
Source: Company Annual Report, MOSL

Exhibit 27: Subsidiaries snapshot for FY14 (INR m)

Except Hinduja Leyland
Finance, most of the
subsidiaries are loss-making
at the PAT level in FY14

Subsidiary
Ashok Leyland Nissan Vehicle
Hinduja Leyland Finance
Optare Group
Gulf Ashley Motor
Defiance Technologies
Irizar - TVS
Albonair GmbH*
Hinduja Leyland Finance
Services
Optare UK
Defiance Tech Gmbh
Ashok Leyland Wind Energy
Avia Ashok Leyland Motors*
Avia Ashok Leyland Rus, Russia
Defiance Technologies, USA
Albonair (India)*

Share capital
7,657
5,103
68
141
800
99
2,483

Net worth
4,411
8,042
(1,473)
143
(136)
214
294

Turnover
10,522
5,962
5,373
2,476
1,187
908
700

PBT
(1,745)
1,230
(359)
8
(63)
(39)
(694)

PAT
(1,745)
812
(359)
5
(85)
(36)
(694)

446

492
81
301
6,728
0
42

(1,193)
0
386
1,387
(65)
(13)

354
338
298
297
224
117

(30)
(125)
30
(842)
(52)
24

(30)
(125)
20
(842)
(52)
24

100

82

101

(6)

(6)

Asohk Leyland (Nigeria)

4
12
92
13
9
Asohk Leyland (UK)
11
8
67
8
(2)
Asohk Leyland (chile)
4
10
52
6
6
Mangalam Retail Services
1
1
0
(0)
(0)
Optare plc
898
2,513
0
(18)
(18)
Jamesstan Investments
499
465
0
0
0
Optare Holding
127
243
0
0
0
Optare (Leeds)
421
1,240
0
0
0
East Lancashire Busbuilders
0
0
0
0
0
Albonair Automotive
38
(8)
0
(8)
(8)
Technology
Total
26,096
16,573
29,511
(2,662)
(3,126)
Note: *Companies classified as held for sale; Source: Company Annual Report, MOSL

26 November 2014

12

ART| Ashok Leyland FY14

ART #2

MANAGEMENT SPEAK/KEY PLANS

Deceleration in CVs in FY14 due to economic slowdown; recovery expected
in 2HFY15
n

n
n

Continued economic slowdown in India has severely affected the domestic

commercial vehicle industry. The industry is currently going through one of its
longest down cycles in recent periods. Having declined by 2% in 2012-13, the
market experienced a much sharper (20.2%) drop in volumes in 2013-14.
With expected revival in the industrial and mining sectors, the CV industry is
likely to show some recovery in 2HFY15.
Projected growth rates by SIAM for FY15 of M&HCVs and LCVs is 5-7% and 4-7%
respectively.

AL manages to maintain its M&HCV market share; looses in LCV segment

n

Despite slowdown, AL maintained it market share in the declining M&HCV

segment industry of 26.1% in March 2014 (27.1% in September 2014) facilitated
by focus on meeting customer requirements, network expansion and new
product launches.
Unlike M&HCV segment, the Light Commercial Vehicle (LCV) segments DOST
model had a decline in its sales volume due to aggressive discounting and
competition. However AL continued its penetration in this segment with
introduction of new models like Partner, Mitr & Stile.

IMPROVE leads to improved product, quality and cost

n

n
n

26 November 2014

IMPROVE An employee involvement initiative has made huge strides in terms

of increasing employee participation, actionable suggestions and ideas and has
blossomed into a company-wide innovation programme.
Involvement in contributing ideas and taking ownership for implementation has
led to significant improvements in product, process, quality and cost.
15th edition of IMPROVE witnessed 11,000 innovative ideas, with participation
of about 45% of employees, and has lead to one-time savings of INR26m and
recurring savings of INR52m.

13

ART| Ashok Leyland FY14

ART #3

GOVERNANCE MATTERS
Most directors are regular in attending board meetings
n
n
n

The company is regularly calling its board meeting as per the prescribed laws.
During FY14, the company held six Board meetings.
All directors have attended at least 50% of the meetings (at least 3 meetings for
FY14) except Mr Shardul S Shroff who attended merely 1 meeting during FY14.
Our analysis of Mr Shardul Shroffs attendance at board meetings for last four
years indicates that he has attended less than 50% of the meetings in each of
these years.
Further, the company has appointed Dr Andreas H Biagosch, Mr Anil Harish, Mr
D J Balaji Rao, Mr Jean Brunol, Mr Sanjay K Asher and Mr Shardul S Shroff for a
term of five consecutive years, i.e; upto July 25, 2019 on non-rotational basis to
comply with statutory requirements.

Exhibit 28: Most directors attended Board meetings regularly

Name

Director's
position

FY11

FY12

FY13

FY14

Mr Anil Harish
NEI
6
4
4
6
Mr D J Balaji Rao
NEI
5
5
6
6
Mr Jean Brunol
NEI
2
4
5
5
Mr Sanjay K Asher
NEI
3
3
6
5
Mr Shardul S Shroff
NEI
Nil
2
3
1
Dr Andreas H Biagosch
NEI
NA
NA
NA
6
Mr Dheeraj G Hinduja
NENI
6
8
6
6
Mr A K Das
NENI
5
7
5
4
Mr F Sahami
NENI
4
6
6
6
Dr V Sumantran*
NENI
6
8
5
5
Mr R Seshasayee
NENI
5
8
5
5
Mr Vinod K Dasari
ED
6
8
5
6
Total meetings held
6
8
6
6
Note: * Dr V Sumantran ceases to be director in FY15; NEI - Non-executive independent director; NENI
- Non-executive non-independent; ED - Executive director
Source: Company Annual Report, MOSL

Managerial remuneration of directors goes down

n
n

The managerial remuneration paid by the company to its key managerial

personnel has gone down from INR63m in FY13 to INR21m in FY4.
This is primarily due to no remuneration paid to Mr R Seshasayee, Nonexecutive Vice Chairman, during FY14. As per our discussion with management,
remuneration is not paid on account of inadequacy of profits.
Further, for remuneration paid to Mr Vinod K. Dasari, Managing Director, the
Company has made relevant application to the Central Government for its
approval and during FY15, the company has received the approval on the same.

Exhibit 29: Remuneration paid to directors declined steeply during FY14 (INR m)
Key Management Personnel
Mr. R Seshasayee
Mr. Vinod K. Dasari
Total remuneration
% of EBITDA

26 November 2014

FY11
28
10
39
0.3%

FY12
FY13
FY14
32
35
0
25
28
21
57
63
21
0.5%
0.7%
1.3%
Source: Company Annual Report, MOSL

14

ART| Ashok Leyland FY14

NOTES

26 November 2014

15

Disclosures

ART| Ashok Leyland FY14

This research report has been prepared by MOSt to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This
report is for personal information of the select recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to
invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into
account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable
for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and
investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business
relationships with a significant percentage of the companies covered by our Research Department Our research professionals provide important input into our investment banking and other business selection
processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that
the research professionals who were involved in preparing this material may participate in the solicitation of such business. The research professionals responsible for the preparation of this document may
interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information. Our research professionals are paid in part based on the
profitability of MOSt which include earnings from investment banking and other business. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from
maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an
officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading
strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with
the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest . MOSt and
its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to
hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The
information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSts interpretation of the
data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not
intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt
and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its
affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of
its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its
contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
Analyst ownership of the stock

Ashok Leyland
No

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.K.

This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as
amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has
entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be
executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research
analyst account.

For Singapore

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore
to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email:anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact(+65)68189232
Contact: (+65) 68189233 / 65249115
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

26 November 2014

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com

16