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Ashok Leyland’s Stock Gains Most In Five Months As Some Analysts See Revival Ahead

Here’s what brokerages have to say about Ashok Leyland’s fourth-quarter results...

Ashok Leyland’s variety of trucks displayed at the AUTOEXPO in Chennai. (Image used for representational purposes)
Ashok Leyland’s variety of trucks displayed at the AUTOEXPO in Chennai. (Image used for representational purposes)

Shares of Ashok Leyland Ltd. posted their biggest single-day jump since February as analysts expect the commercial vehicle maker to benefit from pent-up demand and the government’s infrastructure push even as near-term headwinds persist.

The automaker sold 32% more vehicles sequentially at 44,060 units in the quarter ended March.

Its revenue rose 45% over the preceding three months to Rs 6,972 crore. The company’s net profit stood at Rs 241 crore against a loss of Rs 19.38 crore in the October-December period.

The company said while challenges due to Covid-19 impacted volumes and performance in the first half of FY21, it saw healthy sequential recovery in the second half of FY21, post the gradual removal of the lockdown.

But with the sudden onset of the second wave, challenges for the industry continue, it said in a statement. The company is “better prepared this time”.

Shares of Ashok Leyland rose as much as 9% but pared some of the gains to trade around 6% higher around noon on Friday. Of the 48 analysts tracking the automaker, 34 have a ‘buy’ rating, 10 suggest a ‘hold’ and four recommend a ‘sell,’ according to Bloomberg data. The average of the 12-month price target implies an upside of 10.1%.

Here’s what brokerages have to say about Ashok Leyland’s fourth-quarter results...

Credit Suisse

  • Maintains ‘neutral’ with a target price of Rs 114 apiece, implying a downside of 3.5% from Thursday’s close.

  • Near-term commercial vehicle sales could remain tepid.

  • Operating leverage offsets the sharp drop in gross margins in Q4.

  • Gross margins could worsen further in H1 FY22.

  • Dip in freight realisations, operator profitability and low truck fleet utilisation levels with a seasonally weak quarter could cause new truck sales to lag the demand recovery.

Morgan Stanley

  • Maintains ‘overweight’ with a target price of Rs 145, implying a upside of 23%.

  • Improving mix drove the Ebitda.

  • Favourable government policy could lower vehicle taxes or encourage new demand.

  • Sharp pick-up in monthly volumes to drive growth.

  • Prolonged economic slowdown could keep volumes from rebounding.

ICICI Securities

  • Upgrades from ‘hold’ to ‘buy’ with a target price of Rs 143, implying a upside of 21%.

  • Ashok Leyland with about 60-70% revenue contribution from medium and heavy commercial vehicles is likely to benefit from the upcoming demand upcycle.

  • The government’s infrastructure push along with strong demand from mining sector expected to drive HCV demand.

  • Used the downcycle as an opportunity to remodel its portfolio towards next-gen platforms with the launch of a unique AVTR platform for trucks and bring in new LCVs

  • Export push towards under-penetrated African and ASEAN markets is likely to further boost growth and margins.

Motilal Oswal

  • Maintains ‘buy’ with a target price of Rs 118. The stock had touched this level on Thursday.

  • Below estimate result with operating leverage diluting higher raw material cost impact.

  • Net debt seems stable QoQ, but higher by Rs 1,150 crore YoY to Rs 2,890 crore.

  • Cash flow from operations declined to Rs 21.1 crore, primarily due to the impact of the near-washout in H1 FY21 and an increase in working capital by Rs 430 crore.

Reliance Securities

  • Maintains ‘buy’ with a target price of Rs 170, implying a upside of 44%.

  • Expects the M&HCV segment to witness strong rebound in FY22E, post recording heavy double-digit decline for previous two years.

  • Pent-up demand of previous two years would be the single biggest catalyst for strong revival.

  • Increased focus on non-cyclical business of exports, spare parts, after sales service revenue and defence segment would start paying off.

  • Market share in the M&HCV segment continues to remain more or less stable over the years.