Buy Multibagger Mid-Cap Hinduja Group Stock For 18% Potential Upside, Recommended By Top Brokerage

KR Choksey, a leading brokerage firm, in its report on Ashok Leyland (AL), has recommended investors 'buy' the stock of the company for an estimated target price of Rs 194 apiece. Considering the estimated target price the stock has the potential to gain 18% in 12 months if the stock is purchased at the current market price.

Ashok Leyland (AL) is the flagship company of the Hinduja group and the 2nd largest manufacturer of commercial vehicles in India. The company has a footprint across 50 countries and has a product range from 1T GVW (Gross Vehicle Weight) to 55T GTW (Gross Trailer Weight) in trucks.

Stock Outlook

On NSE, the current market price (CMP) of the AL stock is Rs 165 apiece. The 52-week low of the stock is Rs 93.20 apiece and the 52-week high is Rs 169.45 apiece, respectively. It is a mid-cap auto sector company engaged in the manufacturing of heavy vehicles. It has a market capitalization of Rs 48,715.08 Crore.

Return On Investments

It has given 12.13% in the past 1 month and 19.17% in the past 3 months, respectively. Over the past 1 year, it has given a positive return of 31.68%. Its Returns in the past 3 and 5 years are good, as compared to returns over the year. In the past 3 years, it has given a multibagger return of 164%, whereas, in the past 5 years, it has given a return of 39.48%.

Tailwinds for the CV Industry

The CV industry in India is expected to have a robust growth trajectory across sub-segments. Truck sales will be supported by industrial demand as several industries are running at full capacity, and increased construction, infra and mining activities. Re-opening of schools, colleges and offices would lead to higher intercity and intracity travel, aiding the growth of buses. LCV will continue to benefit from higher demand from e-commerce, agriculture and allied sectors. Fleet utilization levels are improving, resulting in reducing cash flow pressure for operators which should also be a positive for the industry. On the supply front, reducing the impact of semiconductor shortages will be a positive, especially for LCVs.

AL has gained market share, and new product launches will help further

AL has gained market share which stood at 31.1% in Q1FY23 vs 26.2% in Q1FY22 and 30.6% in Q4FY22. This was aided by tippers and multi-axle vehicles doing well, increased distribution network in North and East territories, and demand shifting toward diesel and away from CNG. AL has launched a slew of new models in the last few months across tractors, trucks, tippers, and LCVs. AL is also working on making all products available in the CNG variant over the next 8 to 9 months. AL is also looking to launch e-LCV within 6 months.

Recent deal win

AL bagged orders for 1,400 school buses in the UAE. This will be AL's largest ever supply of school buses in UAE. AL also indicated that it would plan to launch its electric vehicles in the GCC markets through its subsidiary, Switch Mobility's expansion in UAE and GCC.

Profitability is expected to improve in the later part of FY23E

According to the KR Choksey, "As commodity costs soften, we expect AL's profitability to improve in the later part of FY23, aided by higher gross margins as well as higher volumes and operating leverage. Products built on the modular platform have helped AL to significantly reduce the costs at the back end, which will aid the margins as volumes increase."

Outlook & Valuation

The CV industry is on a robust growth trajectory and AL is gaining market share in a competitive industry despite taking price increases. New product launches are seeing good traction. "We expect a Revenue/ EBITDA CAGR of 32.4%/ 96.5% respectively over FY22 to FY24E, on a covid impacted base of FY22. We have assigned a P/E multiple of 26.5x on FY24E EPS of INR 7.3 to arrive at a revised target price of INR 194/share (earlier target INR 168/share). The target price implies a potential upside of 18.1% from the CMP. We upgrade our rating to "BUY" from "ACCUMULATE" on the shares of Ashok Leyland Ltd.," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.