Geojit Financial Services Limited, one of India's largest brokerage firms, has recommended buying Ashok Leyland Limited's shares at a target price of Rs. 137. The brokerage expects a 15% growth for the stock in the next 12 months from the current market price of Rs.119. Ashok Leyland is India's second-largest commercial vehicle manufacturer, as well as the world's fourth-largest bus maker and 14th-largest truck producer and supplier.
The brokerage’s take on Ashok Leyland Ltd
The brokerage in its research report has noted that the company's "Q2FY22 revenue grew by 51% QoQ (Not comparable) due production lockdown with regard to Pandemic. We expect the demand to improve going forward owing to pick up in the construction activity, improvement in retail sales and strong E-commerce activity. Respite in the steel price at the current level and better cost management and price hike taken will expand with margin. During Q2, AL's market share in the truck segment came at 22% from 27% sequentially due to reduction in discounting."
According to Geojit "For the Quarter, the Heavy truck segment grew by 53% QoQ in volume and LCV segment doubled in volume. The Bus segment is to recover in the near term owing to easing restrictions. The average Bus volume in the industry came to 1/4 from an annual production of 40000. AL is really poised to gain market share in this segment with its new models in Avatar (ICV, Modular platform) and CNG models launching in Q4."
Buy Ashok Leyland Ltd with a target price of Rs. 137
Geojit has claimed in its research report that "The company has been successful in gaining market share with products like Dost and its variants like Bada Dost, Avatar and Partner models giving a tough time to its competitors. In addition, the company has embarked on a modular platform strategy to reduce the parts per vehicle. This could result in better economies of scale, production planning and improved supply chain management to reduce the cost of the vehicle."
"Ashok Leyland has increased its market share to 23.8% in the LCV segment. The growth trend in the LCV segment is to continue as the Industry opportunity of LCV is 5 times higher than the HCV. Company is poised to expand its market in North, Northeast and the SAARC region" added the brokerage.
According to the brokerage's call "We believe that the short term headwinds has been factored in the stock price and not expecting any meaningful decline as the volume numbers are currently at its low, and gradually recovering owing to improvement in core economic indicators. We value AL at 15x EV/EBITDA on FY23E and reiterate our buy rating with a target of Rs.137."
The stock has been picked from the brokerage report of Geojit Financial Services Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.