This Midcap Hinduja Group Stock Gave 76.26% In 3 Years, Buy Stock For 17% Gains: BoB Capital Markets

BoB Capital Markets is bullish on Ashok Leyland Limited (AL), a mid cap Hinduja Group company having a market cap of Rs 42,506.43 crore. The brokerage has rated the stock "Buy" with a target price of Rs 169 per share. Considering the estimated target price given by the brokerage, the stock is likely to jump 17% in 12 months. Ashok Leyland is the flagship Company of the Hinduja group, having a long-standing presence in the domestic medium and heavy commercial vehicle (M&HCV) segment.

Stock Outlook & Returns

The Stock last traded at Rs 144.80 per share on NSE. The stock in the past 1 week has fallen 2%, whereas, in 1 month, it has fallen 3.34%, respectively. However, over the past 1 year, it has gained 3.87%. In the past 3 years, it has given a massive 76.26% and in the past 5 years, it has given 24.83% positive returns. The 52-week low of the stock is Rs 93.20 recorded on 8 March 2022, and the 52-week high is Rs 169.45 recorded on 6 September 2022.

Healthy quarter

AL's Q2FY23 net sales at Rs 82.6bn were driven by volume growth of 15% QoQ to 45.3k vehicles (+65% YoY on a weak base). Net realisation per vehicle (NRPV) stood at Rs 1,824k (flat QoQ, +13% YoY). Raw material cost spiked 13% QoQ but appears to have peaked at 78% of sales. Gross margin expanded 130bps QoQ to 22%. With other expenditure reined in (+4% QoQ), EBITDA jumped 68% QoQ to Rs 5.4bn and EBITDA margin swelled to 6.5% from 4% in Q1FY23. PAT nearly quadrupled QoQ to Rs 1.9bn despite higher interest cost.

Price hikes and easing cost to boost margins

AL took price hikes of 1.8-1.9% in Q1FY23 followed by a 1% increase in Q2 and 1.5% in Q3 thus far. Despite the frequent hikes, customer retention remains high and the company has managed to gain market share across geographies. We expect lower costs and improved pricing to aid margin improvement in the medium term.

Market share addition

AL's domestic market share in medium & heavy commercial vehicles (MHCV) has risen 10ppt YoY to ~32% (27% end-FY22). Though the uptick in the CV cycle has been a contributing factor, the company's advanced vehicle transformation (AVTR) range of products has also supported gradual market share gains. In the bus segment, AL retains its leadership and is looking to expand volumes. Its network expansion strategy has also supported growth.

New launches in LCVs and EVs

Volume growth in the 'Dost' and 'Bada Dost' light commercial vehicles (LCV) has been healthy in Q2 but would have been stronger if not for the semiconductor shortage. These products carry export potential for AL. In the EV segment, the company plans to launch the electric version of Dost and Bada Dost by mid-2023, which should lend a boost to volumes and margins.

BUY, TP Rs 169

"We expect AL's EBITDA margin to expand 290bps over FY23- FY25 to 10% baking in softer raw material cost, revival in the key CV market, leadership in the bus segment, new launches and entry into EVs. Revival in exports will add further comfort. We assume coverage with BUY and a TP of Rs 169, valuing AL at Rs 157/sh (22x FY24E EPS) plus Rs 12/sh for Hinduja Leyland Finance," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets. 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.