The Hindu Business Line : ALL gains on positive earnings prospect

EXPECTATIONS of a sustained earnings growth momentum have infused a feel good factor at the counter of Ashok Leyland Ltd (ALL). Brokers maintain that going forward, the gap between market leader Tata Motors and ALL should narrow down significantly given the latter's growth visibility.

An industry source said that the company has given a guidance of 15-20 per cent volume growth for FY05. ``It has been said that looking at the demand-supply scenario today this target will be comfortably achieved,'' said a source.

The stock of ALL has been almost range-bound over the past one month, reflecting only a marginal improvement in price. For instance, the stock has moved from Rs 211 levels on the bourses on May 17 to its current levels of Rs 216. For the period June 8 to June 15, the counter has in fact shown a slight weakness i.e. from Rs 218 levels to Rs 216.

According to Mr Amit Kasat of Edelweiss Capital, outlook for the commercial vehicle industry remains positive and estimates a 15 per cent volume CAGR growth over FY04-06. ``Growth will be sustained and driven by structural factors. The earnings growth for ALL is expected to improve led by volume growth, which is estimated at around 20.5 per cent for FY05, on account of capacity expansion and operating margin improvement,'' he said. Mr Kasat is of the view that exports for the current year (FY05) is expected to be around 7,000 and mainly driven by the Iraq order.

The company proposes to ramp up capacity from the existing 50,000 numbers to 67000 by end March 2005. There is talk of an additional 10,000 by end December 2005. On a conservative basis, analysts are of the view that margins will improve by 50-60 basis points while there are those who are talking of a 100 basis point improvement. This is said to be largely on account of the company increasing prices by 3 per cent as on May 1 last month. ``April-June quarter numbers will be much better. Also we are looking at an EPS of Rs 23.50 for March 2005. At this moment, and in comparison to Tata Motors, the stock looks undervalued,'' said an analyst tracking the company.

The stock ended the day at Rs 216.40, up 4.59 per cent, with around 4.18 lakh shares traded on the NSE. On the BSE, the stock ended at Rs 216.35, up 4.95 per cent, with around 2.45 lakh shares traded on the BSE.

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