The Hindu Business Line : Ashok Leyland: Buy

Investors can consider buying Ashok Leyland at the current market price of Rs 49. The stock has been rising in the last two weeks following talk of a multinational commercial vehicle manufacturer picking up equity in the company. However, on fundamental factors alone the stock is an attractive buy for those with a long-term holding perspective.

There has been runaway demand growth in excess of 40 per cent for commercial vehicles in the first half of this fiscal, following the extraordinarygrowth in the overall economy. The strong freight market has ensured that neither high fuel prices nor higher interest rates would cause problems for transporters and in turn, vehicle manufacturers. Continued investment in infrastructure and on highway construction is likely to sustain demand for commercial vehicles, especially in the heavy category.

Ashok Leyland is well positioned to exploit the demand, especially for multi-axle and tractor-trailer trucks. The company has been unable to meet the demand from this segment in the first half and says the order book for the second is already full. However, in the other booming segment of sub-tonne commercial vehicles, where the Tata Ace is ruling the roost, Ashok Leyland does not have a presence. The recent acquisition of Czech light truck makerAvia may help the company fill up this gap in its portfolio, assuming that it decides to bring those models to India.

The company has a successful cost management programme in place, including e-sourcing of materials and components that has helped it reduce costs significantly. Ashok Leyland is also consciously de-risking its business model by focusing more on the non-cyclical sectors of defence supplies, spare parts and engine sales.

If the talk of a multinational vehicle manufacturer taking up equity in the company turns out to be true, it would be a major positive for Ashok Leyland's business. The company needs to broad base its products and access latest technology to stay abreast of the high quality competition expected in the domestic market that now has almost all the big multinational commercial vehicle manufacturers. A big multinational partner will certainly help.

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