Ashok Leyland’s dream run continues

Shares of Ashok Leyland have been climbing new peaks on the bourses of late. On Wednesday, the stock registered yet another new peak of ₹77 on the BSE. However, the stock slipped 1.4 per cent to close at ₹74.85 on late hour selling.

The stock has gained more than three-fold from its 52-week low of ₹21.8, registered during last May.

According to analysts, opening up of the Defence sector, better operating leverage and possible benefits of lower discounts and soft commodity prices added fuel to the Ashok Leyland stock’s bull-run.

But they also cautioned investors that the stock could hit speed-breakers, as it is fully priced in most of the positives.

Foreign institutional investors have hiked their stake in Ashok Leyland to 20.39 per cent from 19.59 per cent during the January-March period. On the other hand, domestic funds reduced their holding to 12.06 per cent (13.24 per cent) while some small retail investors have also booked profits, as their holding slipped to 8.82 per cent (10.34 per cent).

Defence manufacturing in India is at an inflection point with a capex opportunity of $245 billion over the next decade, and Ashok Leyland will be one of the key beneficiaries, said Citi Research.

IDBI Capital said: Although, exports currently contribute only about 13 per cent to the overall CV sales of the company, it is growing at a rapid pace (up 50 per cent y-o-y). The company expects exports to contribute about a third to total revenues in a few years. Ashok Leyland is committed to participate in the ‘Make in India’ campaign and thus Defence will be another big opportunity for them in the coming years, it added.

Kotak Securities however, has recommended a sell on the stock. It said: ALL has gained 450 bps market share in the domestic truck industry in FY15, mainly led by a 600 bps gain in market share in the above 25-tonne heavy truck segment. The product mix of the company has likely been the best ever in the past six years, said Kotak, which has set a price target of ₹57.

However, IDBI Capital, which came out with a buy rating and a price target of ₹86, further added: “We like Ashok Leyland due to its focus on strengthening balance sheet through divesting non-core businesses and improving profitability in the core business, and increasing market share on the back of dealership expansion across India, focus on technology, and new launches.”

Kotak expects intense competition, particularly after Eicher-Volvo and Daimler introduced more models in the heavier tonnage segment. A Chennai-based analyst said, it is better to book profit at current levels, as the stock has risen sharply.

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