Green signal. Analysts see further gain even as Ashok Leyland nears peak

The management of auto major Ashok Leyland (ALL) is confident of a sustained recovery in volumes and margins over the medium term, and it is this confidence that the markets lapped up on Friday as the stock zoomed 6.64 per cent to hit an intra-day high of ₹167.80 — just 0.95 per cent shy of its 52-week high price of ₹169.40. The stock, which closed at ₹164.40 on the BSE on Friday, gained 12.08 per cent in 2023 so far.

Most analysts remained bullish and expect the stock to gain another 15-30 per cent from current level.

In an investors’ meet on Thursday, the company shared its aspirations to grow market share to 35 per cent in M&HCV and 25 per cent in LCV in the medium term on the back of product launches, network expansion, differentiated aftermarket solutions and higher customer connect.

• Read: Ashok Leyland devises medium-term plan to boost share across truck & bus segments

The reasons for the spike in the stock price also include ALL’s plans to roll out autonomous electrical terminal trucks for the port industry. There were also reports recently of the company joining the race to acquire a stake in MG Motor India.

Upbeat on EV biz

What is also working in Ashok Leyland’s favour is the promise that the company’s EV arm Switch Mobility holds. “EV business will see good growth and Ashok Leyland will continue to invest in the company. It is planning to launch multiple products in the segment in FY24 and beyond,” said a report from Prabhudas Lilladher.

Commenting on the intra-day spike, Abhishek Jain, Head of Research, Arihant Capital, told businessline, “The commercial vehicle sector, in which the company operates, is experiencing rapid changes and growth opportunities. The increasing average age of trucks and the demand for replacement vehicles, coupled with the company’s plans to transition towards alternative fuel powertrains have positioned Ashok Leyland favourably in the market.”

• Read: Ashok Leyland hits top gear in Q4, charts over ₹600-crore capex in FY24

The management’s commentary and guidance have excited brokerages such as Motilal Oswal, Prabhudas Lilladher, Elara Securities, JM Financial, InCred Equities, and others to stay bullish about this stock.

Gaurav Bissa, Vice-President, InCred Equities, pointed out that Ashok Leyland failed to enjoy buying interest for the last few months, and was consolidating between ₹135 and ₹155 for a major part of 2023. The stock gave a breakout from this range some time ago which paved the way for a move towards ₹170-levels. This continuation pattern can then push the stock towards ₹200-levels in a short period of time.”

Peer performance

Aditya Welekar, Senior Research Analyst - Metals & Auto, Axis Securities, said, “With a target to enhance its MHCV/LCV market share, cost focus, automation, new launches and product mix improvement, its FY24 and medium-term target is to achieve a double-digit and ‘mid-teen’ EBITDA margin from 8.1 per cent in FY23. The entire CV sector grew by a robust 34 per cent y-o-y in FY23 (MHCV grew by 49 per cent and LCV by 27 per cent YoY in FY23). ALL’s market share in MHCV improved to 32.3 per cent in FY23 from 26.8 per cent in FY22, while Tata Motors’ share fell to 49.6 per cent in FY23 from 54.12 per cent in FY22.

Jain of Arihant Capital, said that ALL’s performance is notable, and its valuation is relatively cheaper compared with the peer group stocks. Eicher Motors, a key competitor, has been performing decently, but Ashok Leyland’s market share gains and growth potential in both the M&HCV and LCV segments provide a competitive advantage. ALL’s focus on technological transitions, ESG goals, and its subsidiary, Switch Mobility, further strengthens its position in the market.

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