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CMP: ₹80.35
Target: ₹90
Ashok Leyland is the second-largest commercial vehicle (CV) manufacturer in India. It has a strong presence in the M&HCV (medium and heavy commercial vehicle) segment with a market share of 34 per cent as on FY19. It offers a range of trucks, which include long haul trucks, mining and construction trucks, and distribution trucks. It designs, develops and manufactures defence vehicles for armed forces.
We expect the volume numbers to stabilise at current level and going forward the demand to pick up on account of pre-buying.
Positively, Ashok Leyland is able to reduce its inventory level from 18,200 to 13,200 on MoM level till November.
We believe government spending towards road infrastructure and impending scrappage policy to drive volume growth in the long run.
Revenue and profit after growth to grow by 11.4 per cent and 20.4 per cent year-on-year for FY21 and factor 9 per cent volume growth for the same period.
We believe that the near-term headwinds has been factored in the stock price and don't expect any meaningful downside. We value Ashok Leyland at 17x FY22E EPS and upgrade our rating to ‘Accumulate’.
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