Epic Research

Ashok Leyland (Buy)

CMP: ₹103.85

Target price: ₹133

Ashok Leyland is a holding company. The company is engaged in Commercial vehicles and related components. Through its subsidiaries, it is engaged in manufacturing and trading in medium and heavy commercial vehicle, light commercial vehicles, passenger vehicles, automotive aggregates, and vehicle financing and engineering design services.

The total industry volume for the Q2-FY18-19 was 1,01,768 MHCVs, a growth of 26 per cent over the same quarter last year. Industry has shown significant growth over the same period year. Ashok Leyland grew faster than the industry with 35,628 M&HCV, which is 32 per cent growth over last year. Ashok Leyland has recorded highest volume, revenue, EBITDA and PAT in Q2.

For Q2 Ashok Leyland’s revenues stood at ₹7,608 crore, which is 25 per cent higher than Q2 last year. EBITDA is at ₹806 crore, 10.6 per cent, and that grew at 32 per cent as against the 25 per cent growth in revenues. PAT was ₹460 crore, which again grew at 38 per cent.

Ashok Leyland is an attractive ‘Buy’ at current levels for Investors with long term outlook. Ashok Leyland is currently under pressure due to new axle norms and the structural change that are lined up for CV Industry. However, we remain positive on the momentum of the company and its financial performance. Ashok Leyland is currently trading at 14x FY20 earnings. We recommend buying at current levels and accumulate on dips with target price of ₹133 valuing stock at conservative estimate of 18x of FY20 earnings.

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