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Axis Direct
Ashok Leyland (Buy)
CMP: ₹83.1
Target: ₹92
Key takeaways: a) Pick up in demand for commercial vehicle (CV) is led by infrastructure and industrial segments followed by robust demand from consumption led sectors and rural market after GST .Demand will be furter boosted in FY20 with pre buying ahead of BS 6 norms leading to incremental volumes for Ashok Leyland (ALL).
b) Implementation of vehicles modernisation programme, popularly known as vehicle scrappage programme would cap the life of the commercial vehicles at 15 or 20 years and thus reduce the CV cycle in long-run which will ensure consistent demand for ALL vehicles.
c) LCVs are witnessing strong growth under rising e-commerce business and after GST implementation for last-mile connectivity of goods. Furthermore ALL has been witnessing strong growth in its LCV category especially for its DOST brand.
d) ALL is now shifting its focus toward expanding and creating new revenue/profit pools by de-risking its business by shifting its focus towards defence, spare parts and exports to boost revenues. Post-elections company expects huge orders from defence segments with tenders in hand and exports to ramp up after launch of its left-hand drive-compliant vehicles.
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