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Reliance Securities
Ashok Leyland (Buy)
CMP: ₹82.45
Target: ₹111
We expect the M&HCV segment to witness strong rebound in 2HFY21E and FY22E, post ongoing down cycle. Healthy agri output due to favourable monsoon, reversal of investment cycle, sizeable incremental capex on account of government’s tax relief for new investment are expected to bring back cheers for the economy in FY21E.
Pent-up demand of previous 1.5-2 years would be the single biggest catalyst for strong revival.
Market share in the M&HCV segment continues to remain more or less stable over the years. Moreover, pricing discipline is broadly maintained unlike aggressive pricing by 2W players. Thus, the competitive pressure for the M&HCV industry is the least, in our view. Ashok Leyland’s increased focus on non-cyclical business of exports, spare parts, after sales service revenue and defence segment would start paying off.
Stock’s current valuation of about 12xFY22E EPS appears attractive and we recommend ‘buy’ on Ashok Leyland with a target price of ₹111, valuing the stock at 17x FY22E EPS.
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