The stock of Ashok Leyland, which has been the darling of the stock markets in the last four years by rising from a level of ₹14 to ₹168 last May, is struggling at the bourses.

The shares, which were trading above ₹100 since July 2017, on Wednesday, closed below the ₹100-mark at ₹99.95 on the NSE. It, however, managed to close at ₹100.05 on the BSE. On Thursday, the shares were quoting at Rs 98.20 on the BSE and Rs 98.35 on the NSE.

Even after slumping 21.5 per cent in the last six months, the stock has still given a whopping return of 1,143 per cent over the 10-year period.

Analysts said the stock was in demand during the last few years due to its Defence foray, patented fuel injection systems and promise to be an early bird in the electric trucks segment.

But, now they fear, the company could face challenging days ahead.

Shares of Ashok Leyland moved into reverse gear after the Government, last July, issued new norms for load carrying. Accordingly, heavy vehicles, including trucks, could increase the loads by 20-25 per cent. Analysts then feared that it could hurt the demand for companies such as Ashok Leyland.

Change in Object Clause

A Chennai-based analyst tracking Ashok Leyland said, the decline in the stock got aggravated after Vinod Dasari, its CEO and MD, on November 13, announced his decision to resign from the company citing personal reasons. Dasari will continue to work in the current position until March 31 this year. Further, the general weakness in the auto sector took further toll on the stock, he added. Till the successor of the CEO announced, the stock will continue to languish, according to analysts.

Ashok Leyland changed its Object Clause according to which the company will engage in the business of developing, manufacturing and selling light commercial vehicles up to 7.5 tonnes gross vehicle weight, power train for LCVs, and spare parts in India and other countries. This change in Object Clause following the NCLT approving the order of amalgamating its three arms with itself as on December 17.

“Due to implementation of BS-VI emission standard on commercial vehicles, prices are likely to move up by 8-10 per cent, and as a result pre-buy is likely to set in FY20 to avoid higher prices. So, a volume de-growth in FY21 is highly expected which is likely to create a drag on its operating performance,” said Stewart & Mackertich. However, operating leverage, increasing global footprint, investment in electric vehicles, favourable product mix and LCV business consolidation are expected to augur well for the company, going forward, said a Stewart & Mackertich report, which initiated its covering on Ashok Leyland with an ‘Accumulate’ rating and a price target of ₹113.

Emkay Global has downgraded the stock to ‘hold’ from ‘Buy’, after its channel check indicates a reversal in MHCV sales cycle driven by surplus capacity, increasing cost of ownership, selective financing by NBFCs, and high base.

“Product mix turned adverse after implementation of new axle-load norms and competitive intensity increased due to subdued volumes and aggressive marketing by Tata Motors,” said Emkay Global, which reduced the price target to ₹113 from its earlier ₹152.

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