Narnolia Financial
Ashok Leyland (Accumulate)
CMP: ₹91.1
Target: ₹103
EBITDA margin expanded by 80 bps on a sequential basis on the back of operating leverage benefit and cost reduction initiatives taken by the company. The average discounts remained higher at ₹4,20,000 per unit in the industry and due to increasing competitive intensity it is expected to remain on the higher side.
Going ahead with the new government in place the management expect the 10-12 per cent y-o-y volume growth in FY20 which will be driven by infrastructure development and pre-buying due to BS-VI implementation. The exports markets have once again become the focus area of the company and it will also increase its penetration in the LHD (Left Hand Drive) markets.
Further development of LCV platform, order inflow in defence business, coming up of modular platform and expectation of scrappage policy will be the key growth drivers in FY21. Factoring the higher discounting and relatively slow growth in 1HFY20, we reduce our margin estimates by 30 bps in FY20. We value the standalone business at 13x FY20e EPS and ₹9 per share for HLFL to arrive at a target price of ₹103 and recommend ‘Accumulate’.