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Dalmia Securities
Ashok Leyland (Buy)
CMP: ₹145.35
Target: ₹175
Ashok Leyland possesses a diversified product portfolio ranging from trucks, buses and LCVs to defence vehicles and power solutions. With increasing emphasis on better infrastructure by the current government and various favourable economic and policy reforms, there will be an uptick in the demand for commercial vehicles. One of the major beneficiaries of this growth will be Ashok Leyland, with pure play in the CV segment.
We expect 13 per cent CAGR in volumes sold over FY18-20E, led by expanding product portfolio, growing acceptance of the iEGR technology and acceleration in economic activity. Revenue is expected to grow at a CAGR of 15 per cent over FY18-20E, to be led by strong volume increase due to new launches in the LCV product portfolio and growing focus on non-CV business such as defence and spare parts.
We estimate EBITDA margins to increase to 14 per cent in FY18-20E and net profit to grow at a CAGR of 38 per cent to ₹2,969 crore in FY20E led by effective cost management and negligible interest costs. We have a ‘buy’ rating with target price of ₹175 based on SOTP (10x EV/EBITDA FY20E + 62 per cent stake in HLFL).
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