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ICICI Securities
Ashok Leyland (Buy)
CMP: ₹43.9
Target: ₹57
Ashok Leyland hosted a conference call to address investor concerns on the the19 per cent stake purchase in Hinduja Leyland Finance (HLFL).
Key takeaways: a) Ashok Leyland to raise stake in HLFL to 81 per cent by purchase of the stake from PE firm and promoter
entities (overall spend ₹12bn); b) AL is likely issue NCDs worth ₹600-700 crore to fund the purchase; c) rationale for purchase was it being an enabler for bringing new PE investors or aid in merger with AL in the future; and d) Ashok Leyland management is comfortable with peak D/E of about 1x (current is ~0.3x).
We believe in challenging business cycles cash conservation should be top priority for any management, thus the timing of this cash outflow/increase in debt burden adds to investor woes. We share these concerns; however, the stock price decline of >40 per cent in past month largely reflects concerns in the valuations. We maintain our ‘buy’ rating.
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