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Emkay Global
Ashok Leyland (Buy)
Target: ₹89
CMP: ₹61.55
Q1-FY21 results were weak due to lower volumes, but came in above estimates. Revenue stood at ₹650 crore, a decline of 89 per cent y-o-y vs. the estimated 87 per cent fall. EBITDA loss at ₹330 crore was better than our expectation of ₹360 crore, owing to better gross margin and lower employee cost.
We expect a gradual revival by the end of FY21, led by a low base, replacement demand and pick-up in economic activity. In last three up-cycles, the average period of positive growth has been four years, and minimum growth from trough to peak is 90 per cent.
AL is likely to gain share in domestic MHCVs from 32 per cent in FY20 to 33 per cent in FY22, led by new products based on a modular platform. Similarly, the market share should increase in LCVs from 9 per cent in FY20 to 15 per cent in FY22, led by new product Phoenix LCV in 2.5-4.9T segments.
We expect volume, revenue and EBITDA CAGRs of 12 per cent, 16 per cent and 33 per cent respectively over FY20-23E. We retain Buy and OW stance in sector EAP, with a TP of ₹89 (₹74 earlier).
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