AXIS Securities
Ashok Leyland (Buy)
Target: ₹90
CMP: ₹73.90
Ashok Leyland (AL), flagship of the Hinduja Group, is the 2nd largest manufacturer of commercial vehicles (CV) in India and 12th largest manufacturer of trucks globally. In our opinion, the domestic CV industry is near the bottom of the cycle, and growth trajectory would improve here on, although the pace of the recovery is uncertain currently.
LCV demand is picking up, with production levels ramping up quicker as compared to MHCV segment. AL is witnessing most traction in ICV and tippers segment.
Rebound in infra activity would hold key to uptick in truck demand. The Centre is close to finalising a scrappage policy for the automotive sector. MHCVs are expected to be biggest beneficiaries of the scrappage policy given the higher population of older vehicles. AL will become the biggest beneficiary of the additional demand for new CVs as AL has nearly 50 per cent market share.
Ashok Leyland’s new BSVI modular platform ‘AVTR’ has received excellent feedback from both fleet operators as well as drivers. AL is scaling up its non-truck businesses to mitigate the impact of business cycles and earnings volatility. These businesses include spare parts, exports, LCV, defense and power solutions. . AL’s electric vehicle thrust is likely to drive most of the EV bus sales volume in the upcoming financial years.