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Emkay Global
Ashok Leyland (Buy)
Target: ₹124
CMP: ₹93.35
Our overtly constructive view on the CV cycle rests on three fundamental pillars: 1) a deep appreciation of replacement cycles – which always kick in as exogenous catalysts fade; 2) somewhat crude but practical assessment of the system’s capacity utilisation; and 3) unusually strong gross margins for transporters despite a severe demand shock.
Ashok Leyland offers the best play on the fast-evolving CV recovery. First, ALL’s market share in MHCVs will touch its cyclical high of 34 per cent as 25T trucks reclaim their share of the segment. Second, plugging product gaps in 3T plus LCV market offers immense scope for market share gains. Last, management has clearly articulated its capital allocation which caps investments in the ancillary businesses at about ₹250 crore/year or 18 per cent of FY21-22 OCFs.
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