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Geojit Financial
Ashok Leyland (Buy)
Target: ₹137
CMP: ₹122.5
Ashok Leyland (AL) is the second-largest Commercial Vehicle (CV) manufacturer in India. It has a strong presence in the truck segment with a market share of 29 per cent as of FY21.
Q2FY22 revenue grew by 51 per cent q-o-q due to pick up in the M&HCV demand and strong growth registering in the LCV segment. We expect the margin to improve going forward owing to reduction in the commodity cost and better cost management.
We believe the economic activities to recover gradually at current level and expect meaningful pick up in H2FY22 due to seasonality, improvement in core economic indicators and easing restrictions.
We believe Ashok Leyland is likely to gain market share owing to new models in ICV (Intermediate CV) & CNG trucks and LCV brand Bada Dost. Positively, Ashok Leyland is carrying robust capex plan in Electric vehicle under the UK Subsidiary ‘Switch’ and to use India as export hub.
Considering the positive announcement by the company and Government’s intent to kick start the Infra development we except the valuation to continue at current level, and reiterate our buy rating.
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