Buy Ashok Leyland, says ASK Raymond James

Broking house, ASK Raymond James is bullish on Ashok Leyland. It has maintained buy rating on the stock with a target price of Rs 50.

The ASK Raymond James report on Ashok Leyland:

“Ashok Leyland, ALL reported 34% YoY growth in revenues at Rs 16.7 billion for 2Q FY07 (higher than our expectation of Rs 15.9 billion), led by 28% YoY growth in volumes. Operating margins were under pressure and fell by 124 bps to 8.1% YoY due to higher cost of inputs viz. rubber, non-ferrous metals, etc.”

“ALL has announced plans to set up a vehicle manufacturing unit in Uttranchal with a capex of Rs 10 billion and capacity of 25,000 units. It also plans to setup assembly units in UAE and South Africa to tap the growing Middle East, South and Central African markets.”

“Going forward, we expect volumes from the defense and passenger vehicle segment to improve due to pending defense orders and an order backlog of 3,000 buses from State Transport Corporations. Thus, on back of buoyant outlook for 2H FY07 and initiatives to further penetrate into the export market, we are revising our volumes estimates by 9% for FY07E and by 12% for FY08E. We are also revising our FY07E earnings to Rs 3.1 (up 3%) and FY08E earnings to Rs 4.1 (up 13.8%). Based on our revised earnings, we increase our target price to Rs 50 from earlier Rs 44. We maintain our Buy rating on the stock.”