Sharekhan is bullish on Ashok Leyland has recommended buy rating on the stock with a target price of Rs 139 in its research report dated September 03, 2017.
Sharekhan's research report on Ashok Leyland
After a dismal performance in Q1FY2018 (volumes dropped 32% YoY), the MHCV industry bounced back sharply in Q2FY2018, reporting robust 22% YoY growth. Increased thrust on infrastructure, gradual pic k in the economy post GST-related blip, improved festive demand and low base of the corresponding quarter last year (Q2FY2017 MHCV volumes were down 1 4% YoY) drove MHCV growth. Further, a favourable low base in Q3FY201 7 on account of demonetisation (MHCV volumes dipped 3%) would lead to continued healthy growth for the MHCV in dustry going ahead. The MHCV industry is poised to grow in low single digits (3-4%) in FY2018 as against earlier expectations of flat growth. We expect the MHCV industry to grow by 10-12% in H2FY2018 as against 4% drop reported in H1FY2018. Ashok Leyland Limited (ALL), being a pure MHCV player, is poised to benefit from imp roved MHCV outlook. We expect ALL’s MHC V volume s to grow by 7% in FY 2018.
We have raised our FY2018 and FY2019 earnings estimates by 5% each to factor better-than-expected volume growth in Q2FY2018 and improved outlook for the MHCV industry. ALL is the best stock to play the MHCV revival cycle. We retain our Buy rating on the stock with a revised price target (PT) of Rs.139 (earlier PT of Rs.120).
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