Motilal Oswal is bullish on Ashok Leyland and has recommended buy rating on the stock with a target of Rs 30 in its January 25, 2013 research report.
“Ashok Leyland's (AL) 3QFY13 operating performance was sharply below estimates. Adjusted for profit on disposal of non-current investment, AL reported its first quarterly loss of INR858m in a decade led by sharp decline in MHCV volumes and higher discounts due to demand slowdown and increase in competitive intensity.”
“Pressure to continue in 4Q (seasonally strong quarter), though the pace of decline expected to moderate to 20-25% YoY. For FY13, AL expects MHCV industry to decline by 20-25% (v/s 20% fall in 9MFY13). Company expects FY14 industry MHCV volumes to grow by 10%, led by better economic environment and a low base. 2) EBITDA margin guidance for FY13 lowered to 9% (v/s 9.5-10% earlier). Ex LCV Dost, EBITDA margins to be higher by 150bp. 3) AL expects to further improve its market share by 150bp to 27.5% and thus expects to outperform industry in FY14. 4) LCV Dost volumes have been guided over 55,000 units for FY14. 5) To reduce debt, company plans to raise INR5b through the sale of few non-core investments, instead of the QIP issue planned earlier.”
“For AL, 4Q typically contributes 40-45% of annual profits. Hence, the near term weakness would impact FY13 estimates sharply. Considering weak 3Q performance and continued near term weakness, we reduce FY13E/ 14E/15E estimates by ~41%/25%/22% respectively. Company being a pure CV play is expected to benefit from likely economic recovery in FY14. The stock trades at 25.3x/13x/9.3x FY13E/FY14E/FY15E earnings of INR1/1.9/2.7 respectively. Buy,” says Motilal Oswal research report.
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