Buy Ashok Leyland; target of Rs 65: KRChoksey

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Buy Ashok Leyland; target of Rs 65: KRChoksey

KRChoksey is bullish on Ashok Leyland and has recommended buy rating on the stock with a target of Rs 65 in its June 1, 2011 research report.

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RELATED NEWS Buy Pratibha Ind; target of Rs 72: ULJK Securities Buy Coal India; target of Rs 438: Motilal Oswal Hold Unitech; target of Rs 39: KRChoksey ALSO READ See previous views by KRChoksey See what other Experts & Brokerages are saying about Ashok Leyland See messages about Ashok Leyland Ashok Leyland BSE | NSE 31/05/12 Are Mutual Funds betting on Ashok Leyland?

KRChoksey is bullish on Ashok Leyland and has recommended buy rating on the stock with a target of Rs 65 in its June 1, 2011 research report.

"Ashok Leyland Ltd reported strong topline growth of 30% y-o-y to Rs 3828.5 crores on the back of 15% volume growth & 13% y-o-y improvement in net realizations. EBITDA grew by 35% y-o-y led by improved realizations. EBITDA margins improved by 44 bps y-o-y & 586 bps q-o-q on the back of price increases taken in the quarter, higher defence vehicle sales & favorable product mix. Net profit improved by 34% y-o-y to Rs 298.2 crores on the account of strong operating profitability & decline in effective tax rate. ALL registered robust topline growth of 30% y-o-y on the back of 15% y-o-y growth in the vehicle volumes.Net realizations improved by 13% y-o-y on the back of pricing actions taken by the company (~2% in January).Export volumes grew by 28% yo- y on the back of strong demand in the Bangladesh & Sri Lankan markets. In the engine segment the company continues to scale down its exposure to telecom sector significantly. In the defence segment ALL supplied ~2500 kits to Jabalpur factory. Management has guided vehicle volume to grow by 13-14% for FY12E on the back of slowdown in CV segment."

"ALL's operating margins improved by 44 bps y-o-y & 586 bps q-o-q to 13% on the back of effective product mix, price hikes & higher sales of fully built defense vehicles. Employee cost as a % to sales increased by 180 bps y-o-y on the back of increase in headcounts at executive level & wage settlements done during the quarter. Management expects margins to remain in the range of 10 -10.5% in FY12. Ashok Leyland's PAT for the quarter-grew significantly by 34% y-o-y to Rs 298.2 Cr. in Q4FY11 on the back of strong operating profitability, 180 bps y-o-y decline in the effective tax rate, partially offset by higher interest & depreciation expense. This is mainly because of increase in depreciation."

"ALL registered strong recovery in overall profitability on the back of improved volumes & regaining the lost market share. The CV segment is expected to register subdued growth of 10% on the account of unfavorable macroeconomics (rising raw material prices, fuel cost & Interest costs).However we believe ALL would be able to achieve its volume guidance due to ramping up of Pantnagar facility & improved product mix with pan India launch of the U-truck range. At the CMP of Rs 51, Ashok Leyland is trading at 9.4x its FY12E EPS of Rs 5.4 and at 8.1x its FY13E EPS of Rs 6.3. We recommend a "BUY" on the stock with a target price at Rs 65, using target multiple of 12x FY12E EPS, with an upside of 27%," says KRChoksey research report.

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To read the full report click on the attachment