Brokerages reaffirm their bullishness on auto player Ashok Leyland, following its decision to to invest over Rs 5,000 crore in battery localization in India over the next 7-10 years.
The company has entered into a long-term exclusive partnership with CALB Group, a battery technology company in China, to develop and manufacture next-generation batteries for automotive and non-automotive applications, including energy storage systems.
The automaker aims to deploy Rs 300-600 crore over the next 2 to 3 years for battery pack manufacturing based on LFP technology, with a larger long-term investment of Rs 5,000 crore planned over the next 7-10 years.
Citi has maintained a buy rating on Ashok Leyland with a target price of Rs 150, citing the company’s aggressive plans to invest in battery development and manufacturing in India. The firm's management also indicated the potential for cell production at a later stage and estimates captive battery requirements of 4-6 GWh over the next 4-5 years.
Nomura concurred. The brokerage noted that Ashok Leyland's initial focus will be on supporting Ashok Leyland and Switch Mobility’s captive EV requirements (~4-6 GWh over the next 4-5 years),
before expanding to non-captive demand across both the auto and energy storage markets.
Importantly, Ashok Leyland will be the exclusive partner of CALB for the India market, with CALB routing relevant local products through AL once manufacturing scales up. "The management is mindful of IRR, in our view, and will step-up investments to make cells only if it expects reasonable returns," said the Japan-based brokerage.
"We believe likely GST reduction may not impact medium & heavy commercial vehicle (MHCV) volumes initially, but may lead to improved replacement demand over time as consumption picks up," Nomura added. Going ahead, Ashok Leyland's margins can improve further as discounts come down.
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