Buy Ashok Leyland; target of Rs 128: Kotak Securities

Kotak Securities' research report on Ashok Leyland

In 1QYF19, ALL reported robust revenue and earnings growth over same quarter last year. During the quarter, volumes grew by 48% and EBITDA margins witnessed strong expansion. Operating performance came in better than our estimate. New norms announced by the government on load carrying capacity of trucks is expected to impact truck demand in the near term. Over the medium to long term (6-12months), impact of this move on truck demand will to a large extent depend on the implementation of overloading ban. We lower our FY19/FY20 estimates on account of expected impact on demand. We revise our target price lower to Rs128 (earlier Rs160) on earnings downgrade and assigning of lower PE multiple on account of truck demand impact from new norms for truck load carry.

Outlook

Given adequate upside from recent sharp correction in the stock price, we rate the stock as BUY. We believe the stock could remain volatile and under pressure in the near term due to possible near term dip in demand.