LKP Researchs research report on Ashok Leyland
Ashok Leyland posted healthy set of numbers and a scintillating market share growth in Q4. CV demand was quite firm in Q4 and FY 23 supported by higher influx of infra projects, mining & construction activities and above normal monsoon, which may drive demand further. New launches and focus on geographic mix seen in Q4 should help AL to further improve sales and fill in the gaps within the portfolio. LCV demand has been strong throughout the pandemic and is expected to strengthen as last mile transportation is a flourishing business, mainly driven by e-com success and new EV launch of its most successful model Bada Dost. Also, we expect AL to gain more market share given its new launches in tractor trailer and tipper segments and huge order book for trucks driven by STUs and private fleet operators. Bus demand is also going strong on pandemic fading off and markets completely opened up. Both bus and LCV demand shall get a further fillip with ongoing strong demand for their EV variants with AL’s EV arm SWITCH Mobility getting good orders and credit worth Rs2bn from the parent AL.
On the margin front, Modular program, cost cutting initiatives, lower discounting, price hikes, superior product mix along with softening input costs shall aid margin growth. To sum it up, we believe the ongoing CV upcycle to continue in FY 24 as well; albeit as a lower pace, which would result in to high earnings growth and higher valuations supported by low commodity cost benefits aiding margins. Divestment in Switch Mobility to act an additional trigger as and when and if at all it happens. We maintain BUY with a target of ₹186 (valuing at 20x FY 25E earnings v/s 17x current PE).
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.