We upgrade AL to BUY (from Accumulate) with price target of Rs76 (v/s Rs59) as we believe M&HCV volumes to start recovering by 1HFY22 based on 1) economy linked recovery benefitting demand from end user segments like infra, mining and e-commerce, 2) AL is de-risking domestic M&HCV through - a) new launches in LCV which will help gain market share b) increased focus on spares & exports business. We downgrade FY21 EPS by 15% led by higher interest and depreciation cost, while upgrading FY22/23 EPS by 3-5% to factor in better mix.
OutlookWe upgrade AL to BUY as we assign now assign 10x EV/EBITDA (in-line with 10 year LPA to reflect early cycle recovery v/s 7x earlier) and assign Rs18 to NBFC (20% hold-co) to arrive at revised TP of Rs76 (v/s Rs59 earlier) rolled forward to Sep-22 EPS. Current valuations at 11x/10x FY22/23 EV/EBITDA reflect early recovery cycle and do not fully capture AL’s de-risking strategy of reducing M&HCV dependence.
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