Sell Ashok Leyland; target Rs 11.4: LKP
LKP is bearish on Ashok Leyland and has recommended sell rating on the stock with a target price of Rs 11.4 in its research report dated September 25, 2013.
October 07, 2013 / 12:32 IST
LKP's research report on Ashok Leyland
"Ashok Leyland (ALL)'s MHCV volumes have declined by 23 percent YTD April-August to 25,615 units as economic activity has slowed down considerably. Significant drop in IIP numbers is a clear indicator of the same. Recent hike in interest rates by the new Governor of RBI has put a spanner in the way of expectations of a late FY14 recovery in CV volumes. An indication of further rate hikes on the back of higher inflation may make things even more difficult. Being a pure play CV player ALL will continue to face the brunt until there is some meaningful recovery in the economic indicators. We have cut our MHCV volume expectations for ALL and now factor in a -15 percent/10 percent growth in FY14E/15E. In FY15E, we have shown a growth on the back of some recovery in the economy and low base of FY 14E.""We believe the company's volumes will face pressure in the coming quarters as well, as economy as well as industrial activity is taking lot of time to revive. With almost two quarters into FY 14E, the company is staring at a huge drop in volumes without any signs of recovery. With interest rates moving up, recovery seems to be further delayed. In such a scenario, we believe the impact of new launches will be negligible; however it may help ALL to maintain their market share. Lifting up of mining ban in Karnataka will have a miniscule impact with our investment time horizon. LCV segment also is expected to show a subdued performance in the current year which is getting reflected in ALL's volumes of Dost.""FY 15E is expected to show a growth in ALL's volumes on low base and hopes of some recovery in the economy. With company hitting losses in Q1, the management's focus has also shifted from growth to profitability through cost control. They have given indication of cutting their investment and also capex. In such a scenario, the company will be able to improve profitability in the ensuing quarters, but with volumes depleting at a rapid rate, we believe there will be limitations for the margins to grow in FY 14E. We forecast 3.3 percent/7.5 percent EBITDA margins in FY14E/15E respectively. With higher depreciation costs and interest costs on highly leveraged balance sheet, we expect the company to incur losses in FY14E and post profits in FY 15E with some recovery in volumes and margins expected. In line with this, we have significantly pruned down our earnings forecast for FY 14E/15E and our target price from Rs 15.7 to 11.4. We maintain our Sell rating on the stock with a much lower target price, which is a 23 percent downside," says LKP research report.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. 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
