Ashok Leyland hits 52-week high; Jefferies raises price target, sees 19% upside

Despite raising its price target for Ashok Leyland, Jefferies has kept the stock lower in its pecking order among other automobile original equipment manufacturers due to its expensive valuations.

Shares of Ashok Leyland jumped 3.5 percent in early trade on June 19 to hit a 52-week high of Rs 170.15 as investors cheered for the company's strong growth outlook.

The company, at its Investors' Day event held on June 15, set forth a medium-term target to achieve 35 percent market share in the medium and heavy commercial vehicle (MHCV) segment, a 25 percent share in light commercial vehicle (LCV) and mid-teen EBITDA (Earnings before interest, taxes, depreciation, and amortization) margin. The company's EBITDA margin was at 8.1 percent in FY23.

Apart from that, it also plans on expanding its export and defence footprint, and building electric vehicles (EV) and alternate powertrains.

At 12.01 pm, shares of Ashok Leyland were trading at Rs 169, up 2.8 percent on the National Stock Exchange. Volumes in the counter were also high as two crore shares changed hands on the exchanges, higher than the one-month daily traded average of one crore shares.

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The company's vast growth plans met with praise from global research and broking firm Jefferies. The firm sees strong demand for trucks, margin improvement and market share recovery as the key upside catalysts for the stock.

Accordingly, Jefferies retained its 'buy' call for Ashok Leyland while raising its price target by over 5 percent to Rs 195.

While Jefferies does like Ashok Leyland's aggressive strategy to expand market share as well as margins in the medium term, it believes achieving both might be tough as Tata Motors would likely defend its franchise too.

Factoring in those assumptions, Jefferies also kept the stock lower in its pecking order despite raising its price target due to its expensive valuations.

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