Ashok Leyland Share price: JM Financial conducted checks with Ashok Leyland dealers to gauge the market response of the recently launched Bada Dost LCV. JM Financial rolled forward to Mar’22 and increased the target price to Rs 120 (from Rs 100 earlier) based on 18x PE for standalone and Rs 7 contribution from Hinduja Leyland Finance (1x FY23 BV and 30% holding company discount). The new 3ton+ LCV has received positive customer response driven by benefits such as better mileage, superior pick-up and lower service cost vs. peers. The increase in addressable market and product acceptability should aid the company to gain market share in the LCV segment. Additionally, macroeconomic indicators such as e-way bill generation, IIP growth and manufacturing PMI are showing healthy signs of recovery in the past three months. 

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Ashok Leyland MHCV volumes are recovering in tandem with the economic recovery, while LCV volumes are already recording YoY growth.

JM Financial expect Ashok Leyland to benefit from:

a) increased addressable market with introduction of the Phoenix platform
b) modular platform for MHCVs
c) start of 3-5 years of MHCV up-cycle
d) increased focus in export market

Ashok Leyland estimates revenue/volume/EBITDA CAGR (over FY20-23E) of 15%/10%/39%, driven by a sales up-cycle and margin expansion. Delay in volume recovery, increase in competitive intensity are the key downside risks, while implementation of scrappage policy is an upside risk.

Positive response for the newly launched Bada Dost LCV:

The launch of the Phoenix platform is expected to increase the addressable market in LCV for Ashok Leyland from 35% to 65% in the medium term. IIP has started recording YoY growth after witnessing de-growth for six months between Mar-Aug '20.

Manufacturing PMI is at multi-year high indicating expansion in manufacturing activity. JM Financial expects robust growth in capital formation in FY22E driven by the government's increased focus on infrastructure spend. Ashok Leyland is expected to be a key beneficiary as 20% MHCV volumes are of tippers which has direct correlation with infra spends. Robust growth in sectors such as agriculture, automobiles, mining, FMCG are supporting freight demand.

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MHCV volume for Ashok Leyland is recording sequential growth in-line with the improvement in economic indicators. Modular platform in MHCV is further expected to support volume. Increased penetration and gradual recovery of the global markets augurs for exports. Implementation of scrappage policy can further aid volume growth.