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  • Company update: Ashok Leyland — Buy — TP Rs.160

    Publish date: 06th July, 2018

    Ashok Leyland is set to consolidate its market position in the next three years due to accelerated road infrastructure projects, increased mining activity and freight growth. We believe that the Hinduja Group-owned company’s stocks can be a value buy, especially because its price corrected 19% in the last three months.


    Key Highlights

    • Talks about the slowdown in the medium and heavy commercial vehicles (M&HCV) segment as a whole are exaggerated. We foresee the goods carrier segment to grow at 13% over FY2018-20. This will help Ashok Leyland consolidate its market position. The other factors that are likely to cement the company’s position are expansion of network in east and north India and launch of innovative products.
    • We believe the company will benefit from the growth in the higher tonnage segments. In fact, the tonnage segment outpaced volumes growth in the third and fourth quarter of FY2018.
    • The Chennai-headquartered company is also well-placed to profit from the uptick in road infrastructure projects, a ban on overloading goods carriers and the decision to implement BS-VI emission norms from April 1, 2020.
    • The company’s bottomline will get a boost from the increased demand from less cyclical sectors such as exports, spares and defence. We reckon that the demand will increase by 4% in the next three years. The company has also spelled out its intention to increase its spare part revenues.
    • The recent model launch pipeline gives the company a chance to gain market share in the light commercial vehicle (LCV) segment.

    Valuation & outlook

    We believe that Ashok Leyland is primed to deliver 21% EPS over FY2018-21 as its revenues are set to increase by 14% over the same period.


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