ASHOKLEY
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+1.85 (+1.22%)
NSE Volume
205L+
Broker Reports
ACCUMULATE
BUY
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ACCUMULATE
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REDUCE
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HOLD
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ACCUMULATE
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Higher long term Visibility Ashok Leyland (AL) is the second-largest Commercial Vehicle (CV) manufacturer in India. It has a strong presence in the truck segment with a market share of 32% as on FY20. Q4FY20 revenue de-grew by 57%YoY due to subdued demand and production lockdown. However, gross margin improved owing to lower RM cost and better product mix & supplier discount. Margin contracted to -640bps to 4.8% owing to higher other expenses. We expect the volume numbers to stabilize at current level and going forward the margin to pick up on QoQ basis. Positively, AL is carrying Nil BS–IV inventory and transition was smooth to BS-VI. We factor 78% growth in Q2 to Q3 & 40% in Q3 to Q4 due to seasonally strong quarters and historical lower base. We believe AL is likely to gain market share owing to new trucks in the modular platform and launch of LCV brand Phoenix for FY21. Considering the near term headwinds on account of limited infrastructure activities and utilization we value AL at 10x FY22 EV/EBITDA estimate and recommend Buy rating at CMP.
BUY
We have reduced our FY21 estimates and now expect a decline on account of the lockdown and likely long lasting economic effects and sluggish return to business, but expect strong performance in FY22. We retain BUY on this stock and value it at 18X FY22E EPS of Rs3.4 to arrive at a target price of Rs 62, a 37% upside from CMP.
BUY
Management, however, believes that CV industry has bottomed out and will see some recovery from FY21 onwards. AL is using this slowdown as an opportunity to implement some structural measures including cost reduction, focus on productivity and cash flows, and new product development, which management believes will make the company more resilient. The cost reducing program (K54) is on track to save Rs5bn in FY20 and the company is looking at another Rs6.5bn saving in FY21. Management is also focusing on inventory rationalization to facilitate a smooth BS-VI transition. Total inventory (company+dealer) reduced from 27,500 units at the start of the 2QFY20 to ~6,500 now. Inventory would come down to zero by March end. The company will introduce modular platform across its entire product portfolio from April’20 along with BS-VI. Other area that management will focus on is to become asset light. Hence, this year’s capex is down to about Rs13bn vs earlier guided Rs18bn. It will focus on higher ROCE segments like exports, LCVs, defense and spare parts to drive profitability growth going forward. We believe that all these measures will help AL when the CV cycle revives. We have revised our volume forecast by -6.3%/-6.3% and PAT forecast by -15.7%/-4.3% for FY21/22E, respectively. We raise our target multiple to 20x from 17x earlier (last 5 year’s average one year forward PER is 21x) as we expect a revival in CV cycle from FY21, led by better GDP growth and lower base. Our revised target price is Rs98 and we maintain our BUY rating.
BUY
Valuations at 13x/8.8x FY21/22E EV/EBITDA are at early recovery cycle and do not fully reflect for AL’s focus on adding new revenue and profit pool. Maintain Buy with a TP of ~INR95 (INR11/share of HLFL + 10x Dec’21E EV/EBITDA compared to ~11x 10-year median EV/EBITDA).
BUY
Scrap-page policy will ramp up demand: Government has taken big strides in setting up the policy framework for scrapping of old vehicles and is devising incentive plans for stakeholders so that vehicle owners find it worthwhile in scrapping their old vehicle for newer vehicles. There has already been plans by few OEM’s to set up scrap-page plants. The tentative deadline floating in the media for a formal launch is slated to be in July of 2020. Nearly, 10 million vehicles will be under the radar for scrapping in FY20 and 25 million by FY25. This may give a significant boost to demand. We reiterate a Buy on Ashok Leyland with a TP of Rs 97.
ACCUMULATE
We expect the volume numbers to stabilize at current level and going forward the demand to pick up on account of Pre-buying. Positively, AL is able to reduce its inventory level from 18200 to
13200 on MoM level till November. We believe government spending towards road infrastructure and
impending scrappage policy to drive volume growth in the long run. Revenue and PAT to grow by 11.4% and 20.4%YoY for FY21 and factor 9% volume growth for the same period. We believe that the near term headwinds has been factored in the stock price and don't expect any meaningful downside. We value AL at 17x FY22E EPS and upgrade our rating to Accumulate.
13200 on MoM level till November. We believe government spending towards road infrastructure and
impending scrappage policy to drive volume growth in the long run. Revenue and PAT to grow by 11.4% and 20.4%YoY for FY21 and factor 9% volume growth for the same period. We believe that the near term headwinds has been factored in the stock price and don't expect any meaningful downside. We value AL at 17x FY22E EPS and upgrade our rating to Accumulate.
BUY
We cut FY20E EPS by 24% to factor in likely weaker volumes in 2H and higher tax. Valuations at 22.8x FY21 EPS and 11.5x EV/EBITDA are reasonable in view of early recovery cycle earnings. Maintain Buy.
BUY
Although the worst appears to be over for the CV industry, volumes are likely to remain volatile due to the upcoming BS6 transition. Unlike in the previous cycles, AL is on a very strong footing (lean cost structure and net cash balance sheet) and focused on adding new revenue/profit pools. Valuations at ~22.7x FY21E EPS and ~11.5x EV/EBITDA are reasonable in view of early recovery cycle earnings. We maintain our Buy rating with a target price of INR95 (10x Sep’21E EV/EBITDA + INR10/sh for HLF post 20% HoldCo discount].
BUY
Company will introduce modular platform across its entire product portfolio from April’20 along with BS-VI, which will allow customers to customize the products as per its utilization and will be an attractive value proposition for customers. New models on modular platform will come with right as well as left hand drive so it can be exported. This platform reduces manufacturing complexity and improves productivity, thus making operations more efficient. We believe that all these measures will help AL when the CV cycle revives. We have revised our volume forecast by -12%/-5%+5% and PAT forecast by -28%/-10%/11% for FY20/21/22. We raise our target multiple to 17x from 15x earlier (last 5 year average one year forward PER is 21x) as we expect a revival in CV cycle from FY21, led by better GDP growth and lower base. We expect 10%/14% YoY volume growth in FY21/22. Our revised target price is Rs92 and we maintain our BUY rating.
BUY
Ashok Leyland has been trading at its lower end (near mean -1 SD) of its PE based valuations for past several months and even a mean reversion to its historic valuation translates to a 10-15% upside in the stock from its current levels. With the CV cycle going through its trough, government focused on demand revival (as seen through various fiscal initiatives like tax cuts, accelerated depreciation), and other demand impetus such as discounts, festive season buying & pre-BS6 buying should lead to a rebound in prices of Ashok Leyland to its mean PE valuations. We maintain a BUY with a target price of Rs. 79
BUY
HOLD
We revise Ashok Leyland Ltd (ALL) to a HOLD given the bleak demand environment on CV industry and broader economic slowdown. ALL being a dominant player in MHCV segment is well placed but the demand conditions may not pick up for entire FY20 if BS6 pre buying does not materialize. Exports would only pick up aggressively post expansion of product base and defense orders will come in H2FY20 which needs to be watched closely. We assign 14.1x P/E multiple to its FY21E consensus earnings of Rs. 5.1 per share with a target price of Rs. 72 per share giving a potential upside of 13%.
NEUTRAL
1QFY20 PAT (-45% YoY) was significantly below estimates as negative operating leverage impacted margins. The demand outlook is weak, with the company scaling back on its capex plans. We reduce FY20/21 earnings by 20/15% to factor in the above. Reiterate NEUTRAL with a revised TP of Rs 77 (13x on FY21E EPS). While the stock has corrected, we recommend that investors should await an uptick in the cycle before investing in the stock.
HOLD
For ALL, we estimate sales CAGR of 2.8% over FY19-21E. EBITDA, however, is seen remaining under pressure in a rising cost scenario, with margins deteriorating by 90 bps to FY21E. PAT growth, however, is in the negative territory amid an increase in effective tax rate. ALL’s net debt free B/S and healthy return ratios profile (RoCE >25%), however, provides us some comfort. We value the stock at Rs 70 on SOTP basis, valuing the core CV business at 5.5x EV/EBITDA on FY21E numbers and assign 1x P/B on its long term investments. We maintain our HOLD rating on the stock.
BUY
We estimate a -7%/6.6% volume growth in FY20/21 and an EPS CAGR of -10%, owing to margin pressure and higher tax rate. Management expects commodity prices to remain moderate, which will help stabilize margins. The company is also focusing on efficient cost management across all the functions and expects to save costs totaling to Rs5,000mn in the current year. The AL stock price has corrected 23% in the last one month and 42% in the last one year. We believe the stock post correction trades at an attractive valuation of 13x FY21E EPS and we value it at 15x to arrive at our TP of Rs80. We maintain our BUY rating. No pre-buying and prolonged slowdown in the industry remains the key risk to our rating.
BUY
At CMP of Rs69, based on its core earnings, the stock is currently quoting at 9.1xFY21E earnings. We believe current valuations ignores ALL’s long term growthprospects and its competitive strength We retain our BUY rating on the stock with a revised price target Rs84 (13xFY21E core earnings + Rs7 Subsidiary Valuations).
BUY
BUY
The current pain in the market is roughly expected to continue till Q2 FY20. However, from Q2 onwards, for the next three quarters, we may see some recovery coming back in the form of BS VI pre-buying albeit at a slower rate. Good monsoon and higher influx of infra projects may drive demand. However, there lies a lot of uncertainty in demand based on current difficult market scenario. On the margin front, LCV merger, Modular program, cost cutting initiatives, price hikes etc will drive margins, however, higher discounting may steal the steam. Proactive measures taken in time to address the demand slowdown and market share gains during tough times gives us comfort. Reduction in inventories and limited capex growth will lead to maintenance of robust return ratios. With strong prospects for LCV business and increased focus from management, we still remain sanguine on the stock. We maintain BUY rating with a reduced target of ₹ 80 on uncertain volume outlook.
HOLD
We believe, these challenges are largely priced-in. On downcycle earnings (revenues/EBITDA/PAT CAGR of -2/-15/-16% in FY19-21), we value AL at 8x EV/EBITDA (20% discount to 5 year LPA ). We assign Rs13 to NBFC post 20% hold-co to arrive at target price of Rs75 (Mar-21) and downgrade the stock to Hold.
BUY
Reduction in inventories and limited capex growth (₹ 10-15 bn in FY 20 v/s 9.5 bn in FY 19) will lead to maintenance of near 20-25% return ratios. With strong prospects for LCV business and increased focus from management, we still remain sanguine on the stock. We maintain BUY rating with a reduced target of ₹ 104 on uncertain volume outlook.
BUY
We expect, volumes growth to kick in from Q2FY20 on implementation of BSVI emission norms & with focus on cost optimization EBITDA margins to remain intact. Company is also increasing its focus on exports, LCV segment, modular business which will reduce the dependence on cyclicality. We assign a P/E multiple of 16x to the FY20 estimated EPS of INR 7.38 to arrive at a target price of INR 111, an upside of 22% over the CMP. We assign a “BUY” rating to the stock.
NEUTRAL
Ashok Leyland (AL) reported a better than expected 4Q with PAT at Rs 6.65bn amidst a challenging environment. We are increasing our earnings estimates by ~6% on the back of the results. We value the company at 13x PE multiple on FY21 earnings. Our revised target price is Rs 100. We reiterate our NEUTRAL rating on the stock. We believe that while the stock could rally on expectations of a pickup in government’s infrastructure spend, it should be used to reduce holdings. AL has to contend with several headwinds including (1) A weakening product mix (post axle load norm change), (2) Aggressive competition (Tata Motors will launch several new variants this year) and, (3) A change in management at a time of transition to BSVI (the company is searching for a new CEO post Mr. Dasari’s departure).
BUY
Despite the negative impact of higher raw material price and slow pick up in the heavy truck segment, we believe the turnaround in the LCV segment and export orders will cushion the overall profitability for the near term. We lower our Revenue & PAT estimates for FY20 by 0.9%/5.2% respectively, to factor an increase in effective tax rate and Average selling price (ASP) due to higher discounts. We believe that near term headwinds has been factored in the stock price and is currently trading at its 1 year fwd P/E of 13x (28% discount to its 3yr historical average), which seems attractive. We value AL at 14x FY21E EPS with a revised target of Rs.112 and maintain our Buy rating.
BUY
We reduce our volume and PAT estimates by 0.3%/ 0.2% and 3.9% /2.6% for FY20 and FY21 respectively. We expect, ALL to report 9.7% volume CAGR and 7.6% PAT CAGR over FY19-21E. We maintain our BUY rating on the stock with a revised price target Rs123 (15xFY21E core earnings + Rs7 Subsidiary Valuations).
BUY
HOLD
ALL will be a key beneficiary of infrastructure spend by the central government (roads, metro, airports, etc) and deserves to be in one’sportfolio given net debt free B/S and healthy return ratios profile (RoCE >25%). For ALL, we factor in 6% volume CAGR, with consequent net sales CAGR at 11% in FY19-21E. PAT CAGR, however, is expected to be flat primarily tracking lower effective tax rate in FY19P (20.6%). We value the stock at Rs 100 using SOTP valuation methodology valuing core CV business at 7.0x EV/EBITDA on FY21E numbers. We have a HOLD rating on the stock.
BUY
We continue to build in volume growth of 10.9%/-4.4% for FY20/21E while slightly increasing our margin estimate (20bps for FY20/21E respectively) expecting the company’s cost controlefforts to somewhat offset the impact of discounting and maintain ‘Buy’ with a target price of Rs107, at 9.5x Mar’21E EV/EBITDA.
BUY
Granular focus on expanding product offerings, deepening distribution and focus on profitable growth will ensure strong FCF. The correction in the stock factors in a significant adverse demand scenario (a sharp decline in volumes and cash flow), which is unlikely, in our view. Hence, we maintain ‘BUY/SO’ with SOTP-based target price of INR113 (8x September FY20E EV/EBITDA and INR8/share for the financing business). At current price, the stock is trading at 14.3x/13.1x FY20/21E PER.
REDUCE
Factoring new launches in LCVs, we increase our volume estimates by 2-3%, while considering slower traction from defense segment, we reduce our revenue estimates by 1%/1.4% for FY20E/ FY21E. Maintaining our EBIDTA margin estimates, in line with revenue cut, we lower our EPS estimates by 1%/3% for FY20E/FY21E. In light of expected down-cycle for CV in FY21E, BSVI-led disruption and slowdown in M&HCV segment, we maintain our REDUCE recommendation on the stock with a revised Target Price of Rs75 (from Rs78 earlier), valuing it at 14x FY21E EPS.
BUY
Ashok Leyland is now shifting its focus toward expanding and creating new revenue/profit pools by de-risking its business by shifting its focus towards defense,spare parts and exports to boost revenues. Post elections company expects huge orders from defense segments with tenders in hand and exports to ramp up after launch of its Left-Hand Drive (LHD) compliant vehiclas.We have a BUY with a target of Rs.92
BUY
Despite negative impact of higher raw material price and slow pick up in the heavy truck segment, we believe turnaround in LCV segment and defence orders will cushion the overall profitability for the near term. We lower our Revenue & PAT estimate for FY19 & FY20 by 2.7%/5.4% & 1.6%/2.3% respectively, to factor in lower than expected volume growth and Average selling price (ASP) due to higher discount. We believe that near term headwinds has been factored in the stock price and is currently trading at its 1 year fwd P/E of 11x, seems attractive. We value AL at 11x FY21E EPS with a revised target of Rs.90 and maintain our Buy rating.
BUY
We expect Ashok Leyland to register net profit (reported) CAGR of ~10% to Rs 1,884cr over FY2018-20E mainly due to improvement in pre-buying sales (owing to introduction of BSVI norms in FY2020) and replacement demand (implementation of vehicle scrappage policy). Thus, we recommend BUY on the stock with Target Price of Rs122.
NEUTRAL
We have lowered EPS by ~8% over FY19-21E to factor in moderation of the cycle and actually expect ALL to post a small decline in domestic MHCV vols in FY21E (<2% YoY) even as overall volumes stay flat, bolstered by rising LCV vols. We are also reducing our target multiple to 13x and set a revised TP of Rs 90 (13x Dec-20E EPS).
HOLD
ALL is a net cash positive, capital efficient player with healthy return ratios (RoCE > 20%) and robust CFO yield > 10.0%. While the CV space is in the midst of muted growth owing to high base, NBFC liquidity issues and revised axle load norms in the core M&HCV segment, BS-VI related pre- buying would lift industry volumes in H2FY20E. However, peculiar to ALL is the looming leadership void at the top post i.e. the resignation of its MD & CEO, with the associated uncertainty a significant overhang on the company’s prospects. We estimate sales, PAT will register 13.1% and 20.9% CAGR, respectively, in FY18-20E. Incorporating the above, we arrive at a target price of | 85 using SOTP valuation method for ALL, assigning 5x EV/EBITDA to core CV business on FY20E numbers & 0.4x P/B on its long term investments. We have a HOLD rating on the stock.
BUY
At CMP Rs79, based on its core earnings, the stock is currently quoting at 8.7xFY20E earnings. We maintain our BUY rating on the stock with a revised price target Rs107 (12xFY20E core earnings + Rs7 Subsidiary Valuations).
BUY
Ashok Leyland posted a healthy Q3FY19 with EBITDA margin of 10.3% in Q3FY19 vs 11.6% last year, it has maintained consistent double digit operating margins despite pricing pressure and higher input costs. ALL’s volumes in Q3FY19 has declined by 6% at 43,763 majorly due to fall in M&HCV by 17% on account of high base effect last year where ALL had grown by 42% however the LCV volumes grew by 28% in Q3FY19. Revenues of the company declined by 11% on a Y-o-Y basis at Rs 6,245 Cr due to slow down in CV sales and profit after tax declined by 21% at Rs 381 Crs. ALL has successfully completed the merger of its subsidiaries in the LCV business which has shown results in the form of synergy, cost reduction and market share gains. We believe ALL’s restructuring of its LCV business along with de-risking its overall product portfolio and ramp up in exports will result in higher ROEs over FY20. We assign 13x P/E multiple to its FY20E earnings of Rs. 7.6 per share with a target price of Rs. 100 per share giving a potential upside of 25%.
BUY
We lower FY20/21E EPS by 6%/16% as we cut FY20/21 volume by 1% each and FY21 margin by 90bp to 9% to factor in weaker pricing power owing to lower demand. Maintain Buy with TP of INR110/share (8x Mar’21 EV/EBITDA + INR13/sh for HLF post 20% Holding Company discount).
BUY
While Ashok Leyland’s Q3FY19 performance surpassed our expectations with operating margins at 10.3% (80bps ahead of PLe) and PAT ~12% above our estimates, concerns regarding the liquidity issue in the industry, impact of axle norm changes and the high base of last year keep the near term volume growth outlook subdued. With the pre-buying expected ahead of BS VI implementation, FY20E should see a surge in volumes, however, industry growth beyond that is expected to remain muted (wherein increasing government focus on infrastructure activities and the anticipated scrappage policy should help negate some de-growth in FY21). Softening commodity prices will aid some margin improvement over Q4FY19 / Q1FY20 but the heavy discounting in the industry will continue to weigh on the margins. We continue to build in volume growth of 11.9/10.8%/-4.3% for FY19/20/21E and given the valuation comfort, maintain BUY with a lower target price of Rs103, at 9.5x Sep’20E EV/EBITDA (earlier 12x Mar’20E).
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Price Target Potential
Brokerage
Geojit Financial Services
Prabhudas Lilladher
ICICIdirect.com
Nirmal Bang
Target
127
175
165
170
Potential
13.60%
36.45%
29.26%
33.18%
About
Ashok Leyland Ltd.
NSE: ASHOKLEY | BSE: 500477 | ISIN: INE208A01029 | Sector: Auto
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