Hold Ashok Leyland, target price Rs 60: Sharekhan

Sharekhan has given a hold rating to Ashok Leyland with a target price of Rs 60. The share price moved up by 0.10 per cent from its previous close of Rs 51.90. The stock’s last traded price is Rs 51.95.

A lockdown in the last week of March and inventory correction on account of transition from BS-IV to BS-VI norms impacted volumes. Auto OEMs were worst impacted, with revenues falling by 25 per cent year on year and margins dropping by 150 bps year on year. Auto OEMs’ net profit fell by 33 per cent year on year.

Investment Rationale

According to the brokerage,the demand for medium and heavy commercial vehicles (MHCVs) is likely to remain under pressure in the near term driven by a drop in economic growth on account of Covid-19. A recovery would take time as economic activity and consumer sentiments would improve gradually.

The brokerage expects Ashok Leyland’s volumes to drop sharply in FY21 as the first two months of FY2021 (April and May) witnessed negligible sales due to Covid-19 and business activities take time to normalise. The brokerage has reduced EBIDTA estimates by about 10 per cent for FY22.

Quarterly Results
Source: ETMarkets.com

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 5088.04 crore, down -1.17 per cent from last quarter sales of Rs 5148.15 crore and down -47.83 per cent from last year's same quarter sales of Rs 9752.98 crore. The company reported net profit after tax of Rs 56.69 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 51.54 per cent stake in the company as of March 31, 2020, while FIIs held 16.94 per cent, DIIs 15.05 per cent and public and other 16.46 per cent.