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Fundamental calls by Motilal Oswal: Buy Ashok Leyland, Prestige Estates

Brokerage firm Motilal Oswal is bullish on Ashok Leyland and Prestige Estate shares with target price of Rs 105 and Rs 225, respectively.

By: | New Delhi | Updated: September 19, 2016 11:40 AM
BSE Sensex, NSE Nifty, Brokerage firm Motilal Oswal is bullish on Ashok Leyland and Prestige Estate shares with target price of Rs 105 and Rs 225, respectively. (Photo: Reuters)

Brokerage firm Motilal Oswal is bullish on Ashok Leyland and Prestige Estate shares with target price of Rs 105 and Rs 225, respectively. The board of automobile component company Hinduja Foundries has given its nod for amalgamating the company with heavy commercial vehicle maker Ashok Leyland subject to regulatory and shareholders approval of both the companies. Since the beginning of the ongoing financial year, shares of Prestige Estate have risen nearly 15 per cent to Rs 198.40 till September 16 from Rs 172.80 on April 1.

Below are the reasons why Motilal Oswal is bullish on Ashok Leyland and Prestige Estates shares:

Ashok Leyland: The boards of Ashok Leyland and Hinduja Foundries last week approved the proposal of amalgamating Hinduja Foundries, subject to regulatory and shareholders approval of both the companies. The Board also approved the exchange ratio on the amalgamation in which one hundred equity shares of Rs 10 each of Hinduja Foundries will get 40 shares at Rs one each fully paid of Ashok Leyland. “One Thousand 2008 series GDRs of Hinduja Foundries will get 133 equity shares of Rs one each fully paid of Ashok Leyland. One 2016 series GDRs of Hinduja Foundries Ltd will get 4,800 equity shares of Rs one each fully paid of Ashok Leyland,” according to the release.

Brokerage firm Motilal Oswal is bullish on Ashok Leyland shares. It said, “For long-term perspective, we are hopeful of continuance of focused capital allocation and positive on strategy of broad basing revenue stream to reduce cyclicality. Ashok Leyland’s valuations at 9.6xFY18E EPS and EV/EBITDA of 6.1x are very attractive, considering strong EPS growth of around 47 per cent annually over FY16-18E. We now value Ashok Leyland at 8 times EV/EBITDA (v/s 9x earlier), to factor in for potential impact of this deal on capital efficiencies due to increase in capital employed without commensurate improvement in operating performance.” The brokerage house has ‘Buy’ rating on Ashok Leyland shares with a target price of Rs 105.
On Monday, shares of the company were trading 3.27 per cent up at Rs 83.60.

Prestige Estates: For the quarter ended June 30, 2016, the company posted a consolidated net profit of Rs 47.79 crore, down 58.31 per cent against Rs 114.64 crore in the same quarter last year. Net sales of the company fell 37.36 per cent year-on-year to Rs 932.96 crore. Operating profit of the company slipped by 36.15 per cent to Rs 197.05 for th quarter under review against Rs 308.60 crore in the same quarter last year.

Motilal Oswal said, “Prestige Estate Projects remains our preferred play on Bangalore real estate, which albeit lost momentum, still offers better dynamics. But the company’s massive slippage over FY16 (contrary to track record) highlights the magnitude of prevailing weakness in market. At 1.7x/1.6x FY17/18E BV and at an EV of 10x FY18E EBITDA stock offers valuation comfort. Operational normalcy remains near-term trigger. We maintain ‘Buy’ with target price of Rs 225.” The scrip was trading 1.81 per cent up at Rs 202 in the morning trade on Monday.

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