Ashok Leyland up despite rating cut by broking houses

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The Ashok Leyland scrip ended 2.32% higher on Thursday at Rs 17.65. Reuters The Ashok Leyland scrip ended 2.32% higher on Thursday at Rs 17.65. Reuters
SummaryThe Ashok Leyland scrip ended 2.32% higher on Thursday at Rs 17.65.

The Ashok Leyland scrip gained on Thursday even as three leading brokerages — Nomura, Kotak, IDFC Securities — downgraded the stock after the commercial vehicle manufacturer reported a loss of Rs 167 crore in the third quarter. This was the third consecutive quarterly loss for the company.

Kotak Institutional Equities downgraded the stock to ‘sell’ from ‘reduce’ with target price of R15. “Truck volumes declined 28% y-o-y in Q3. Share of truck volumes in Ashok Leyland’s medium and heavy commercial vehicle (MHCV) volumes fell to 72% in Q3 against 64% in Q2, which indicates the truck business is reporting losses at the Ebitda level due to heavy discounting in the industry,” said analysts Hitesh Goel and Vinay Kumar in a research report.

Analysts feel an improvement in profitability would depend upon pick up in the commercial vehicle (CV) segment. “MHCV industry volumes have weakened over the past three months, as industrial growth continues to disappoint. As per SIAM data, MHCV volumes fell 31% y-o-y in Q3. Given our team’s view of continued weakness in the capex cycle, we expect MHCV industry volumes to remain flat in FY15F,” Nomura analysts said in a report. It downgraded the stock to ‘reduce’ from ‘neutral’ with a target price of R13.

On Tuesday, the company had reported quarterly numbers, which saw gross margins falling by 860 basis points y-o-y due to increased discounting during the quarter. It reported a loss of R97 crore in its Ebitda. The Ashok Leyland scrip ended 2.32% higher on Thursday at R17.65.

IDFC Securities was another brokerage which downgraded the stock from ‘neutral’ to ‘underperform’ with a 12-month target price of R15.

However, CIMB upgraded the stock from ‘reduce’ to ‘add’ expecting “strong seasonal demand for commercial vehicles in quarter through March sustained by IIP-led recovery in fiscal year 2015.” In 2013, the stock declined 36.18% even as the benchmark Sensex gained nearly 9%. In the current calendar year though, the stock has gained 2.62% so far.

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