Shares of Ashok Leyland have rallied 14% since the company, on Thursday, reported a 274% on-year jump in standalone net profit at Rs 901.4 crore for the quarter ended March 31, 2022. However, its consolidated net profit for the quarter dropped 58.14% to Rs 157.85 crore, pulled down by higher expenses. Several brokerages remain bullish on the stock and have even raised their target price given that CV demand is expected to firm up further, supported by higher influx of infra projects, which may drive demand further. New launches are also likely to help Ashok Leyland to further improve sales. Ashok Leyland shares were up for a third straight session today. The stock was quoting at Rs 139.35, up 2.61% on the NSE, and shares may further jump up to 30% going forward, according to analysts.
Should you buy, hold or sell Ashok Leyland shares?
Motilal Oswal: Buy
Target price: Rs 170
According to the brokerage firm report, the demand for M&HCVs remains strong, with a growth in core sectors like Construction, Mining, and Agriculture; increased government spends on Infrastructure projects; and pent-up Replacement demand. It is also seeing a recovery in the Bus segment, with educational institutes and offices opening up. With an increasing CNG portfolio, the company is looking to further increase this share. “Valuations at 19.8x FY24E P/E and 10.9x EV/EBITDA are reflecting in the early recovery cycle. However, this does not fully reflect AL’s focus on adding new revenue streams and profit pools. Any fundraise in Switch Mobility (EV business) can serve as a re-rating catalyst,” analysts said in the report. The broking house maintained ‘buy’ rating on the stock with a target price of Rs 170 per share.
Target price: Rs 168
Noumra has kept buy rating on the stock and raised the target price to Rs 168 per share. According to analysts, M&HCV cycle set for a likely sharp recovery over FY22-24, while CNG range could improve market share. “We maintain our view of a strong CV upcycle (+50/15% y-o-y) in FY23/24F, backed by our detailed analysis of capacity requirements. Our freight operators profitability estimate is at a 3-year high. Improvements in market share in Q4FY22 is an incremental positive. Further, we expect expansion of CNG to support market share in FY23F. Price hikes and operating leverage should lead to margin improvements. We think effective implementation of the scrappage policy can pose upsides to our estimates,” the brokerage said.
LKP Securities: Buy
Target price: Rs 173
According to analysts at LKP Securities, with covid behind, the CV demand should firm up further, supported by higher influx of infra projects, which may drive demand further. New launches also should help the company to further improve sales and fill in the gaps within the portfolio. LCV demand has been strong throughout the pandemic and is expected to strengthen. “We expect AL to gain market share given its new launches in CNG and tipper segments. Buses demand is also expected to revive with pandemic fading off and markets completely opened up,” they said. The near term demand recovery may come under pressure due to higher interest costs and fuel cost hikes; however, the analysts remain optimistic over the medium term led by pickup in the replacement segment given higher fleet utilization levels and strong fleet operators’ profitability. LKP Securities maintained ‘buy’ call with a higher target of Rs 173.
Target price: Rs 165
Analysts at Sharekhan expect Ashok Leyland to benefit from the faster recovery in CV volumes and improvement in EBITDA margins, led by operating leverage benefits. The company is well placed in the industry to benefit from increased economic activities related to infrastructure, mining, and e-commerce, aided by its focus on growing its market share through increased penetration across all regions and new product launches, they said. The truck major’s profitability is expected to improve significantly in the medium term, with its EBITDA expected to post a 166% CAGR over FY21-FY23.
“Investments by investors and strategic partners in its EV subsidiary can lead to value unlocking and re-rating of the stock going forward. The stock is trading below its average historical multiples at P/E of 18x and EV/EBITDA of 10.1x its FY24E estimates,” the brokerage said. It retained its ‘buy’ rating on the stock with a revised price target of Rs 165.
Reliance Securities: Buy
Target price: Rs 161
Analysts at Reliance Securities expect Ashok Leyland’s domestic volume to witness a growth of 25% in FY23E. Due to higher volumes, regular price hikes and tight control on expenses, the brokerage increased revenue, EBITDA estimates by 12% and 20% respectively for FY23 and broadly maintained it for FY24. “In view of the strong products basket, new launches in the CNG segment and strong CV up-cycle over FY23E-FY24E and market share gain, we reiterate our BUY rating on ALL and maintain the Target Price at Rs 161, valuing the stock at an unrevised P/E multiple of 17.5x,” it said.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)