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Stock Ideas: Motilal Oswal has a buy on Ashok Leyland, target price Rs 61

Ashok Leyland has launched its Modular Platform AVTR focused on BS6 M&HCVs (medium and heavy commercial vehicles in the 18.5–55 ton range), in turn becoming the first CV OEM in India to offer modularity in M&HCV.

ETMarkets.com|
Last Updated: Jun 05, 2020, 12.43 PM IST
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Motilal Oswal has given a buy rating to Ashok Leyland with a target price of Rs 61. The share price moved up by 5.79 per cent from its previous close of Rs 45.75 and the last traded stock price is Rs 48.40.

Ashok Leyland has launched its Modular Platform AVTR focused on BS6 M&HCVs (medium and heavy commercial vehicles in the 18.5–55 ton range), in turn becoming the first CV OEM in India to offer modularity in M&HCV. According to the brokerage, the company’s different approach to BS6, along with the launch of the AVTR platform, demonstrates a differentiating approach to market than any of its peers in India, which could potentially drive market share for Ashok Leyland.

Investment Rationale

According to the brokerage, unlike passenger vehicles, modular strategy is not common in M&HCV (medium and heavy commercial vehicles) globally due to the segment having a very high number of SKUs as well as deeper changes required in the normal way of doing business.

According to the brokerage, this could be an important driver of market share gains for Ashok Leyland as it improves its response time as well as a better application fit for the customer. This, coupled with upcoming LCV launches, would expand Ashok Leyland’s addressable market in India (in LCV by 2 times) and globally (by offering a very wide range of products, from LCV to M&HCV). While near-term challenges are deep, the company seems to be better positioned to come out stronger and grow faster than the industry in two to three years. The stock trades at 16.7 times FY22E EPS and 8 times EV/EBITDA.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 5148.15 crore, up 2.29 per cent from last quarter sales of Rs 5033.06 crore and down -30.48 per cent from last year's same quarter sales of Rs 7405.78 crore. The company reported net profit after tax of Rs 56.64 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.
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