The firm’s inventory rallied greater than 13 per cent in Thursday’s commerce even after the nation’s second-largest business autos maker reported a 77 per cent year-on-year drop in consolidated June quarter income at Rs 1,486 crore. It gained one other 2 per cent in morning offers on Friday.
Analysts see prospects within the inventory. The inventory had 9 ‘buy’, 8 ‘outperform’ and 15 ‘hold’ calls on the publicly out there Reuters Eikon database on Friday. It additionally had 5 ‘underperform’ and a couple of ‘sell’ rankings.
Saji John of Geojit Financial Services stated the traditionally low valuations have made the inventory a lovely guess, and a small constructive set off can result in a robust upside. He has a ‘buy’ ranking.
Jefferies, too, has maintained a ‘buy’ ranking, with a value goal of Rs 75. It stated the Indian truck trade has been in a deep downturn since November 2018 with volumes falling 47 per cent year-on-year (YoY) in FY20 and an extra 93 per cent YoY in 1QFY21.
Valuations at multi-year lows
The ALL inventory traded at Rs 62 on Friday, 30 per cent under its 52-week excessive hit in January, down 25 per cent on a year-to-date foundation, 41 per cent for 3 years and 31 per cent for 5. The multi-year low valuations coupled with hopes of restoration within the business autos (CV) section have been collectively making it a juicy guess, analysts stated.
“The decline in the stock was clearly overdone. If you want to play on commercial vehicle recovery, this is the best pick. I believe the CV segment is in for a turnaround,” stated Ambareesh Baliga, an impartial analyst.
“Talking from a longer-term perspective, the stock may be in for a direction change if we see a sharp recovery in monthly sales numbers,” says Baliga.
“I was one of the few who stuck my neck out on the stock when it traded at Rs 45. I said Ashok Leyland is a steel and there was consensus negativity. The stock is up 35 per cent from there on and I think the numbers are belying those consensus estimates,” stated Sanjiv Bhasin, Director, IIFL Securities.
Bhasin says Ashok Leyland will likely be an outperforming auto inventory within the six months. He expects an imminent flip within the CV and MCV cycle.
Is the defence alternative massive?
The Hinduja group firm says it sees a big alternative within the defence house as the federal government seeks to chop imports and deal with growing native sourcing of defence gear.
Ashok Leyland is without doubt one of the largest suppliers of logistic autos to the Indian armed forces. In an analyst name on Thursday, the corporate laid out a blueprint to faucet the alternatives within the defence enterprise.
That helped traders overlook the Rs 389 crore loss posted for June quarter, which was by and enormous on traces of analyst estimates.
The defence enterprise presently contributes solely 5 per cent of complete revenues, and a few analysts consider this share could go up if the corporate can handle to acquire substantial orders going forward.
But others stay skeptical. “On the defence side, it is only a 5 per cent exposure currently. When we spoke to the management, they said they may see a lot more orders, pushing up this share. However, things are still on paper and yet to translate,” stated John of Geojit.
Baliga feels the change in thrust to defence won’t transfer the needle a lot for Ashok Leyland, though it is sentimentally constructive. He says vehicles and transportation autos used within the defence sector have been largely procured indigenously anyway.
Is a CV restoration close to?
The firm says it expects an early restoration within the business autos enterprise and unveiled plans to chop debt. June quarter gross sales declined to one-10th attributable to weak Covid-19 disruptions and different macro-economic elements.
Brokerage Jefferies estimates ALL’s truck volumes to say no 30 per cent YoY in FY21, after which develop 80 per cent/25 per cent YoY in FY22-23. The FY23 quantity estimates have been nonetheless 17 per cent under the FY19 peak.
The brokerage says Ashok Leyland’s plan to launch a brand new LCV platform in September quarter ought to present some booster.
Saji John of Geojit Financial says the LCV (mild business car) section is seeing some sort of restoration for the corporate in latest instances on the again of latest superior fashions and rising rural participation, however the MCV (medium business car) section has numerous headwinds.
“The CV sector is still expected to be on the weaker side for the second year, unless the scrappage policy kicks in,” he stated.
Jefferies’ analysts stated whereas the near-term demand visibility is weak, the pendulum has swung too far and the deep cyclical nature of the trade will play out over subsequent 1-2 years. “We expect a strong rebound in FY22-23 on an exceptionally low base,” they stated.
Other analysts say the CV and MCV (medium business car) cycle could flip quickly, and that might make a robust case for the inventory.
Waiting for scrappage coverage
So much will depend on the much-awaited scrappage coverage that India is planning to usher in. The authorities is searching for a dedication from the car firms about their incentive to patrons.
Even the naysayers consider the much-awaited scrappage coverage, if it materialises, it can assist the CV sector.
ICICIdirect says the revival tempo relies on pick-up within the broader financial system and a few coverage intervention (scrappage coverage). “For Ashok Leyland, the demand picture stays muted, although we may be close to a trough of the cycle,” analysts on the brokerage wrote in a notice on Thursday. It has a ‘hold’ ranking on the inventory.
The firm can be anticipating the debt degree to return down sharply this monetary yr. At the top of June, web debt stood at Rs 4,247 crore. Inter company deposit, which has turned traders skittish, has began to return right down to Rs 400 crore in August from Rs 500 crore in March.