CLSA retains 'sell' rating on Ashok Leyland, cuts target price

Mumbai: CLSA has retained sell rating on Ashok Leyland and cut target price to Rs 75 from Rs 85 citing looming downturn in the truck industry, weakening industry mix and risk of higher competition.

India’s truck industry is currently in the fifth year of an up-cycle where historical upturns in the last four decades have lasted four years on average, said CLSA.

"We see high likelihood of a downturn ahead especially with new axle norms raising freight capacity of existing fleet. Falling share of higher-tonnage trucks is a further drag," said CLSA.


The foreign brokerage expects competition to intensify in a downturn given Ashok’s improved ability to fight against Tata and the latter’s high focus on regaining its lost market share.

Despite 44% fall from peak level, Ashok Leyland’s valuation at 3 time FY20 price-to-book is expensive for a looming downcycle, it said. "Our FY20-21 EPS is 14-22% below street although we factor in only a benign downturn," said CLSA.