Buy Ashok Leyland, target price Rs 179: ICICI Securities

ICICI Securities has buy call on Ashok Leyland with a target price of Rs 179. The current market price of Ashok Leyland Ltd. is Rs 147.35. Time period given by analyst is one year when Ashok Leyland Ltd. price can reach defined target.
Ashok Leyland Ltd., incorporated in the year 1948, is a Large Cap company (having a market cap of Rs 43930.17 Crore) operating in Auto sector.

Ashok Leyland Ltd. key Products/Revenue Segments include Commercial Vehicles, Spare Parts & Others, Sale of services, Engine & Gensets, Ferrous Castings, Scrap, Export Incentives and Other Operating Revenue for the year ending 31-Mar-2021.



Financials
For the quarter ended 30-09-2021, the company reported a Consolidated Total Income of Rs 5586.91 Crore, up 36.16 % from last quarter Total Income of Rs 4103.27 Crore and up 44.08 % from last year same quarter Total Income of Rs 3877.62 Crore. Company reported net profit after tax of Rs -84.29 Crore in latest quarter.


Investment Rationale
Ashok Leyland’s (AL) Q2FY22 operating performance was in line with consensus estimates as EBITDA margins were resilient (up 19bps YoY to 3%). The margin was aided by operating leverage and lower fixed costs (AVTR platform) amidst higher input cost pressures. Underlying economic recovery, improving fleet utilisation and ageing fleet (>9 years) augur well for pickup in replacement cycle (H2 onwards). The scrappage policy (FY24 onwards) is also likely to aid new vehicle demand and support the multi-year growth cycle. The brokerage continues to favour the CV cycle recovery theme and estimate AL’s volumes to rebound at ~31% CAGR FY21-FY24E driven by strong market share gains. AL is building unique electric business models under the Switch/OHM brands which can also aid value unlocking. Valuations remain reasonable (FY23E FCF yield: ~4%).

Promoter/FII Holdings
Promoters held 51.54 per cent stake in the company as of 30-Sep-2021, while FIIs owned 16.33 per cent, DIIs 19.54 per cent.