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Research
BUY Ashok Leyland: AnandRathi Institutional Research
Posted On : 2016-04-04 23:16:26( TIMEZONE : IST )
Ashok Leyland - In the fast lane; re-iterating a, with a Buy with a target price of Rs 124
Ashok Leyland continues to benefit from demand for M&H CVs. Steady macro-economic growth, higher EBITDA margins, significant growth in market share and its network expansion in north India are our prime reasons for re-iterating our Buy on the stock. We expect revenue, EBITDA and PAT to register CAGRs of respectively 18%, 24% and 34% during FY16-18.
M&H CV volumes at a 15% CAGR over FY16-18. Growth in commercial vehicles is expected to be fuelled by a pick-up in infrastructure and mining, lower diesel prices and higher freight rates. Constraints for the Railways, modernisation of the trucking sector, structural growth in the hub-and-spoke model, strict implementation of overloading rules and expansion of the national highways are other major boosters.
Higher EBITDA margins to continue. Significant improvement in the company's margins were seen, from 7.6% in FY15 to 11% in FY16, primarily due to a better sales mix (more M&H CV sales), lower commodity prices and greater operating efficiencies due to scale. We expect the economies of scale to continue and margins to be more than 11%.
Significant improvement in market share Ashok Leyland's domestic market share improved significantly. SIAM says the company's market share in the M&H CV sub-segment moved up from 14.6% in FY15 to 18.5% in FY16, ytd. We expect it to outstrip industry growth and further increase its market share.
Valuation. We introduce our FY18 estimates. We arrive at an EPS of Rs. 5.9 for FY18. At the CMP, the stock trades at 17.8x FY18e. We value the stock at 21x FY18e and arrive at a price target of Rs. 124, with 18% potential from present levels.
Shares of ASHOK LEYLAND LTD. was last trading in BSE at Rs.109.95 as compared to the previous close of Rs. 110.2. The total number of shares traded during the day was 655835 in over 3638 trades.
The stock hit an intraday high of Rs. 111.35 and intraday low of 109.4. The net turnover during the day was Rs. 72205460.
