.> Recovery hopes drive gains for Ashok Leyland Street expects trend to continue with valuations supporting increase RAM PRASAD SAHU Mumbai, 11 June shok Leyland was the bigg - est gainer among auto stoc - A ks on Friday, rising 4 per cent, and stretching its returns to over 15 per cent over the past mon - th. The stock has outperformed its peers on the back of expectations that it will be a key beneficiary of the recovery in the economy. An analyst at a foreign brokerage Gains from operating says cyclicals tend to gain the most leverage as the economy recovers, with Volumes (units); (% chg in bracket) Ashok Leyland being ahead of the pack as it is the only pure play com- % OPM BRIGHT PROSPECTS 6.7 3.9 7.5 10.5 mercial vehicle (CV) maker. Government spending on infra- FY20 FY21E FY22E FY23E structure and fiscal expansion Revenues 17,267 15,109 22,693 29,142 % change -39.7 -12.5 50.2 28.4 should boost demand initially in the (27.3) replacement segment and later from Ebitda 1,173 595 1,714 3,080 192,000 (49.8) new truck additions. 150,800 % change -62.6 -49.3 188.1 79.7 (-36.6) (-19.6) 125,200 In addition to this, Mitul Shah, 100,700 head of research at Reliance Securit - Adj. net profit 395 -210 713 1,773 FY20 FY21E FY22E FY23E ies, points out that positive com- E: Estimates; OPM: Operating profit margin Source: Centrum Broking mentary from the managements of Bharat Forge and Tata Motors after cent in the next two years from of Centrum Broking, has been the March quarter results, coupled with under 4 per cent in FY21. The com- strengthening of the LCV portfolio healthy margin performance by pany could end FY21 with a loss of especially the 3 tonne segment. The both companies, have increased inv - over ~200 crore before posting a vol- company launched the Bada Dost estor confidence in the CV industry. ume-led recovery. in September last year helping it He expects Ashok Leyland to While commodity costs have improve its market share in the outperform going ahead with strong been weighing on margins, analysts LCV goods segment by 200 basis volumes in the medium and heavy believe that prices should cool off points year-on-year to 11.7 per cent commercial vehicles (M&HCV) and given the high inventory levels and last year. With the company light commercial vehicles (LCV) seg- sharp rise in raw material to sales expanding its portfolio, Rankawat ments in the second half of FY22 ratios for manufacturing compa- expects share gains in this segment with improving margins. nies. Analysts at JM Financial high- to continue while adding that LCVs While a potential third wave is a light that their underweight theme bring stability during M&HCV key risk, the Street is betting that on metals has counterbalanced down cycles. Driven by the e-com- increased vaccination and pent-up overweight plays in sectors such as merce segment, the LCV segment demand will drive volumes as was autos with their preferred picks did better than heavier trucks over the case last year. Though the being Maruti Suzuki, TVS and the last year. demand was subdued earlier due to Ashok Leyland. What has been supporting the axle load norms and BS-VI related In the heavy truck segment, stock is that valuations are at rise in prices, volumes were gradu- analysts expect the company’s attractive levels and trading at a ally picking up led by higher freight share to recover to over 30 per discount to long-term averages. rates and capacity utilisation. cent. Long haulage trucks account- The stock is trading at 11 times its Emkay Research’s Raghunan - ed for 32 per cent of CV revenues FY23 enterprise value to operating dhan NL says Ashok Leyland offers for Ashok Leyland with its market profit as compared to its historical the best play on the CV recovery and share at 33 per cent before its share average of 16 times. Investors estimates its volumes and revenues declined due to the downturn over should await signs of volume gains to grow in the 42-48 per cent range the couple of years. and management commentary in the FY21-23 period. He expects The other trigger for the com- post Q4 results later this month margins to expand to over 10 per pany, according to Anish Rankawat before considering the stock..