INSUBCONTINENT EXCLUSIVE:
Emkay Global has retained buy rating on Ashok Leyland with a target price of Rs 76
The brokerage applied target EV/EBITDA multiple of 10 times (vs 11 times earlier)
Recovery can be gradual, but the upcycle can last for 4 years with minimum growth of 90 per cent from trough to peak based on historical
Ashok Leyland has outpaced industry growth historically, and the brokerage expects a similar trend to persist ahead.
The domestic medium and
heavy commercial vehicle (MHCV) industry has been in a downturn since November 18, and FY20 has been the worst year for the past 20 years
We expect a gradual revival by FY21 end, led by low base, replacement demand and government stimulus measures to aid economic activity
The company is likely to gain share from 32 per cent in FY20E to 33 per cent in FY22E, led by strong exposure to the above 25T segment
New products based on modular platforms and continuing focus on network expansion, LCVs and exports are also expected to support volumes
The share price of the company moved down by -4.91 per cent from its previous close of Rs 47.90
The last traded price is Rs 45.55
Incorporated in 1948, Ashok Leyland has a market cap of Rs 14075.85 crore.
Investment RationaleThe brokerage expects revenue growth of 15
per cent CAGR and EBITDA growth of 34 per cent CAGR over FY20-22E, driven by a sales upcycle and margin expansion
The EBITDA estimates have been reduced by 41 per cent/24 per cent for FY21E/F22E to factor in near-term volume pressures
The target price of Rs 76 (Rs 112 earlier) is based on 10 times EV/EBITDA on FY22E estimates (11 times earlier), and Hinduja Leyland Finance
investment value at Rs9/ share
Valuations have notably corrected, with core FY21E P/B at 1 time, vs
historical average of 3 times
FinancialsFor the quarter ended December 31, 2019, the company reported consolidated sales of Rs 5148.15 crore, up 2.29 per cent from last
quarter sales of Rs 5033.06 crore and down -30.48 per cent from last year's same quarter sales of Rs 7405.78 crore
The company reported net profit after tax of Rs 56.64 crore in the latest quarter.