Ashok Leyland share price has strong support at Rs 105; target price pegged at Rs 125-Rs 130, says expert

Ashok Leyland share price today is Rs 115, up Rs 1.5 or 1.25%. Ashok Leyland share price is up over 4% in one week from Rs 110 to Rs 115. Sharekhan says that it has revised Ashok Leyland’s volume estimates upwards on expectation that the CV industry is ready for an upturn. Sharekhan expects Ashok Leyland’s EBITDA margin will improve aided by benefits arising from operating leverage and cost-cutting initiatives taken up by the company under ‘Project Reset’.

As per the Ashok Leyland’s management, under the Project Reset, the company will focus on pricing, network profitability, supply chain de-bottlenecking, and other manufacturing overheads. Operating leverage (due to volume growth) and cost-control initiatives would lead to steep improvement in margins. OPM is expected to reach double-digit levels in FY2022E (closer to FY2019 levels).

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Technicals on Ashok Leyland:

Sumeet Bagadia, Executive Director of Choice Broking says that on a daily Chart, the stock has taken support from horizontal Trend line and bounced from there which suggests upside movement in upcoming session. Furthermore, the stock has confirmed the “Hammer Candlestick” pattern which is a reversal formation and it suggests strength in the counter. After giving a healthy correction from its all-time high, the stock has taken a support of its 100 Days Moving Average which is placed at 108.20 level which shows a bounce back movement in the counter.

Additionally, momentum indicator Stochastic (6) has shown a positive crossover, which indicates strength in the counter. At Present Level stock is having support at Rs 105 while resistance comes at Rs 117, crossing above it can show Rs 125 – Rs 130 levels.

Sharekhan says that with the ‘Atmanirbhar Bharat’ push in the defence sector, the government is targeting increased sourcing from domestic private players, which would benefit players such as Ashok Leyland. Sharekhan expects Ashok Leyland’s profitability to improve significantly, with its EBITDA growing at 157% CAGR for FY2021-23E. Sharekhan thus remains positive on Ashok Leyland’s growth prospects and retains Buy rating on the stock.

Ashok Leyland Key risks:

Sharekhan says that the second wave of COVID-19 pandemic can disrupt economic sentiment and affect prospects of the CV industry’s recovery. Pricing pressures to defend domestic market share would affect margins. Also, if the commodity prices continue to rise going forward, it can affect Ashok Leyland’s profitability.