Buy Ashok Leyland share for Rs 125-Rs 130 target price, maintain stop-loss at Rs 105, says expert

Ashok Leyland share price today is Rs 111.5, which is down by Rs 7 or 5.7%. Ashok Leyland share price has fallen as much as 2% to Rs 111.5 from Rs 114 over the last week itself. As per Ashok Leyland’s management, under '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).

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 to improve aided by benefits arising from operating leverage and cost-cutting initiatives taken up by the company under ‘Project Reset’.

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Technicals on Ashok Leyland:

Sumeet Bagadia, Executive Director of Choice Broking says that after giving a healthy correction from its all-time high, the stock is showing a bounce back movement. At present, Ashok Leyland stock is having support at Rs 105 while resistance is at Rs 117. If it crosses this mark, 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 has thus remained positive on Ashok Leyland’s growth prospects and it has retained its 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.