Buy Ashok Leyland shares for target of Rs 133, maintain stop-loss at Rs 115, says this expert

Ashok Leyland share price today is Rs 123, up by Rs 6.25 or 5.35%. Ashok Leyland share price has fallen as much as 2% to Rs 118 from Rs 123 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).

Technical Analysis on Ashok Leyland:

Rohit Singre, Senior Technical Research Analyst at LKP Securities said that investors should buy Ashok Leyland on all dips upto Rs 119. The target price on Ashok Leyland is Rs 133 and stop loss for the trade is Rs 115.

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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’.

Sharekhan said Ashok Leyland 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).

Technicals on Ashok Leyland:

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 is improving its light commercial vehicles (LCV) business and is targeting market share gains with the launch of new products. The company has also identified CV exports and defence as key focus areas. Ashok Leyland is planning to increase its distribution network in Africa and other Southeast Asian countries to boost exports.

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.