Want to bet on commercial vehicle space? Brokerages are bullish on this multibagger

• Follow

Hinduja group flagship Ashok Leyland has been buzzing on Dalal Street due to its robust performance in the March quarter. The commercial vehicle major on Friday posted more than a six-fold rise in consolidated profit after tax (PAT) at Rs 377 crore in Q4FY21. The company had reported a consolidated net profit of Rs 58 crore in the January-March quarter of 2019-20.

With a rally of 258% since March 2020 lows, shares of the company have already outperformed the benchmark equity index BSE Sensex. The 30-share index has advanced 98% to 52,925 during the same period.

Shares of the company have jumped to Rs 123.35 on June 25 from 34.45 on March 25. The scrip had hit its all-time high of Rs 167.50 on May 8. 2018. Brokerages retained their bullish view on the company, citing a stronger and sharper rise in demand in the second half of FY22.

Consolidated revenues during the fourth quarter of the last fiscal stood at Rs 8,142 crore, as compared to Rs 5,088 crore in the same period a year ago, Ashok Leyland said in a late-night statement on Thursday.

For the entire 2020-21 fiscal, the company’s consolidated loss after tax stood at Rs 70 crore. The company had reported a PAT of Rs 460 crore in FY20.

Should you buy now?

LKP Securities has ‘Buy’ call on Ashok Leyland with a price target of Rs 145, indicating an upside of over 15% from the current market price.

“The medium and heavy commercial vehicles (MHCV) volumes have seen a revival in line with the economic recovery, regaining speed in infrastructure and mining activities, construction activities led by opening up of the economy and lower Covid numbers in Q3 and Q4. As the market has started to open up, we see the truck numbers moving up further. We saw demand for tippers and haulage vehicles moving up followed by tractor-trailers and multi-axle vehicles in Q4,” LKP Securities.

With the announcement of an upcoming voluntary scrappage policy in the recent Union Budget, the government has raised hopes for higher truck demand. LKP Securities believes that the demand for buses is also expected to recover with the possible opening of schools, colleges and offices in the second half of FY22 if the Wave 3 of the pandemic does not occur.

On the other hand, Systematix Institutional Equities has a ‘Hold’ rating on the company with a price target of Rs 138. “Given the severity of the last down-cycle and the ongoing Covid-19 vaccination trend, we see upside risks to our commercial vehicles growth assumptions. The focus, however, will be on market share as the competitive intensity has increased in the post-BS-6 regime (Ashok Leyland lost 320 basis points MHCV market share in FY21). We lower FY21 estimates sharply to factor in Q1 lockdown impact,” the brokerage added.