Ashok Leyland advances 10%, nears 52-week high on drawing up EV road map

Ashok Leyland's subsidiary Switch Mobility announced a strategic agreement with Dana Incorporated, the global leader in drivetrain and e-propulsion systems, to make a minority investment in Switch

Shares of Ashok Leyland edged higher by 10 per cent to Rs 137.45 on the BSE in intra-day trade on Friday on the back of heavy volumes after the commercial vehicle (CV) major lined up its electric vehicle (EV) road map on Wednesday. The stock Hinduja Group Company was trading close to its 52-week high level of Rs 138.85 touched on February 4, 2021.

Switch Mobility, the Electrified Commercial Vehicles company and a subsidiary of Ashok Leyland on Wednesday announced a strategic agreement with Dana Incorporated (Dana), the global leader in drivetrain and e-propulsion systems, to make a minority investment in Switch.

Under the terms of the agreement, Dana will make a strategic investment in Switch Mobility and will also be a preferred supplier of electric drivetrain components for the company’s e-bus and EV commercial vehicle offering – including e-Axles, gearboxes, motors, inverters, software and controls, and electronics cooling, Switch Mobility said in a release.

The company further said with this agreement, Dana not only becomes an important supplier to Switch but will also invest USD 18 million in the company, representing an approximate 1 per cent stake.

Switch Mobility combines the electrical commercial vehicle operations of Ashok Leyland in India and Optare in UK to secure a leading global position in net zero carbon buses and light commercial vehicles. In 2014, Switch introduced the first British built, pure electric buses to London’s roads and since then has put 280 EVs on the road, clocking up over 26 million electric miles in developed and developing markets.

Switch Mobility will spearhead all future efforts in e-mobility in both global and domestic markets. Ashok Leyland has invested USD 130 million so far, and further investments of USD 150-200 million are anticipated in the next 2-3 years, to be mostly raised from strategic and financial investors.

In the next decade, management expects a reduction in the share of ICEs and increased acceptance of CNG, electric, LNG and hydrogen-cell based CVs.

“Ashok Leyland offers the best play on the fast-evolving CV recovery. We expect the robust volume/revenue CAGR of 38 per cent/44 per cent in FY21-23E, coupled with EBITDA margin expansion from 3.5 per cent in FY21 to 10.6 per cent in FY23E, to drive strong FCF generation of Rs 16 billion/year, and an improvement in net debt/equity to 0.1x by FY23E. Although we have not ascribed any value to the loss-making Switch Mobility, considering increased management focus and long-term E-mobility potential, we believe there could be upside risks to our fair value,” analysts at Emkay Global Financial Services said in its analyst meet update.

At 11:22 am, the stock was up 7 per cent at Rs 134.40 on the BSE, as compared to a 0.12 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped five-fold, with a combined 53.98 million equity shares having changed hands on the NSE and BSE so far.