Ashok Leyland hits fresh high ahead of February sales figures

The stock hit a new high of Rs 142 has outperformed the market by surging 13% thus far in February against 5% decline in the S&P BSE Sensex.

Shares of Ashok Leyland hit a fresh high of Rs 142, up 3% on the BSE in intra-day trade in otherwise weak market ahead of February sales figures. The commercial vehicles (CV) maker will announce its monthly sales volumes data on Thursday, March 1, 2018.

The stock has outperformed the market by surging 13% thus far in February, after the company reported good sales numbers for the month of January and more-than-doubled net profit in October-December (Q3FY18) quarter. On comparison, the S&P BSE Sensex trading 0.42% lower at 12 pm; was down 5% during the month.

The CV manufacturer posted 22% year on year (YoY) growth in total sales of 18,101 units during January 2018, compared to sales of 14,872 vehicles in the same month last year. It posted nine months sales (April 2017-January 2018) with a nominal surge of 20%.

Ashok Leyland’s net profit grew by 142% YoY to Rs 4.5 billon on back of 60% YoY jump in sales at Rs 71.1 billion, led by volume growth of 42% YoY. EBITDA (earnings before interest, tax, depreciation and amortised expenses) margins expanded by around 100bps YoY to 13.1% mainly driven by price hikes, operating leverage benefits and turnaround of light CV business, offsetting impact of higher raw material prices and elevated discounting.

“The Company expects Medium & Heavy Commercial Vehicle (MHCV) industry to report 10%+ volume growth rate in FY18. Management anticipates domestic MHCV demand momentum to continue in FY19E on pick-up in infra-spending and mining activities. Going forward FY20 is also expected to be positive due to pre-buying due to BSVI implementation in the Country,” analyst at Karvy Stock Broking said in result update. The stock however, touched its target price of Rs 142 per share today.

Ashok Leyland has clearly exceeded the annual guidance for M&HCV growth (around 5- 10%) at the beginning of the year, growing 16% YoY in YTDFY18E. Management initiatives to cut costs, reduce debt, improve working capital cycle, divest non-core assets and fill product gaps have yielded results in terms of meaningful market share gain and consistently strong financial performance, according to analysts at ICICI Securities.

The company will be a big beneficiary of any announcement on the vehicle modernisation programme; the brokerage firm said in result updates with ‘buy’ rating on the stock and arrives at a 12 month target price of Rs 150 per share.