Edelweiss is bullish on Ashok Leyland has recommended Buy rating on the stock with a target price of Rs 175 in its research report dated March 01, 2018.
Edelweiss' research report on Ashok Leyland
Ashok Leyland (AL) has been our top pick since Jan 2017 driven by a combination of company-specific drivers (refer our note: Transcending Boundaries) and top-down demand view (refer our note: Do not ignore replacement demand). M&HCV demand remains stronger than expected warranting an upgrade in FY19E volumes. Similarly, Q3FY18 margin performance addressed the excessive fear of pricing indiscipline in quest of market share.
Outlook
We believe AL is taking the right steps to transition from being primarily a truck player and diversifying its revenue stream (exports/spares/LCV/defence) over next five years. We estimate EPS CAGR of ~27% over FY18-20 and RoE to improve ~710bps to 32.7%. We maintain ‘BUY/SO’ with TP of INR175 (11x FY20E EV/EBITDA, assign INR8 to Hinduja Finance stake). At CMP, the stock trades at FY19/20E PER of 21.5/17.1.For all recommendations report, click here
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