Ashok Leyland declines 3% after CLSA cuts target price
Shares of Ashok Leyland plunged over 3 per cent in early trade on Tuesday after the global brokerage firm CLSA maintained ‘Sell’ rating on the stock and also cut the target price to Rs 75 (Rs 85 earlier).
The scrip was trading 3.20 per cent down at Rs 87.75 at around 9.50 am (IST), while the BSE Sensex was down 146 points, or 0.40 per cent, at 36,424 at around the same time.
India’s truck industry is currently in the fifth year of an up-cycle where historical upturns in the last four decades have lasted four years on average, said CLSA.
“We see high likelihood of a downturn ahead especially with new axle norms raising freight capacity of existing fleet. Falling share of higher-tonnage trucks is a further drag," said CLSA.
The foreign brokerage expects competition to intensify in a downturn given Ashok’s improved ability to fight against Tata and the latter’s high focus on regaining its lost market share.
Despite 44 per cent fall from peak level, Ashok Leyland’s valuation at 3 times FY20 price-to-book is expensive for a looming downcycle, the brokerage house said. "Our FY20-21 earnings per share (EPS) is 14-22 per cent below street although we factor in only a benign downturn,” said CLSA.
The scrip was trading 3.20 per cent down at Rs 87.75 at around 9.50 am (IST), while the BSE Sensex was down 146 points, or 0.40 per cent, at 36,424 at around the same time.
India’s truck industry is currently in the fifth year of an up-cycle where historical upturns in the last four decades have lasted four years on average, said CLSA.
“We see high likelihood of a downturn ahead especially with new axle norms raising freight capacity of existing fleet. Falling share of higher-tonnage trucks is a further drag," said CLSA.
The foreign brokerage expects competition to intensify in a downturn given Ashok’s improved ability to fight against Tata and the latter’s high focus on regaining its lost market share.
Despite 44 per cent fall from peak level, Ashok Leyland’s valuation at 3 times FY20 price-to-book is expensive for a looming downcycle, the brokerage house said. "Our FY20-21 earnings per share (EPS) is 14-22 per cent below street although we factor in only a benign downturn,” said CLSA.
