Ashok Leyland is the flagship company of the Hinduja Group in the country and is the second largest commercial vehicle manufacturer after Tata Motors. The company has a strong presence in the domestic MHCV segment, with a 35% market share. It enjoys a dominant position in Southern India, but has been recently focusing on expanding its footprint in the Western and Northern Indian markets. Ashok Leyland has been growing by leaps and bounds in the last couple of years and posting excellent financial results, year after year. Sales turnover has advanced from Rs 12,481 crore in 2013 to Rs 20,019 crore in 2017, while net profit has shot up from Rs 434 crore to a whopping Rs 1,223 crore in the same period. The company’s financial position as of 2017 is quite strong, with reserves standing at Rs 5,841 crore, which is more than 20 times its equity capital of Rs 284.59 crore. Most equity research analysts have been bullish of the Ashok Leyland stock and expect FY18 to be good for the company, as the industry has been witnessing strong recovery growth. This is on the back of pick-up in mining and infrastructure investment by the government and strict implementation of overloading in trucks in the Northern Indian markets. While the India truck business of the company is currently nearly 70% of its revenue, it is planning to increase the share in other segments like LCV, exports and defence. This will not only reduce dependence on domestic truck business, but drive strong revenue growth in the future. In the short term, Ashok Leyland expects good demand and improved growth numbers on the back of new focus areas being identified and various cost reduction measures being implemented. On the other hand, in the longer term the company management expects significant higher contribution from Non India CV segment viz. defence and exports. Hence, the Ashok Leyland stock is an excellent buy with an accumulated rating from the present levels, with a 20% price appreciation in nine months’ time horizon.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.