Sell Ashok Leyland; target of Rs 140: ICICI Sec
ICICI Securitie’s research report on Ashok Leyland
With tonnage adjusted goods M&HCV volume for the industry being 20-25% higher in FY25E vs previous peak of FY19, we are building in industry volume decline of 10% in FY26E. Additionally, historical data suggests, even with mid-single digit growth rates in key segments like mining, manufacturing and construction segments of economy, CV cycle characteristics remain unperturbed, as the system is catered by 15-18yrs of CV population and not just one year of new truck sales.
Outlook
Post recovering 120% in volume terms from the lows of FY21, domestic goods M&HCV market is currently up 20-25% above its tonnage-adjusted incremental supply level in the previous peak of FY19. We are building in flat volume for domestic goods M&HCV industry in FY25E, followed by a year of 10% decline in FY26E. In line with industry decline, we are building in goods M&HCV volume decline of 10% for AL in FY26E, post remaining flat in FY24-25E. We are building in EBITDAM for AL in FY26E at 8% vs 10.5% in FY25E, on the back of adverse operating leverage and potential
pressure on pricing. We downgrade AL to SELL from Hold, with a revised DCF-based TP of INR 140 (earlier INR 177), implying 12x FY26E EV/EBITDA. Change in TP is primarily due to valuation rollover to a weaker FY26.
This financial news suggests that ICICI Securities, a brokerage firm, recommends selling Ashok Leyland stock and has set a target price of Rs 140 per share. Here’s a breakdown of what this means:
- Sell Recommendation:Â ICICI Securities believes the price of Ashok Leyland stock is likely to decline in the near future. They advise investors to sell their existing shares to avoid potential losses.
- Target Price of Rs 140:Â This is the price level ICICI Securities anticipates Ashok Leyland’s stock could reach based on their analysis. The current price (as of April 22, 2024) is likely higher than Rs 140, so selling at the current price would result in a capital loss for investors following their recommendation.
Here are some reasons why ICICI Securities might have issued this recommendation:
- Concerns about the commercial vehicle (CV) cycle:Â They might believe the growth in the CV sector has peaked and could be followed by a correction. This could lead to a decline in Ashok Leyland’s sales and profitability.
- Valuation concerns:Â Ashok Leyland’s stock price might be considered overvalued based on their current financials and future prospects.
It’s important to remember that:
- This is just a recommendation from one brokerage firm. Other analysts might have different views on Ashok Leyland.
- Past performance doesn’t guarantee future results. The stock price might not necessarily reach Rs 140.
- Short-term market fluctuations can be unpredictable.
Here’s what you can do as an investor:
- Research Ashok Leyland:Â Analyze the company’s recent financial performance, news articles, and analyst opinions to understand the reasons behind the recommendation.
- Consider your investment goals:Â Are you looking for short-term gains or long-term growth? If you have a long-term perspective and believe in Ashok Leyland’s future potential, you might hold onto the stock despite the recommendation.
- Diversify your portfolio:Â Don’t put all your eggs in one basket. Consider spreading your investments across different sectors and companies to minimize risk.
- Consult a financial advisor:Â A professional advisor can help you make informed investment decisions based on your individual circumstances and risk tolerance.