On a strong recovery path with new variant launches – Ashok LeylandPranav Mahajan
Update on the Indian Equity Market:
On Wednesday, Nifty closed lower at 17,063 (-0.2%). Among the sectoral indices REALTY (+3.2%), PSU BANK (+1.0%), and CONSUMER DURABLES (+0.9%) led the gainers while FINANCIAL SERVICES 25/50 (-0.2%), AUTO (-0.2%), and FINANCIAL SERVICES (-0.2%) led the losers.
Among the NIFTY components, the top losers were ONGC (-2.4%), HEROMOTOCO (-2.2%), and NTPC (-1.5%) while KOTAKBANK (+2.2%), TITAN (+1.8%), and INDUSINDBK (+1%) were the top gainers.
On a strong recovery path with new variant launches – Ashok Leyland
Edited excerpts of an interview with Mr. Sanjeev Kumar, Head of M&HCV, Ashok Leyland, with Livemint on 15th February 2022:
- The Company plans to steadily expand its CNG range. It is targeting to bring in up to 40% of Intermediate commercial vehicle (ICV) sales from this fuel variant. It has been delaying its CNG vehicles launch despite this variant being the biggest volume generator in the commercial vehicle space.
- Its electric mobility arm, Switch Mobility aims to raise funding of around USD 200-300 million. Under this arm, Ashok Leyland continues to develop its electric vehicle (EV) and E-Mobility-as-a-service (E-MaaS) portfolio. The E-MaaS service is soon to be started in India.
- The competition was quick in providing CNG vehicles as they provided existing bus engines. Ashok Leyland developed CNG engines specifically for trucks. This new engine has the highest horsepower and torque in this segment.
- The company has announced the launch of 14-tonne and 16-tonne CNG trucks. Further, they plan to extend this range to 11-tonne trucks in the next two months and eventually also to multi-axle vehicles.
- The launch is timed at an opportune situation where after a three-year slump the commercial vehicle market is seeing a rebound. Positive signals from E-commerce, steel, cement, coal, iron ore will be the main growth drivers for a rise in demand for commercial vehicles.
- The lower running cost of CNG vehicles as well as the rapidly increasing number of CNG fueling stations are making fleet operators of intermediate and light commercial vehicles prefer CNG over diesel variants.
- In the intermediate commercial vehicles (ICV) market, 35%-40% of the existing vehicles are already CNG powered. Also, the shortage of trucks with the fleet operators is resulting in a spur in demand.
- Further, Ashok Leyland is also developing alternate fuel technologies such as liquified natural gas (LNG) as a possible substitute for diesel-run M&HCVs.
Asset Multiplier Comments
- An uptick in commercial vehicle demand will be strong on the back of the recovery in E-commerce, logistics, building equipment like steel, iron, and cement.
- Ashok Leyland is well-positioned to service the demand for better and fuel-efficient CNG commercial vehicles.
Consensus Estimate (Source: market screener & TIKR websites)
- The closing price of Ashok Leyland was ₹ 124 /- as of 23-February-2022. It traded at 29x/ 17x the consensus EPS estimates of ₹ 4.2/ 7.1 for FY23E/FY24E respectively.
- The consensus target price of ₹ 143 /- implies a P/E Multiple of 20x on FY24E EPS estimate of ₹ 7.1/-.
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