On Thursday, Ashok Leyland Ltd. (NSE:ASHOKLEY) received a new stock rating of 'Buy' from Ambit Capital, with a price target set at INR266.00. The firm highlighted Ashok Leyland's strategic focus on profitability in its medium and heavy commercial vehicle (M&HCV) segment and growth in the light commercial vehicle (LCV) sector as key factors for the positive outlook.
Ambit Capital projects a modest compound annual growth rate (CAGR) of 2.6% in Ashok Leyland's M&HCV volumes from FY24 to FY27E. However, the LCV volumes are expected to see a stronger growth rate of 7% CAGR during the same period. This optimism is partly due to new product launches that could expand the company's market reach.
The analyst report also touched on the need for Ashok Leyland to bolster its position in the electric bus (ebus) market, which is currently led by new entrants. In response, Ashok Leyland plans to introduce two new electric vehicle offerings in the second half of calendar year 2024, aiming to enhance its presence in the LCV segment through electrification.
Ambit Capital commended Ashok Leyland's pricing discipline, which has been instrumental in driving profitable margins. The guidance from the company suggests that there may be further opportunities to improve margins. The valuation of Ashok Leyland was described as reasonable by Ambit Capital, with an 11x one-year forward EV/EBITDA and an implied 10-year volume CAGR at current market price (CMP) of 4.3%.
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