Despite the poor performance, most brokerages have a positive view on Ashok Leyland
Shares of Ashok Leyland skidded to over five-month low on the BSE, in otherwise firm market despite the company reporting a better-than-expected net profit for the quarter ended June 2018 (Q1FY19).
Ashok Leyland that hit its lowest level since February 2, 2018, has slipped over 34% from its 52-week high of Rs 168 touched on May 8, 2018. The stock recorded a 52-week low of Rs 98.80 on August 11, 2017 in intra-day trade. On Wednesday, it ended at Rs 110 levels on the BSE.
As regards results, the company posted over three-fold year on year (yoy) jump in net profit at Rs 3.7 billion in Q1FY19. It had profit of Rs 1.1 billion in year ago quarter. Operational revenue grew 38% at Rs 62.50 billion, while other income increased by 30% at Rs 500 million over the previous year quarter.
EBITDA (earnings before interest, tax, depreciation and amortization) margin stood at 10.4% during the quarter as against 7.2% in Q1 of previous year.
Analysts at Nomura maintain positive view on the MHCV industry in FY19/20F with ‘buy’ rating on the stock and 12 month target price of Rs 171.
"Healthy improvement in EBITDA margins (up 310 bps yoy) was a key positive. However, the aggressive focus by Tata Motors to gain market share and Ashok Leyland’s market share loss in 1QFY19 remain concerns," the brokerage firm said in result note.
"We await clarity on revenue mix (MHCV, defence, exports, spares) and pricing action to understand the sustainability of margins, given rising commodity costs", it added.
“If industrial GDP growth fails to recover, it can lead to disappointment in truck volume growth affecting Ashok Leyland’s performance. Competition has increased significantly in MHCV truck segment led by aggressive market share target by the leader – Tata Motors and attractive value proposition of new entrants like Bharat Benz and Mahindra. Thus, any market share loss by Ashok Leyland can adversely affect its performance,” analyst said.