Ashok Leyland soars to a 4-year high, up 6% ahead of June quarter results

Shares of Ashok Leyland hit an over four-year high at Rs 154.45, as the stock rallied 6 per cent on the BSE in Friday’s intra-day trade ahead of the April-June quarter (Q1FY23) results later today.

The automobiles company traded at its highest level since May 2018. The stock had hit a record high of Rs 168 on May 8, 2018. In the past three months, Ashok Leyland has outperformed the market by surging 21 per cent, as compared to 0.6 per cent rise in the S&P BSE Sensex.

Ashok Leyland is expected to report a muted performance in Q1FY23 amid 19 per cent sequential decline in volumes for the quarter at 39,651 units. M&HCV: LCV ratio for the quarter was at 63:37 vs. 66:34 in Q4FY22, ICICI Securities said.

With 2 per cent QoQ decline in ASPs at Rs 17.6 lakh/unit, net sales at Ashok Leyland is seen at Rs 6,976 crore (down 20.2 per cent QoQ). With negative operating leverage at play & marginal rise in input cost, EBITDA & EBITDA margins for the quarter are seen at Rs 457 crore, 6.6 per cent (down 230 bps QoQ). Consequently profit after tax is seen at Rs 161 crore vs Rs 901 crore in Q4FY22 (included exceptional gains as well), the brokerage firm said in result preview.

M&HCV demand has remained strong in a seasonally weak quarter. QoQ margin decline is due to higher raw material cost, operational deleverage and benefit of cost reversal in 4QFY22, Motilal Oswal Financial Services said.

Meanwhile, the Indian commercial vehicle industry is optimistic about growth prospects for FY23 given favorable growth drivers despite fuel inflation, possibility of new Covid variants, chip shortages and geopolitical issues.

The demand for MHCV Trucks is expected to increase, driven by pickup in fleet utilization levels and supported by replacement demand in-line with recovery in economic activity and government spending on infrastructure. In the MHCV Bus segment, growth is expected to make a comeback by the reopening of schools and offices and the gradual return to normalcy after the pandemic and an uptick in tender orders by STUs. In ICVs growth is expected to make a comeback by the e-commerce sector with a progressive shift to more CNG-powered vehicles, Ashok Leyland said in FY22 annual report.

The announcements in the Union Budget 2022-23 on boosting public infrastructure through enhanced capital expenditure are expected to augment growth and crowd in private investment through large multiplier effects. 100 Multimodal Cargo Terminals spread over 3 years from FY23, announced in budget under PM Gatishakti for connectivity between mass urban transport and railway stations should also bolster demand for the overall sector. The infrastructure segment is expected to be robust through execution of projects in the National Infrastructure pipeline. This will have a positive impact on the sales of commercial vehicles, especially the tipper and haulage segments.

However, the ongoing geopolitical tensions viz., Russia-Ukraine situation could increase commodity prices, crude oil prices, and exacerbate supply chain issues. The shortage of semiconductors is likely to be a challenge for a few more months, the company said.