 "Ashok Leyland: Volume, margin gains ahead")
With its commercial vehicle sales growing faster than peers, resulting in market share gains as well as improvement in margins, Ashok Leyland has outperformed its peers in the auto pack. The stock, over the last three months, has been flat as compared to 20-25 per cent drop for Tata Motors and Maruti and 11 per cent for M&M.
For the nine months ended December, the company's commercial vehicle sales have grown by 56 per cent as compared to the sector's 30 per cent. This has helped the company gain market share, which currently stands at 32.1 per cent as compared to the year-ago number of 28.5 per cent. Importantly, the gains for the company have come across geographies and segments.
Analysts expect margins to move up further and are pegging it at around 12.5-13.5 per cent for FY17. Volume growth is expected to come from replacements as fleet operators upgrade their truck portfolio as well as better operator profitability due to steady freight rates and the steep fall in fuel costs. The sector will also be expecting a pick-up in infrastructure and mining activities to boost new truck sales, which have so far largely been confined to replacement demand. What could act as a big trigger are the scrappage incentives to phase out vehicles, which are 10 or 15 years old, from the government, which could boost sales. Analysts at Nomura believe that the commercial vehicle sector will see a volume growth of 22 per cent annually over the FY15-19 period and given that Ashok Leyland is a pure play on commercial vehicles, it will stand to gain the most. The stock is trading at about 10 times its FY17 EV/Ebitda estimates.
For the nine months ended December, the company's commercial vehicle sales have grown by 56 per cent as compared to the sector's 30 per cent. This has helped the company gain market share, which currently stands at 32.1 per cent as compared to the year-ago number of 28.5 per cent. Importantly, the gains for the company have come across geographies and segments.
Analysts expect margins to move up further and are pegging it at around 12.5-13.5 per cent for FY17. Volume growth is expected to come from replacements as fleet operators upgrade their truck portfolio as well as better operator profitability due to steady freight rates and the steep fall in fuel costs. The sector will also be expecting a pick-up in infrastructure and mining activities to boost new truck sales, which have so far largely been confined to replacement demand. What could act as a big trigger are the scrappage incentives to phase out vehicles, which are 10 or 15 years old, from the government, which could boost sales. Analysts at Nomura believe that the commercial vehicle sector will see a volume growth of 22 per cent annually over the FY15-19 period and given that Ashok Leyland is a pure play on commercial vehicles, it will stand to gain the most. The stock is trading at about 10 times its FY17 EV/Ebitda estimates.