LKP LIKES : ASHOK LEYLAND (Buy, Target Rs.32)

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ASHOK LEYLAND (Buy, Target Rs.32)

Ø  Leyland is available at these prices because the South Indian market which happens to be the mainstay of the company (contributing more than 50% of its volumes) remained weak during FY’12 due to the mining ban and political uncertainty in Andhra Pradesh and elections in Tamil Nadu. High interest rates impacted profitability of fleet operators during FY’12.

Ø  This scenario is expected to change during FY’13 given the higher production envisaged from its Pantnagar facility, increased demand for its tippers, success of its new LCV – Dost and new product launches during the current fiscal.

Ø  We therefore believe that Leyland can grow its earnings at a CAGR of 30% over FY’12-14 and given the high entry barriers in the business, Leyland trading at 6.5xFY13-14E earnings is an attractive BUY at CMP of Rs24.75 with a price target of Rs32

Ø  New contract wins from Defence or on the Bus side from state transport undertakings can act as an upside trigger for Leyland.

 

TECHNICAL VIEW

Ø  Technically, the stocks looks to be in a corrective phase, however the long term charts indicate that the uptrend would remain intact till the time stock trades above 21.90 levels.

Ø  On weekly charts stock is taking strong support at current levels which also coincides with the 13 month Exponential Moving Average.

Thanks and Regards

LKP Advisory