The Ashok Leyland stock closed lower today after the Hinduja Group flagship firm's chief executive officer and managing director Vinod K Dasari stepped down citing personal reasons. The firm also reported its Q2 earnings which came below estimates. The stock fell up to 11.13% (biggest intra day loss in over 1 month) to 105.80 level on the BSE. The stock opened at a loss of 4.33% at 119.05 on the BSE. It hit an intra day high of 113.90. Later it closed 10.46% or 12.45 points lower on BSE. The stock has lost 6.49% during the last one year and 10.61% since the beginning of this year.
The stock is trading below its 50-day and 200-day moving average of 116.21 and 130.03.
Chief executive officer Vinod K Dasari resigned after nearly 14 years with the company, the truckmaker said in a separate statement. The company board has accepted his resignation, a top official said on Tuesday.
Ashok Leyland also reported a 37.49 per cent jump in standalone net profit at Rs 459.57 crore for the September quarter fuelled by higher revenue compared to a net profit of Rs 334.25 crore during the same period of the previous fiscal.
Ashok Leyland CFO Gopal Mahadevan said while input cost increases continue, the company is attempting to neutralise this through efficient cost management.
Brokerages saw the resignation of the CEO negatively and said the firm's net profit missed estimates due to higher raw material costs.
"We stay cautious as we expect FY20 to be peak of cycle and valuations are not cheap in that context," said Jefferies. It cut price target of the stock to Rs 112 from Rs 120.
The brokerage gave a sell rating to the stock with a target price of Rs 100. It cut estimated earnings per share by 6%-10% over FY19-21E. It expects volume growth to decelerate, pressures on margins and perceives resignation of MD as a negative event.
Earnings before interest, tax, depreciation and amortisation (EBITDA) were 4% below estimates. Near-term volumes could be volatile - but F20 prebuying, F21 scrappage opportunity, nontruck business potential, less EV risks, & valuation The brokerage is overweight on the stock with target price of Rs 171.
The brokerage has upgraded the stock to neutral from underpriced with a target price of Rs 118 . There will be no significant impact from axle load norm changes. It raised FY 19/FY20 estimates by 16%/23%.
However, the board at its meeting on Tuesday asked Dasari to continue till the end of March 2019 to facilitate a smooth transition, Ashok Leyland Chairman Dheeraj Hinduja, who was elevated as Executive Chairman in view of the resignation of Dasari, said.
The board had reappointed Dasari as Managing Director and CEO for a term of five years from April 1, 2016 to March 31, 2021.
"This (resignation of Dasari) was something unexpected. The board needs time to discuss this (and find a replacement). Vinod has done an excellent job and the team in Ashok Leyland is very strong," Hinduja told reporters.
Ashok Leyland is engaged in commercial vehicles and related components. Through its subsidiaries, it is engaged in manufacturing and trading in medium and heavy commercial vehicle, light commercial vehicles, passenger vehicles, automotive aggregates, vehicle financing and engineering design services. It offers a range of 18 to 80-seater buses under categories, such as city application and electric buses.
It offers a range of trucks, which include long haul trucks, mining and construction trucks, and distribution trucks. It designs, develops and manufactures defense vehicles for armed forces. It has operations in India, Sri Lanka, Bangladesh, Mauritius, the Middle East and Africa.