Ashok Leyland shares extend gains, jump 7% today to trade near one-year high; here's what brokerages say

Shares of Ashok Leyland continued to rise for the fifth consecutive session in Friday's trade. The stock today soared 6.64 per cent to hit a day high of Rs 167.80, just 0.95 per cent shy away from its 52-week high price of Rs 169.40, a level seen on September 6, 2022. The counter has gained 12.08 per cent in 2023 so far and 28.26 per cent in the past one year.

At least two domestic brokerages have given 'Buy' calls for Ashok Leyland, suggesting a potential upside of up to Rs 215.

"Ashok Leyland is well placed to sustain its market share gains of 33 per cent of trucks and 27 per cent of busses in FY24 (2023-24). While multiple white spaces in the LCV (Light Commercial Vehicle) segment give opportunities to increase market share. We maintain 'Buy' at a target price of Rs 215," Prabhudas Lilladher stated.

The Hinduja flagship firm should see a structural increase in margin due to lower discounting, cost engineering over the last few years, mix improvement and operating leverage and reach mid-teen margins in the mid-term (double digit in FY24), the brokerage said.

"The company has big market share aspirations in both Medium and Heavy Commercial Vehicle Segment (35 per cent) and LCV 2.0 to 3.5 ton (25 per cent) in the mid-term, backed by a zone-wise strategy to defend, grow or penetrate. It is aiming to increase addressable volume in the international market by 2x by FY25," Prabhudas further stated.

JM Financial Research has given a target price of Rs 180. "Pricing environment has improved in the Commercial Vehicle (CV) industry. And, the company is focusing on cost reduction initiatives to drive double-digit margins in FY24. CV upcycle is expected to continue during FY24 with an expected MHCV growth of 10 per cent. We maintain our estimates and 'Buy' rating with a target price of Rs 180," the brokerage said.

However, an increase in competitive intensity could be a key risk, JM Financial added.

"Capex in FY23 (2022-23) stood at Rs 500 crore and is expected to be Rs 600-750 crore during FY24 largely towards new product development and maintenance. As on March 2023, the auto business is net cash and the company expects to remain in net cash surplus in the medium-term," it further mentioned.

The CV maker reported a 1 per cent decline in total sales at 13,134 units in May this year as against 13,273 units in May 2022. Domestic sales were lower by 1 per cent last month at 12,378 units over 12,458 units in the year-ago period.

Meanwhile, Indian equity benchmarks traded higher in early deals today, taking cues from the global markets. The domestic indices rose today led by gains in banks, financials, metals, pharma and consumer stocks.

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