Axis Securities bullish on this midcap auto stock; sees over 40% upside

According to a recent report by Axis Securities, India's third-largest commercial vehicle manufacturer Ashok leyland is in a sweet spot to ride the economic recovery.
 
The brokerage firm has recommended the stock as its top mid-cap pick. It has maintained a 'Buy' rating on the stock and values it at 18x FY24E EPS to arrive at a target price of Rs 175.
 
The stock has been gaining for the last four trading sessions and has risen 7.38% during the same period. With a market capitalisation of Rs 37,545 crore, Ashok Leyland's shares stand higher than 5 day and 200 day moving averages but lower than 20 day, 50 day and 100 day moving averages
 
The mid-cap stock ended 0.31 per cent higher at Rs 127.90 against the previous close of Rs 127.50 on the Bombay Stock Exchange (BSE) on Friday.
 
Axis noted that Ashok Leyland continues to focus on reducing its dependence on the cyclical truck business by increasing the revenue share of Exports, Defence, Power Solutions, light commercial vehicles (LCV), and after-sales spare parts business.

It remains well-positioned to benefit from a strong recovery in the commercial vehicles (CVs) cycle on the back of new product launches and a well-diversified product portfolio.
 
It further added that Ashok Leyland is improving its LCV business and targets gaining market share by launching new products. Also, the company is focusing on electric vehicles (EVs) and in light of enhancing green mobility, it has created a dedicated EV-only entity called SWITCH Mobility, headquartered in the UK.
 
"We believe the medium and heavy commercial vehicles (MHCVs) industry is at the cusp of the next up-cycle and with more than 60% revenue coming from MHCVs, Ashok Leyland is best-placed to capture the expected surge in demand. The pick-up in economic activities, especially in infrastructure development, road construction, and mining, would likely spur demand for new trucks as well," the brokerage firm said in a report.
 
Ashok Leyland reported a 2 per cent decline in total commercial vehicle sales to 10,480 units in November 2021. The company had sold 10,659 units in the same month last year, Ashok Leyland said in a regulatory filing.
 
Domestic sales were down 4 per cent at 9,364 units, against 9,727 units in November 2020, it added. However, medium and heavy commercial vehicle sales were up 5 per cent at 4,661 units compared to 4,422 units in the year-ago month.
 
In September, the Hinduja Group flagship company signed an initial pact with private sector lender Federal Bank for a strategic partnership for vehicle financing.
 
"With this partnership, we will be able to offer our financial solutions by leveraging the bank's extensive physical and digital reach to the customers of Ashok Leyland and its dealers,” said Harsh Dugar, Group President, Federal Bank.