Buy This Largecap Auto Stock With Rs. 181 Target Price, Profit Gains 247% QoQ

Brokerage firm Sharekhan has given a positive rating to the stock of Ashok Leyland, as its PAT stood at Rs. 191 crore in Q2 vs. Rs. 55 crore in Q1, reflecting a growth of 247% q-o-q. The company's Q2FY23 results were above expectations, led by operating leverage benefits and the softening of commodity prices, partially offset by higher employee costs.

Stock To Buy: Target Price

The Current Market Price (CMP) of Ashok Leyland is around Rs. 150. Sharekhan has estimated a Target Price for the stock at Rs. 181. This stock has the potential to give a 20.66% return, in the upcoming 12 months. This large-cap stock has a market capitalization of Rs. 42,192 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 150
97Target Price	Rs. 181
Potential Upside	20.66%
52-week high share price	Rs. 169.45
52-week low share price	Rs. 93.20

Q2FY23 earnings were above expectations

Ashok Leyland's EBITDA margin was 20bps higher than expectations at 6.5% in Q2FY23. Standalone net revenues were up 85.4% y-o-y to Rs. 8,266 crore, led by 64.5% volume growth and a 12.8% improvement in average sales realisation in Q2FY23. EBITDA margin for Q2FY23 expanded 210bps q-o-q to 6.5%, led by positive operating leverage, softening raw material prices and cost reductions, partially offset by higher employee costs. As a result, EBITDA for Q2FY23 improved 298% y-o-y and 67.8% q-o-q to Rs537 crore.

Stock Upside

The brokerage firm said, "We continue to maintain our positive view on ALL and expect it to be a strong beneficiary of recovery in commercial vehicle (CV) sales in domestic markets, led by an improving macro environment, higher infrastructure spending, and replacement demand. The company expects good opportunities to continue to grow exports, defence, power solutions, light commercial vehicles (LCV), and parts business even as it expands the reach and products of the core medium and heavy commercial vehicle (MHCV) business."

Subsidiaries likely to benefit from EVs

ALL's subsidiary, Switch Mobility Limited (SML), is likely to benefit from the electric vehicle (EV) mobility movement through its strong presence in the UK, India, and Continental Europe. We expect ALL's profitability to improve significantly, with its EBITDA growing at an 84.8% CAGR for FY2022-FY2024E, led by a sharp improvement in operating leverage. "Thus, we remain positive on ALL's growth prospects and retain our Buy rating on the stock with an unchanged price target of Rs. 181. The stock is trading below its average historical multiples atP/E of 22.8x and EV/EBITDA of 12.7x its FY2024E estimates," Sharekhan mentioned.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.