While demonetisation has negatively impacted the
automobile industry, however we are expecting faster recovery in the volumes.
While we expect this, the quantum of recovery cannot be assessed at this time. We
forecast volume growth of 8% and 9% in FY18E and FY19E. Company has taken
a 4% price hike in January hence we believe that margins are likely to expand
going ahead. We forecast average 21% ROE for FY18E and FY19E showing
significant improvement from over its ROE profile in FY16. With the improving
sentiment in the automobile and government’s initiative to boost the rural
infrastructure would play out positively for Ashok Leyland. Overall we expect 10%
and 13% CAGR in revenue and net profit. We maintain our Buy on the stock with a
price target of Rs110 – 19x of FY2019E EPS Rs5.8 (11x FY2019E EV/EBITDA multiple).
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