Ashok Leyland extends fall on concerns of volume growth

Shares of Ashok Leyland have declined 8% to Rs 136, extending their 4% fall on the BSE on Friday, on concerns of truck volume growth in current fiscal on account of a partial overloading ban relaxation in Uttar Pradesh (UP) from last month.

In past two weeks, Ashok Leyland has underperformed the market by falling 18% as compared to 1.2% decline in the S&P BSE Sensex. The stock hit a record high of Rs 168 on May 8, 2018 in intra-day trade.

“UP had seen a phenomenal growth of around 80% in 9MFY18 (Q4FY18 state-wise data not available) and had become the second largest state with a volume contribution of around 10%. We thus cut our domestic truck industry volume growth assumption to 8% from 11% earlier, to factor in cut in volumes due to reduced demand post ban relaxation,” analysts at Elara Capital said in company update.

While the tailwind of overloading ban in UP has reduced, there continues to be an economic activity led pick-up owing to heightened construction activities in the country. Further, tipper demand is expected to receive a boost, improving realizations, in our view. We believe with expected pre-buying in FY20E, discounts are unlikely to move upwards of previous peaks in Q3FY18, the brokerage firm said in recent report. It recommends ‘accumulate’ rating on the stock with 12 month target price of Rs 162.

Ashok Leyland on Friday reported 40% year on year (YoY) growth in net profit at Rs 6.67 billion in March quarter (Q4FY18). Revenue from operations grew 23.7% at Rs 87.72 billion on YoY basis. Analysts on an average had expected profit of Rs 6.77 billion on revenue of Rs 89.62 billion for the quarter.

In past one year, Ashok Leyland has rallied 60% as compared to 14% rise in the Sensex.