skip to Main Content

/ (+91) 8779800688 / 8779639189 / 9967971875 / 9920235022
Call or Click on any Phone number to start Whatsapp Chat

ASHOK LEYLAND: Reasons Why The Rally May Be Short-lived

ASHOK LEYLAND: Reasons why the rally may be short-lived

When expectations are running low, the scope for positive surprises is high. Ashok Leyland Ltd, whose shares have more than halved in the past year, is a case in point. In the December quarter (Q3), its sales volume, revenue and profit all fell.

Revenue for the quarter contracted 12% YoY to 6,325.2 crore. This shows a drop in net realization per vehicle, which again was not surprising. Gopal Mahadevan, CFO of the company, said the performance was satisfying given the twin pressures of pricing and higher input costs.

But here’s the important bit. The challenges notwithstanding, Ashok Leyland maintained Ebitda margin in double-digits at 10.3%. While it was 130 basis points lower YoY, it was about 80 basis points higher than forecasts. The company contained the rise in raw material costs to around 40 basis points, despite input cost pressures. Other expenses too were kept in check.

  • Challenging conditions and a high base had seen the truck industry hit the skids last year. Ashok Leyland’s commercial vehicle sales too fell 6%, and the lower scale of operations have hurt margins expectedly.
  • Another reason that may have propelled the share upward is the management’s optimism. The company’s press release highlights the technological preparedness to meet Bharat Stage VI (BS-VI) emission norms.
  • Also, the steady gain in its light commercial vehicle (LCV) market share augurs well for future revenues, as this segment is poised for higher growth compared to trucks.
  • Ashok Leyland is also hopeful of more orders from the niche defence segment post-elections, a segment in which it is strong. However, this may take several quarters to fructify into revenues.
  • Moderating growth rates, and an expected rise in costs on account of the new emission norms could together impede earnings growth, fear analysts. Thursday’s rally may well be the proverbial dead cat bounce.

Ashok Leyland

Yesterday’s rally of 7% post Q3 results can be simply because the drop in numbers wasn’t as high as feared. Secondly, a mere bounce from its previous tested levels and 61.8% retracement of the overall advance. Momentum readings in larger and shorter timeframe does not show any sign of further recovery and thus the upside is quite limited. The continuation of weakness will be seen in higher degree once the current support at 73-77 levels is broken. Thus, One should avoid bottom fishing.

Leave a Reply

Your email address will not be published. Required fields are marked *