0812-013- Ashok Leyland – 21.Dec.08

 

0812-013 – Ashok Leyland -21.Dec.08-Stock Watch

Stock

ASHOK LEYLAND

Sector

AUTO

Market

India

Ref No

0812-013

Symbol

ASHOKLEY

Web site

www.ashokleyland.com

Date

08/12/22

 Price 08/12/19

16.65

Target ST

25.50

Target LT

40.00

52W High

57.50

52W Low

12.30

 ST Hold

6M

LT Hold

18M

Current PE

4.72

% Down Peak

-71%

Downside

-15%

Upside

+150%

PE 2009

5.20 est

Div Yield% CMP

9.00%

Buy Range

14~18

Sell  Range

31~36

 Comments

The company’s 88% income is derived from Trucks and similar heavy commercial vehicles. It is not in passenger car market as the TELCO does. Its real competitor is TELCO and other imported brands like Volvo. Most of the public sector buses are being run on Leyland brand.

 

On negative side, the company is owned by Hinduja group. No body likes them for some reasons. The profits are marginally down and revenue base was losing steam due to ongoing credit crisis, higher fuel rates and interest rates. The company usually trades at discount to its peers like Tata Motors due to its image.

 

On positive side, the company trades at very low P/E of just 4.72 times; its dividend yield is over 9% which is great in falling interest rate environments. The commodity prices, esp steel, are declining of late (may not be too long) , oil prices have collapsed to less than $40 and interest rates have fallen steeply. The company has plant in Southern India which is seeing the major infrastructure growth in port development and roads. The Fall in demand is perceived by me as temporary. Its debt level is also very low, leaving lot of scope in expansion. However, the company has deferred expansion plants for the time being. Click here on Ashok Leyland’s Financials

 

The Company’s debt level being low, interest cost being covered nearly 6 times by earnings, the dividend rates may be maintained. The depreciation is on rise that suggest that higher capacity may have come on stream. Higher unit sales may be expected during first 2 quarters in 2009. I personally expect EPS to fall modestly by 12% due to higher raw material costs in the past. With no threat to dividend, and EPS at about Rs 3.20 for 2009 and Rs 4 in 2010, the stock trading at 5x and 4x times multiple for 2009 and 2010, low debt, higher expansion in progress, higher projected demand for trucks  in 1Q2009 onwards, the present stock prices is very good bargain. With banks yielding less than 7% in deposit rates, the dividend yield of 9% ( It will be more later) makes it all the more attractive proposition. One can make 100% in less than 18 months

Stock Behaviour

It is a dull stock – almost a turtle. It has just shown upward momentum, where it can make money from low base. Just buy it now, and try to sell it at Rs 33.50 and more level.

SWAP

If you own the following stocks or slow movers, you may sell them to raise the cash and Buy the above stock. The idea is to enhance the potential return in short time frame. Please note that in down market, such swaps may worsen your position. However, if you are careful as well as lucky to have bought stocks near low, the SWAP will not only recover lost capital but also return handsome gain.

SELL

Any stock Rs 160 or more and trading at 10 times P/E or more

Cr

 

BUY

Buy this stock. On short /medium term. Be prepared to sell >31

Dr

 

Decision Reviewed on (Date YMD) due to material events later: (for future use)

Authored by

Kalidas

Hong Kong, (Ref: 0812-013) of 2008/12/22

                     

 

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