It’s a steep climb for Ashok Leyland

The benchmark Nifty50 index fell 3% on Monday as geopolitical tensions escalated. Against this backdrop, Ashok Leyland Ltd’s December quarter (Q3FY22) results could not protect the stock, which fell around 7% on NSE.

As such, Ashok Leyland’s results weren’t very exciting. Higher raw material costs caused gross profit per vehicle to decline in the third quarter by approximately 5% sequentially and 3% year-on-year (yoy). Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 12% year-on-year for 224 crores.

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Even so, there were some bright spots in the results. Medium and heavy duty commercial vehicle (MHCV) domestic sales growth in the third quarter was strong at 39%. By comparison, total industry volume growth was 20%. As a result, Ashok Leyland’s MHCV market share rose from 22.5% in the second quarter to 26.1% in the third quarter and then to 28.8% in January, management said.

In Q3, revenue grew 15% year-over-year to reach 5,535 crores thanks to a 2% growth in sales volumes and a 13% increase in net realization per vehicle. Management said the transition from Bharat Stage IV (BS4) to BS6 involves higher technology. In addition, higher commodity costs and other constraints have driven up commodity prices.

“The company is holding back price increases more effectively, which will result in higher margins across the board,” an analyst said on condition of anonymity. As such, management expects better margins in Q4FY22 due to a potential drop in commodity prices and semiconductor easing. chip shortage problems.

Meanwhile, Ashok Leyland’s EV unit, Switch UK, continues to grow. “It plans to launch CNG vehicles in the fourth quarter of FY22, which will fill the gaps in the fast-growing CNG ICV segment,” Motilal Oswal Financial Services analysts said in a report. ICV is an intermediate utility vehicle.

Over the past year, the stock has fallen 3%, compared to a 2% gain for Nifty Auto. “Key action triggers include demand picking up and market share gaining 30%. Any downside on this front could be a major risk,” the analyst quoted above said. Management hopes achieve 30% market share in the coming months as the economy opens up trade, pent-up replacement demand and increased capital spending in the recently announced budget.

Certainly, the railways could become a formidable competitor for the transport of goods as they increase their capacity and become more efficient.

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