Passing on the rising input prices to customers – Ashok Leyland

Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 14,146 (-0.4%). Top gainers in NIFTY50 were Powergrid (+4.4%), Hindalco (+3.7%), and GAIL (+3.6%). The top losers were ITC (-3.0%), Reliance (-2.6%), and Axis bank (-1.9%). The top sectoral gainers were METAL (+1.3%), REALTY (+0.7%), and MEDIA (+0.2%) and the sectoral losers were IT (-1.4%), FMCG (-1.1%), and AUTO (-0.4%).

Excerpts of an interview with Mr. Anuj Kathuria, COO – Ashok Leyland with CNBC TV18 dated 5th January 2021:
• The industry remains under pressure owing to the rising input prices which have forced companies to pass them on to customers.
• The pressure that the industry is getting is from the input material. So everybody would like to pass it on to the customers, and Ashok Leyland is also doing the same.
• Month after month they are seeing the subsequent month is giving a better result. So December was no different, in fact, in December their sales have gone up, the total industry volume (TIV) has gone up.
• They saw the demand continued to come from the intermediate commercial vehicle (ICVs) and the tippers. They definitely feel that quarter 3 for them was a good quarter.
• For tippers, the demand is coming from the infra projects that are getting mobilized. A lot of road construction activity has started and that is not something which is pent-up demand, this is going to be led by the further projects getting mobilized, and that will continue in my view to be very robust even in Q4.
• The long haul segment will definitely be better, but to what extent that they will have to wait and watch
• FY22, as compared to FY21, will definitely be a growth year, but again, they are talking about a lower base in FY21. In FY22, the overall demand should be much better than what they have seen in FY21.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of ASHOKLEY was ₹ 105/- as of 6th January 2021. It traded at -121x/ 41x/ 21x the consensus earnings estimate of ₹ -0.9/ 2.6/ 4.9 for FY21E/FY22E/23E respectively.
• The Consensus price target of AHOKLEY was ₹ 92/- as of 6th January 2021. It trades at 19x of FY23E EPS estimate of ₹4.9.
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