Truck demand coming back; not enough buyers for buses – Ashok Leyland

Update on Indian equity market:
Markets continued the upward journey to end the truncated week as Nifty closed the day 140 points higher at 13,274. Within the index, ADANIPORTS (4.6%), HINDALCO (4.4%), and ICICIBANK (4.4%) led the index higher while RELIANCE (-0.8%), BAJAJFINSV (-0.6%), and HDFCLIFE (-0.6%) were three out of 11 losers. All the sectoral indices ended in the green with BANK (2.4%), PVT BANK (2.3%), and PSU BANK (1.5%) leading the pack.
Excerpts of an interview with Mr Anuj Kathuria, Chief Operating Officer, Ashok Leyland (AshokLey) published on CNBC-TV18 dated 3rd December 2020:
The monthly sales data for the month of November reported the seventh straight monthly improvement in sales, though the demand for buses was tepid.
He said that initial signs of demand coming back in the long-haul segment. The truck demand is coming back due to the movement of cement and steel whereas travel restrictions in the country have led to muted demand for buses.
The industry is witnessing growth in intermediate commercial vehicles. The tippers segment is holding strong and the company is expecting further improvement in MHCV (Medium & Heavy Commercial Vehicles) segment in December as well.
He said that the industry may see some replacement demand as the ownership cost of BS-VI (Bharat Stage-VI) is comparably lower. He also highlighted that state transport undertaking activity has intensified and the company is seeing more orders coming through.
The company is expected to show QoQ improvement in margins, but higher commodity prices could limit the gains.
Consensus Estimate: (Source: market screener website)
The closing price of AshokLey was ₹ 95/- as of 04-Dec-2020. It traded at 36x/ 20x the consensus EPS estimate of ₹ 2.6/ 4.8 for FY22E/ FY23E respectively.
The consensus target price of ₹ 90/- implies a P/E multiple of 19x on FY23E EPS of ₹ 4.8.
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