Ashok Leyland’s EV-focused subsidiary, Switch Mobility, is looking to raise $200 m through equity for growth capex. This can potentially lead to re-rating of Ashok Leyland, similar to what happened in Tata Motors (TTMT) post-minority stake sale in the EV business to TPG, said brokerage Motilal Oswal.
Assuming fund raise happens at $1.6b-1.8b valuations, this implies ₹35-40/share accretion. The brokerage has maintained its Buy rating on Ashok Leyland shares with a target price of ₹165, implying a potential upside of about 30% from the current level. The auto stock is up over 10% in a year’s period.
“While electrification poses threat to Ashok Leyland’s 37-40% market share in ICE buses, it offers opportunity to AL to scale-up its market share of 11% in ICE LCVs. Further, it is aiming for a bigger opportunity globally in e-buses and e-LCVs,” the note stated.
Though, loss of road share in freight movement from the upcoming DFCC, increasing competitive intensity resulting in loss of market share and shrinking margins, and loss of market share due to electrification in buses and LCVs could act as key risks, as per Motilal Oswal.
“Unlike the previous cycles, Ashok Leyland is on a firm footing with lean cost structure and reasonable debt, and is focused on adding new revenue/profit pools. The company’s valuations at 19.2x FY24E EPS and 11.4x FY24E EV/EBITDA are at early recovery stages, and do not fully reflect its focus on adding new revenue streams and profit pools (as well as its EV business),” the brokerage added.
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