Buy Ashok Leyland with target of Rs 76

Ashok LeylandWith the growth in overall economic activity, we expect AL to achieve volumes of 89k and 97k for FY11 and FY12 respectively. This reflects growth of 38.5% and 52% respectively.

Post emission norm changes in October -2010, we expect sales to pick up from January. The profitability of the truck operators remains healthy despite cost increases and this will be the prime reason behind demand for trucks.

Ramp-up at Pantnagar plant will help the margin expansion during FY12 due to fiscal benefits available at this plant. EBITDA margins likely to improve to 11.8% from 10.7% expected during FY11.

In FY12, Nissan JV will take off and this will mark company's entry into lucrative LCV segment.

We expect the company to have standalone earnings of Rs4.3 and Rs5.5 for FY11 and FY12 respectively.

The stock is currently trading at 12.8x FY12 earnings and we see current turmoil as a good opportunity to enter into the stock.