The commercial vehicle (CV) segment took a hit for a couple of months to absorb pre-buying due to new emission norms, effective October 1, 2010. The domestic truck segment picked up momentum since December 2010 on strong economic growth. Further, increased production at Ashok Leyland's Uttarakhand facility is expected to boost margins.

1) Management targets 95k units during FY11 while we estimate volume of 89k units. We expect the company to surpass our estimates by 4-5%. In FY12, we expect the company to record volume growth of 10% to 97k units with an upward bias.

2) Due to fiscal benefits available at the Pantnagar unit, we expect Ashok Leyland to realize significant savings per vehicle produced at the facility. Production is expected to ramp up to 15k units in Q4FY11 as against the YTD number of 5K units. We estimate margin expansion of 100bps in FY12 due to increased contribution from this facility.

3) Ashok Leyland entered into a JV with Nissan, to participate in the high growth LCV segment. The JV is likely to commence production by H2 CY11. However, in our earning estimates, we have not considered any volumes for this JV during FY12. Commissioning of this JV would boost our earning estimate for FY12

Our earnings estimates for FY11 and FY12 are Rs4.3 and Rs5.5 respectively. Our FY12 earnings estimate are 5.7% lower than consensus estimate of Rs5.8. We have a 'BUY' recommendation on the stock with a target price of Rs76, which discounts FY12E earnings by 14x.

1) Increase in prices of raw materials such as steel and rubber affecting profitability; 2) Increase in excise duty hampering industry growth; and 3) Significant rise in interest rates increasing cost of ownership.