Is Ashok Leyland a Multibagger Stock based on Warren Buffet Analysis?

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Ashok Leyland Ltd.

NSE Code	ASHOKLEY.NS
BSE Code	500477
URL	https://www.ashokleyland.com
CMP	88
Free Report	Yes
Publish Date	Jun-14-2019

In this post we would like to Explore the Multibagger Stock Potential of Ashok Leyland based on a blog reader request.

About Company

Ashok Leyland is an Indian automobile company headquartered in Chennai, India. It is owned by the Hinduja Group. Founded in 1948, it is the second largest commercial vehicle manufacturer in India and fourth largest manufacturer of buses in the world and 10th largest manufacturer of trucks globally.  Company is mainly into LCV & MCV business & also generates Revenue from Power Solutions, Aftermath Accessories, Defense Vehicles, Foundry Division too.  The company have plants across 10 locations in Tamil Nadu, Uttarkand, Rajasthan and Maharashtra.

Indian Commercial Vehicle Industry grew 23% past year & this growth is going to stay for next 5 years based on Government push on Infrastructure growth & New Roads.

Bharat Stage IV (BS-IV) emission norms is boosting the Sales of Ashok Leyland. Union Budget is in Favor of Infrastructure & Automobile Sector.

The company was able to generate 15% growth in M&HCV segment i the past 5 years as displayed below.  IMF projecting India GDP growth of 7% should benefit the company.

Positive Factors

Here are the positive factors regarding Ashok Leyland.

• Past year company launched 17 new products.  This will reflect in future sales.
• Company is entering into Electrical Segments.  Aligned with Government initiatives this will support future growth
• The LCV business recorded 37% growth and is growing 20% CAGR
• The Defense business also grew by 32% with a 20% CAGR
•  Credit Rating of the company was Improved after 18 years as AA+ rating
•  Company has Unique iEGR innovation regarding BS IV standards.   This will give edge against competitors
•  Company crossed 100 Thousand Unit Sales in Medium & Heavy Vehicle Segment, and 43 Thousand Unit Sales in LMV segment.
•  Crude Oil Prices being supportive to Company operations.
•  Government push on Hybrid & Electrical Vehicles will be Future Determination of Growth for Ashok Leyland.
• Advantage of Price Crash will give Margin of Safety at Current Price.  There is a 50% discount to Fifty Two Week High Price on the company
• Ashok Leyland have a Good Brand Reputation & Hence Low Risk Investors prefer to hold to this company
• High Dividend Yield of 3%

Concern Factors

Here are the concern factors regarding Ashok Leyland.

• High Capitalization  of 25000 Crore.  To become a 10-bagger it will be 2.5 Lakh Crore Capitalization which is too high to achieve.
• Limited expected Multibagger Returns around 300%.
• Pledged Shares exists which is a Red-mark on the company.  However the promoters are buying back more shares too.
• High capex required for expansions.
• No high massive expansion plans through new factory Or new market penetration.
• Company is more dependable on India automobile industry
• Company have only 5% share in the Indian Bus Market
• BS VI norms becoming mandatory from 2020 will be a Challenge for the company
• Threat of Low Sale Continuity in Auto-Sectors can adversely affect the Profitability of the company & thereby Price too Link

Warren Buffet, Value & Growth Checklist

Following are the Checklist parameters:

Capitalization	25000 Crore (Largecap) – already a Blue Chip level growth happened
History of Consistently Increasing Sales, Earnings & Cash Flow	Yes.
Durable Competitive Advantage	Moderate.
Future Growth Drivers / Sector Growth	Yes. (Electrical Segment)
Conservative Debt (long term debt < 3 Net Profit)	Yes
Debt Equity Ratio, Current Ratio	Debt is Almost Zero.Current Ratio is 0.93
Return on Equity must be Above Average	23%
Low CAPEX required to maintain current operations	No.
Inventory Turnover Ratio, Debtor Days, ROCE	Good.  Debtor Days reduced to 9 days.  ROCE is 28%
Management is holding / buying the stock	Yes *But pledging exists
Market Price < Intrinsic Value	Yes. Intrinsic Value at Rs. 200 which gives 50% Margin of Safety. See Futurecaps specific Intrinsic Value Calculator
Stock Price is consolidating (now)	Yes
Stock Price is growing in past years along with EPS growth	Yes.
Consolidated PE, PB Ratio, PEG Ratio	PE 13 (okay)PB 3 (good) PEG 0.23 (good)
Cash Flow Positive, Net Profit % greater than 8%	Cash Flow: Negative Net Profit %: Yes
Paying Dividends, Tax	Yes
EPS Growth Rate	15% above
Jump in Trailing Result EPS	Yes
Jump in Quarterly Result EPS	Yes But, March q-o-q shows decline in profits
Expected Gain in 5 Years	200-300%
Price Movement Graph, 52 Week High & Low	Okay
Volume Analysis	88 Lakh (high liquidity / stable growth expected)
Power of Brand	Yes
Corporate Governance, Reputation of Leaders	Yes
Fraud reported	No.

Summary

Based on the above analysis I would like to say that the Ashok Leyland possess Multibagger Stock properties and one can Invest in 2019.  However one should not expect high compounded returns from this stock.  It can be considered as Low Risk Low Returns investment.

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Disclaimer Futurecaps is an independent equity research team. Use of the information herein is at Investor’s own risk. This is not an offer to sell or solicitation to buy any securities and Futurecaps will not be liable for any losses incurred for the investment based on the advice.  The Investor is advised to do due diligence in the scrip mentioned.  None of Futurecaps Advisors hold 1% above Holdings of this company.