Ashok Leyland will set up a bus manufacturing unit in Krishna district of Andhra Pradesh where 4,800 buses will be produced per annum. The company would set up its plant on a 75-acre site at the Mallavalli Industrial Estate and provide employment to 5,000 people. The company aims to start production within a year after required land allotment is made.
This will add the capacity for manufacturing buses for Ashok Leyland. The domestic commercial vehicle industry has shown a mild growth in FY 2016-17. The Medium and Heavy Commercial vehicles (M&HCV) segment was flat in FY 2016-17 as compared to a significant growth of about 30% in FY 2015-16. While the M&HCV Buses grew by 7.6%.
The company sold 102,313 M&HCVs in the domestic market, which included 17,725 M&HCV buses and 84,588 M&HCV Trucks in FY 2016-17.
We believe, given the expected pickup in the economy, the growth prospects for both M&HCV segments and LCV segments look positive. Management indicated M&HCV volumes have recovered in Q2 post GST implementation in line with expectation and it expects industry to post a high single digit growth in FY18E.
We have a positive outlook for the stock. The stock at current market price is trading ~17 P/E FY19E.