On Friday, UBS analyst Pramod Kumar upgraded Ashok Leyland Ltd. (AL:IN) stock from Neutral to Buy and increased the price target to INR280.00 from INR190.00. The upgrade reflects the firm's optimism about the company's prospects, citing better-than-expected industry demand and strong margin execution. Additionally, the valuation of Ashok Leyland was noted as relatively attractive compared to its historical average and other auto original equipment manufacturers (OEMs).
The company's stock is currently trading at a level consistent with its historical average, which contrasts with the 1-3 standard deviation (SD) higher valuation seen for other auto OEMs. This relative valuation, along with a smoother demand trajectory for the sector, contributed to the positive outlook. The formalization of the fleet has been identified as a key factor in stabilizing sector demand.
UBS highlighted Ashok Leyland's focus on profitability, which has led to a narrower and higher over-the-cycle earnings band. The firm's forecast for the company's FY26 earnings per share (EPS) is Rs12.48, which significantly exceeds the previous upcycle peak's EPS of Rs7.00 in FY19. This is notable even as medium and heavy commercial vehicle (MHCV) volumes remain almost flat.
The improved fundamentals of Ashok Leyland and a positive view on capital expenditure potential in India were also emphasized. The current stock valuation at 18 times FY26 estimated price-to-earnings (PE) is not only deemed attractive but also represents a steep discount when compared to industrial peers, which trade at 30-100 times FY26 estimated PE, as well as auto peers.
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