Shares of Ashok Leyland plunged over 3 per cent in early trade on Tuesday after global brokerage firm CLSA maintained Sell rating on stock and also cut target price to Rs 75 (Rs 85 earlier).
The scrip was trading 3.20 per cent down at Rs 87.75 at around 9.50 am (IST), while BSE Sensex was down 146 points, or 0.40 per cent, at 36,424 at around same time.Indias truck industry is currently in fifth year of an up-cycle where historical upturns in last four decades have lasted four years on average, said CLSA.We see high likelihood of a downturn ahead especially with new axle norms raising freight capacity of existing fleet.
Falling share of higher-tonnage trucks is a further drag," said CLSA.
The foreign brokerage expects competition to intensify in a downturn given Ashoks improved ability to fight against Tata and latters high focus on regaining its lost market share.Despite 44 per cent fall from peak level, Ashok Leylands valuation at 3 times FY20 price-to-book is expensive for a looming downcycle, brokerage house said.
"Our FY20-21 earnings per share (EPS) is 14-22 per cent below street although we factor in only a benign downturn, said CLSA.