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Raghuvir Srinivasan

ASHOK Leyland's stock has more than doubled in value in the last six months and there still appears some steam left in it. The stock can be acquired at the current level of Rs 245 for appreciation in the medium term. Ashok Leyland is benefiting from the boom in commercial vehicle demand; sales have grown by 38 per cent in the first 10 months of FY04.

Traditionally, the fourth quarter sees higher sales compared to the first three, which means that the next two months should be better than the last 10. The growth in sales has been accompanied by a spurt in profits as well, though there was a minor pressure on margins in the third quarter on account of higher input costs. This should, however, be covered by the price increase effected by the company last month.

Ashok Leyland plans to invest Rs 390 crore to increase capacity for vehicles and engines; vehicle capacity will increase by 50 per cent in the next year. This will address the constraint it faces now on the capacity front and help it capture a higher share in an expanding market.

Auguring well for its prospects are the increasing number of States that have decided to ban and phase out old commercial vehicles. This should translate into steady demand for Ashok Leyland, especially in the bus segment. Besides, its plan to enter China and Pakistan through joint ventures is a positive development that will cushion the company's revenues and earnings from domestic market cycles.

The only dull spot in an otherwise bright canvas is the $100-million fund raising proposal, which is expected to result in a 15 per cent expansion in equity. However, this appears to have been already factored into the stock, which has declined after scaling the Rs 300 mark.

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