Published on 15/06/2020 4:17:04 PM | Source: Motilal Oswal Financial Securities Ltd

Buy Ashok Leyland Ltd For Target Rs. 61 - Motilal Oswal

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Launches Modular Platform AVTR for BS6 M&HCV

First Indian CV OEM to launch modular platform

* Ashok Leyland today launched its Modular Platform AVTR focused on BS6 M&HCV (18.5–55 ton range), in turn becoming the first CV OEM in India to offer modularity in M&HCV. The company’s different approach to BS6, along with the launch of the AVTR platform, demonstrates a differentiating approach to market than any of its peers in India, which could potentially drive market share for AL. Key highlights from the launch event are as follows:

* AL becomes the first CV player in India and one of the few globally to launch Modular Platform (AVTR) based M&HCV (in the 18.5–55 ton range). Modular Platform would enable a high level of truck customization, which would ensure a better fit of truck for end application and its operating environment. On AL’s AVTR Modular Truck Platform, a customer can select ~600k unique truck combinations. AL has committed to customers to deliver vehicles within two weeks of order placement.

* The AVTR Modular Truck Platform is for M&HCV (and not for LCV) due to the higher number of SKUs, with lower volumes per SKU, in the segment. Also, it would be the first modular platform offering for BS6 trucks; this would not available for exports currently due to the varied emission norms.

* The combination of the AVTR Platform and mid-Nox strategy for BS6 would offer customers lower TCO through: a) lower AdBlue consumption, b) better tyre life, and c) lower maintenance. Also, modularity would improve truck reliability and durability, apart from the customization of trucks for varied loads and road applications.  AL expects: a) increasing speed to market, b) leaner inventory, c) higher flexibility for local and global products, and d) a lower manufacturing cost (due to the commonality of parts). Also, it would help dealers lower CV inventory (for customized trucks) and spares (due to increased commonality), in turn reducing their working capital needs. The AVTR Platform has substantially increased the commonality of parts, thereby reducing the number of parts to 8k (from 12k under BS4).

* The biggest challenge to adopt modularity is to abandon existing platforms (capex implications). It would take three to four years to reach modularity. It requires a cultural change within an organization. AL had started work on this many years ago and planned it keeping BS6 in mind.

* Our view and valuations:

Unlike PV, modular strategy is not common in M&HCV globally due to the segment having a very high number of SKUs as well as deeper changes required in the normal way of doing business. This could be an important driver of market share gains for AL (as it improves its response time) as well as a better application fit for the customer. This, coupled with upcoming LCV launches, would expand AL’s addressable market in India (in LCV by 2x) and globally (by offering a very wide range of products, from LCV to M&HCV). While near-term challenges are deep, AL seems to be better positioned to come out stronger and grow faster than the industry in two to three years. The stock trades at 16.7x FY22E EPS and 8x EV/EBITDA. Maintain Buy.


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