IGI Logo

Buy Ashok Leyland Ltd For Target Rs.143

Ashok Leyland (AL) hosted an investor meet to share long term plans on electrification via its EV-only entity, Switch Mobility Ltd. Management outlined their long term goal of democratizing zero-carbon e-mobility led by e-buses and evans with a potential global TAM of ~US$70bn in CY30. Key takeaways are below:

* Switch Mobility (Switch) and alternate powertrains: With Switch, AL plans to upscale its presence into the zero-carbon mobility space with technologically advanced products. Switch has a proven track record with >280 EVs on the road clocking overall 26mn miles globally. Using lightweighting technology to reduce mass which coupled with higher density batteries (NMC) would lead to superior vehicle performance, is expected to deliver class leading TCO.

* Switch plans to raise ~US$150-200mn capital through strategic and financial partners. AL has already over the years invested ~US$130mn in Switch (via Optare), it also plans to introduce these BEV, FCEV and LNG powertrains in India over coming years. AL expects alternate powertrains based revenue to reach ~10% of sales in the medium term.

* ‘Digital Twin’ with data marketplace: The ‘Digital Twin’ approach will enable the company to reduce the TCO and carbon footprint. The approach involves livetracking of the EV, speed and performance among other metrics to optimize route preference, minimize battery usage and improve drive quality. The data collected from the EVs in conjunction with other partners, government bodies and financiers can be utilized to develop a connected ecosystem through the data marketplace.

* OHM global mobility to enable faster adoption: OHM is an innovative B2B payas-you-use mobility-as-a-service model to lower the cost of acquisition for its customers. OHM service can be customized as per different customer needs (Refer to chart 6), can lower upfront TCO and build sustainable cost-effective solutions as per customer needs.

* Robust, dominant and scalable core CV business: On the domestic front, Bada Dost has helped AL increase its addressable market to 50% from 33%. AL plans to launch the model in Euro -IV and AVTR range for the export markets in FY22. It would offer both left and right hand drive options for the overseas markets. Company will renew its push for exports in the existing markets of GCC, SAARC and Africa, and expansion in newer geographies in CIS and Asean.

* Maintain BUY: We like AL’s proactive pivot towards electrification, believe long term the success of its electrification strategy (volumes up/cost down) coupled with newer services revenue stream could be gross margin accretive. We value the core business at 14x (unchanged) FY22E EPS and arrive at an SoTP-based target price of Rs143. Maintain BUY.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer