It can be noticed that in the last 6-8 months the stock price of Ashok Leyland has been decreasing gradually. In May 2018, this stock was trading around Rs. 163. And now, in January 2019, this stock is trading around Rs 88. Why has the stock of Ashok Leyland seen such a fall? What are the reason behind this?
Key Current Figures of Ashok Leyland
- New Market Cap Classification – close to Rs. 25,000 crores
- What is PE Ratio – 13.09 (the PE was close to 20 when the stock was trading around Rs. 163)
- What is ROCE (Return on Capital Employed) – 28%
- What is ROE (Retuen on Equity) – 23.22%
- 5-Years Profit Growth – 56%
- 5-Year Sales Growth – 16%
All the numbers look very healthy. 5-Years, Sales growth is 16% and profit growth is 56%. This means that the efficiency of the company has definitely improved.
Stock Price Movements
In January 2014, the stock of Ashok Leyland was trading around Rs. 17. From Rs. 17 the stock went up to Rs. 163 till May 2018. The price of the stock has grown by almost 10 times in the last 4-5 years, a very healthY growth in the pricing. Wherever such exponential growths happens, there such downtrends are also expected to come.
It can be said that, the truck industry has a cycle of 4 years. That is the cycle of truck industry reverses/changes every 4 years. The last 4 years as observed have been good and the 5th year has also been good this time, but there are expectations building up in the market of the downturn of truck industry starting soon.
Ashok Leyland has seen this cycle/trend previously. In November 2010, the stock was trading around Rs. 38. And after almost 3 years in August 2013, the stock came down till Rs. 13. From here the reversal happened of trends and prices and everything.
When a stock is being traded at a 40-50% lower price than their 52-week high, then one can think of investing in that stock. This does not mean that we are suggesting to immediately go and buy this stock. But one can definitely keep a watch out for this stock by studying its trends and patterns.
Similarly, like economic cycles, truck (Indian auto Industry sector analysis) industry also has their cycles which keep on happening. That is why people also say that auto industry tells you how things are in the economy. The sluggish period that we are now expecting from the truck industry, that kind-of sluggish period has been there in the 2-wheeler industry for the last 2-3 years. That is why the stocks of Bajaj Auto or Hero are sluggish or around the same levels without any major movements or have decreased from their peaks.
So, now the expectation that is building up is that this sector will be trading at a downtrend because of which market as shown harsh reactions towards Ashok Leyland.
Resignation of MD & CEO
The MD & CEO of Ashok Leyland, Mr. Vinod Dasari, brought the company to such high heights it today is at.
He has resigned from its position in the company. March 2019 will be his last working month in the company. After that new team will be in place.
- All the factors came together which is why it got some harsh reactions from the market.
- Fundamentally there is no problems with company.
- As the stock has already fallen by almost 40% in the last 6 months, the stock may hit lowest levels in the next 6-8 months from where it will again start growing.
- The numbers that are used are approximate and have been rounded for presentation purposes.
- No suggestions are been made as to whether this is a good or bad company/stock.
- No suggestions are also being made to go and immediately buy the stocks of this company or go invest in the stock market.