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On Sunday, JPMorgan analysts downgraded Ashok Leyland (NSE:ASOK) Ltd. (NSE:ASHOKLEY) stock rating from Overweight to Neutral, while slightly raising the price target to INR255.00 from INR250.00. The revision reflects concerns about the commercial vehicle (CV) growth in India and margin pressures that the company may face going forward.
The analysts at JPMorgan cited two primary reasons for the downgrade. First, they anticipate another year of low growth for the India CV sector, noting that truck demand remains weak and bus growth is expected to moderate to around 16% in the fiscal year 2025. Second, they pointed out that the margin expansion Ashok Leyland has achieved in the past two years could be undermined by new steel safeguard duties and potential changes in the product mix.
JPMorgan has adjusted its forecasts for Ashok Leyland’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal years 2026 and 2027, reducing them by 4-5%. This adjustment takes into account the anticipated lower volumes and pricing, as well as some commodity-related headwinds.
Despite the downgrade, the analysts acknowledged Ashok Leyland’s robust margin maintenance and its stronger balance sheet. However, they indicated that any potential re-rating of the stock would likely hinge on an acceleration in volume growth. The current valuation of Ashok Leyland’s stock, trading at 11 times the fiscal year 2027 estimated enterprise value to EBITDA (EV/EBITDA), aligns with its historical average, suggesting that the market has already priced in these factors.
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