Ashok Leyland shares soar 9%; here's what is driving the stock up north

A serahsLeyland dnalyel kohsAtekram kcotSecirp erahSLeyland Ashok Leyland shares surged on Monday, climbing nearly 9% on the National Stock Exchange (NSE) amid optimism over a potential rationalisation of Goods and Services Tax (GST) rates for the automobiles segment.

The stock hit an intraday high of ₹132.80 apiece, up 8.8% from the previous close of ₹121.96. The stock is currently trading almost 8% higher at ₹131.97 around 1 p.m. The stock has declined over 40% since January this year on the NSE.

The Central government’s proposal to reduce GST rates on entry-level two-wheelers, small cars and hybrid passenger vehicles has strengthened sentiment across the auto sector. A move of this scale is expected to reduce the financial burden on middle-class households while providing a demand boost for automobile manufacturers.

The proposal follows Prime Minister Narendra Modi’s Independence Day announcement outlining a two-tier GST structure that could be implemented by Diwali, a timeline that has kept markets buoyant in anticipation of structural changes benefiting the industry.

Investor enthusiasm is also being fuelled by analysts’ outlook on Ashok Leyland following its June quarter earnings. Analysts highlight that this is due to company’s operational discipline and prospects for steady growth in both the medium and heavy commercial vehicle (MHCV) as well as light commercial vehicle (LCV) segments.

In the first quarter of this fiscal year, the company reported a 13.3% sequential decline in consolidated revenues, but these revenues were up 9.8% year-on-year (YoY). Company’s expenses dropped 11.9% quarter-on-quarter and rose 6.1% YoY. Net profit slipped 29.6% QoQ, though it still reflected a healthy 19.4% YoY increase.

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