During the recently concluded quarter, goods carrier segment was the hardest hit, and declined by 85% y-o-y to 637 vehicles, indicating the poor state of economy.
As a result, the company’s market share fell from 27.3% in Q2FY09 to 22.6% in Q3FY09.
The only way to revive the company’s declining volumes will be through vehicle purchases by operators (to avail the benefit of accelerated depreciation) and increasing the demand for buses by states under JNNURM scheme.
At Rs15, the stock is trading at a PE of 31.6x FY09E and 16.3x FY10E EPS. In terms of EV/EBITDA, the stock is trading at 10.5x FY10E EBITDA.
With its ten-year trough valuations displaying a low of 3.5x EV/EBITDA, the downside risks are still significant. We foresee the next four quarters clocking negative CAGR of ~33% yoy in MHCVs.
We reckon that although most of the bad news is in the price, the upside potential is not visible anytime soon. Thus, recommend SELL.