This stake purchase from the promoters does raise questions on dilution in tight discipline on capital allocation practiced since FY14, analysts at Motilal Oswal Financial Services said in a note.
"There was need to simplify shareholding structure of HLFL for it to pursue future growth opportunities like getting another PE investor, acquisition/merger and going global. Also, Ashok Leyland having sizeable stake is important because, at some point in time, HLFL will go for initial public offering (IPO) and at that point it would like to show some value release for Ashok Leyland," the brokerage firm said in management meet update.
The brokerage, however, lowered FY21/22 S/A EPS estimate by 25 per cent/20 per cent to factor in the near-term volume weakness due to the impact of BS-VI transition and coronavirus, as well as higher debt on account of HLFL stake purchase.
At 12:04 pm, Ashok Leyland was trading 7 per cent lower at Rs 44.80 on the BSE, as against a 3 per cent rise in the S&P BSE Sensex. The counter saw huge trading volumes with a combined 54 million shares changing hands on the NSE and BSE till the time of writing of this report.