Relationship of Ashok Leyland with Nifty 50 and to calculate beta.
Author : Anushka Kolpe
Introduction:
Ashok Leyland Ltd (Ashok Leyland), a subsidiary of Hinduja Automotive Ltd, is an integrated automobile company. It offers heavy and medium commercial vehicles and related components; light commercial vehicles, and power solution systems. It has manufacturing facilities in the UAE, Sri Lanka, Bangladesh, Nigeria, the UK and Kenya, and India. The company has joint venture partnerships with Alteams Group for the manufacture of high-press die-casting extruded aluminum components for the automotive and telecommunications sectors, and John Deere for construction equipment. It also offers financial services mainly relating to vehicle and housing financing. It serves customers across Africa, the Middle East, Asia, CIS and Latin America. Ashok Leyland is headquartered in Chennai, Tamil Nadu, India.
Objective:
To calculate the beta of Ashok Leyland and see its significance.
Literature review:
Aviation & Defence in India stated that Ashok Leyland, the Indian flagship of the Hinduja Group and the largest supplier of logistics vehicles to the Indian Army announced significant order wins, valued at INR 800 Crores in the defence sector. The contracts awarded also include the procurement of the Field Artillery Tractor (FAT 4×4) and the Gun Towing Vehicle (GTV 6×6). The FAT 4×4 and GTV 6×6 are specialized vehicles employed by the Artillery for towing light and medium guns, respectively.
The market share has improved from 24 percent in 2013 to 32 percent. The operating working capital has come down from 37 days to eight days. The dealership and touch points have been ramped up from 3 50 to 2,800. The current manpower of the company is 10,700 an average age of 35-38 years. The turnover has increased from Rs 13,300 core to 21,300 all in the last five years. When the market partially recovered, we did not look back ‘ says Mr Gopal Mahadevan, CFO, Ashok Leyland (ALL). All these exercise helped as grow faster than the market.” Ashok Leyland (ALL) has presence in trucks, buses, light vehicles, defence vehicles and power solutions. It is the fourth largest bus and 14th largest truck maker in the world. It produces 145,000vehicles and is the second largest commercial vehicles manufacturer in India after Tata Motors in a market with more than 10 internationally recognized manufacturers. The company designs and makes its own engines. All was an early producer of multi axel trucks, articulated buses and CNG vehicles in India. Some of the new products like Jan Bus, U 3718, Boss, Captain, and 40-iT contributed to the company’s growth. All has consolidated its position and introduced new initiatives with 2.5 percent of its revenue invested in R&D.
Data Collection:
The data for Nifty 50 and Equity of Ashok Leyland Limited has been downloaded from Yahoo Finance from the period 1st November 2022 to 31st October 2023. The data was analyzed to find out the Friday closing prices of Nifty 50 and Ashok Leyland Limited, as Weekly Returns of NSE index Nifty 50 as ‘X’ and Weekly Returns of Equity of Ashok Leyland Limited on NSE as ‘Y’.
Wherein, ‘Y’ is the Equity of Ashok Leyland Limited was regressed on ‘X’ (Nifty 50) and a relationship between the two is plotted.
Data Analysis:
Data Equation of Ashok Leyland shares = -0.1486+0.899nifty,
n = 48
Rsquare = 0.17
F = 9.6854
The above equation shows the relationship of Ashok Leyland with Nifty
If nifty rises by 1 unit, Ashok Leyland will rise 0.899 unit
tstat for beta is 3.112 and the p value is 0.003 which is less than 0.05,meaning Nifty impacts Ashok Leyland
Rsquare is 0.17, meaning 17% of Ashok Leyland shares is explained by nifty, 83% of Ashok Leyland (Y) depends on Nifty 50. (X)
F= 9.685 and p value is less than 0.05, so the model is statistically significant at 5% level.
Result:
As calculated p Value (0.00315) is less than 0.05, so the model is statistically significant at 5% level.
As b≠0, NSE index Nifty 50 impacts Equity of Ashok leyland
As calculated R square is 0.17, 83% of Y (Equity of Ashok leyland) depends upon X (Nifty 50).
Conclusion:
As beta (0.8990) is less than 1, the company is good for long term investment.
References:
AVIATION & DEFENCE in India. (2023). Vayu Aerospace and Defence Review, (4), 8-18. Retrieved from https://www.proquest.com/scholarly-journals/aviation-amp-defence-india/docview/2852765237/se-2
Patel, P. (2018). Ashok Leyland ltd (ALL) ALL is well: A case study. Parikalpana: K I I T Journal of Management, 14(2), 132-139. doi:https://doi.org/10.23862/kiit-parikalpana/2018/v14/i2/177868