Sell Ashok Leyland; target of Rs 140: ICICI Securities

ICICI Securitie's research report on Ashok Leyland

With tonnage adjusted goods M&HCV volume for the industry being 20-25% higher in FY25E vs previous peak of FY19, we are building in industry volume decline of 10% in FY26E. Additionally, historical data suggests, even with mid-single digit growth rates in key segments like mining, manufacturing and construction segments of economy, CV cycle characteristics remain unperturbed, as the system is catered by 15-18yrs of CV population and not just one year of new truck sales.

Outlook

Post recovering 120% in volume terms from the lows of FY21, domestic goods M&HCV market is currently up 20-25% above its tonnage-adjusted incremental supply level in the previous peak of FY19. We are building in flat volume for domestic goods M&HCV industry in FY25E, followed by a year of 10% decline in FY26E. In line with industry decline, we are building in goods M&HCV volume decline of 10% for AL in FY26E, post remaining flat in FY24-25E. We are building in EBITDAM for AL in FY26E at 8% vs 10.5% in FY25E, on the back of adverse operating leverage and potential
pressure on pricing. We downgrade AL to SELL from Hold, with a revised DCF-based TP of INR 140 (earlier INR 177), implying 12x FY26E EV/EBITDA. Change in TP is primarily due to valuation rollover to a weaker FY26.