Sell Ashok Leyland; target of Rs 146: ICICI Securities

ICICI Securities is bearish on Ashok Leyland has recommended sell rating on the stock with a target price of Rs 146 in its research report dated July 26, 2024.

Broker Research

August 06, 2024 / 12:26 IST

sell

26 Aug, 2025 12:21

Volume

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ICICI Securitie's research report on Ashok Leyland

AL’s domestic M&HCV volume was up 8% YoY at ~26k units, while goods M&HCV volume declined 3% YoY; overall growth was driven by bus volume. AL expects M&HCV growth momentum to continue and expects flattish to low single digit growth in FY25. We build in negative 3% volume CAGR over FY24- 26E for AL’s M&HCV portfolio, with 2% growth in FY25E and 9% dip in FY26E vs 6% negative CAGR of goods M&HCVs, as we expect growth in bus demand to cushion the decline partly. Revenue was up 5% YoY at INR 86bn despite domestic goods M&HCV volume down 3%, as buses, spares, defence and power solutions segments grew strongly. Defence volume stood at >1k units in Q1 and value was up 200% YoY; AL expects defence segment revenue to double from FY24 levels by FY26. DFC is close to getting commissioned in FY25, however, AL does not see any major impact from this over the next 2 years.

Outlook

Ashok Leyland’s (AL) EBITDAM, at 10.6% (down 350bps QoQ), missed consensus estimate by 60bps, due to weaker operating leverage, with Q1 being a seasonally weak quarter and one-off costs driven by battery pack/module, EDU and software development costs. Revenue was up 5% YoY at INR 86bn (in line with estimates) with domestic goods M&HCV volume down 3%, as buses, spares, defence and power solution segments drove overall growth. We are building in flat volume for domestic goods M&HCVs in FY25E and 10% dip in FY26E, thus, building in revenue CAGR of 2% over FY24-26E, with buses/LCV pricing driving growth. We maintain EBITDAM at 11%/8% for FY25/26E; maintain SELL with DCF-based revised TP at INR 146 (earlier: INR 140), implying 13x FY26E EV/EBITDA.

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