Accumulate Ashok Leyland; target of Rs 244: Prabhudas Lilladher

Prabhudas Lilladher's research report on Ashok Leyland

Ashok Leyland's reported strong Q3FY25 performance with revenue growth being 3% better than PLe/consensus estimates. During Q3FY25, its volume decline by 1.4% YoY, however, realization increased by 3.7% YoY with the main cause being discipline on discounts, better mix of M&HCV products and healthy spares revenue. EBITDA margin was better than PLe/consensus expectations (12.1%/11.9%) at 12.8%, aided by cost mitigating measures to drive overall profitability. Sharp decline in other income was offset by decline in interest expenses helping its PAT to surge by 31.2% YoY, which was 14.2% higher than PLe/consensus expectations. The management expect demand revival in Q4FY25 specifically in the M&HCV category of vehicles, however, given the high base of Q4FY24 we expect the volume growth to be on a flattish note leading to a marginal de-growth in volume terms in FY25. Structurally, pickup in private capex, government spending towards infrastructure and replacement demand in the M&HCV category augurs well for the industry as well as AL’s growth prospect.

Outlook

Factoring this, we have largely maintained our estimate forecasting its revenue/EBITDA/PAT to grow at a CAGR of 5%/7%/10% over FY24-27E and retain our “Accumulate” rating with a TP of Rs244 (previous Rs243), valuing its core business at 11.5x on Dec’26E EV/EBITDA and HLF at Rs16.