Accumulate Ashok Leyland; target of Rs 252: KR Choksey

KR Choksey's research report on Ashok Leyland

For Q2FY25, AL sold a total of 45,624 vehicles, a decrease of 8.5% YoY (+3.9% QoQ). The revenue for the quarter was INR 87,689 Mn, which was down by 9.0% YoY (+2.0% QoQ). Missing our estimates by 2.9%. Gross margin for the quarter expanded by 235 bps YoY (+99 bps QoQ) to 28.8%. driven by positive operating performance. EBITDA for the quarter was INR 10,173 Mn, a decline of 5.8% YoY (+11.7% QoQ). EBITDA outperformed our estimate by 4.3%. Driven by lower-than-expected operating expenses. The EBITDA margin expanded by 40 bps YoY (+101 bps QoQ) to 11.6%. The adjusted PAT for the quarter stood at INR 6,527 Mn, reflecting an 11.8% YoY increase (+24.2% QoQ), outperforming our estimate. This was mainly driven by strong operating performance and higher other income, partially offset by exceptional items.

Outlook

We lower our FY25E/FY26E EPS estimate by 10.8%/ 9.2% due to weak demand in MHCVs, lower vehicle realization, slow recovery in noncommercial segments, and increasing competition will affect future profitability. We assign a maintain P/E multiple of 20x to FY26E EPS of INR 12.8 (earlier: 14.1) to arrive at a price target of INR 252/share (previously: INR 282). Given the 14% upside potential, we maintain our ‘ACCUMULATE' rating on the shares of Ashok Leyland.

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