Accumulate Ashok Leyland; target of Rs 261: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Ashok Leyland with a target price of Rs 261 in its research report dated July 28, 2024.

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July 31, 2024 / 10:51 IST

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Prabhudas Lilladher's research report on Ashok Leyland

Ashok Leyland's Q1FY25 standalone revenue increased by 5% YoY, coming in lower than PLe/BBGe by 3.1%/2.1%. Despite 6.6% YoY volume growth in its MHCV segment, its revenue growth was muted due to decline in volume and revenue of its power solution business. ASP declined by 1.1% YoY, indicating an inferior mix of vehicles in the LCV category. Gross margin was in line with PLe/BBGe at 27.8%. EBITDA grew by 10.6% YoY with a margin of 10.6%; however, EBITDA margin missed PLe/BBGe of 13%/11% due to a rise in other expenses. Consequently, PAT declined by 8.8% YoY. The management indicated that the average age of existing CVs in the market is 11-12 years, while the historical average has been 7-8 years. Bulk of the CVs operating in the market are from BSIII and lower phase, which will require upgrades in the coming years. Factoring this, coupled with consistent thrust on developing infrastructure, the management remains optimistic on the growth prospects in the near as well as long term. We change our volume/revenue/EBITDA assumptions by 2-5% for the forecast period. We estimate its revenue/EBITDA/PAT to grow at a CAGR of 10%/12%/9% over FY24-26E.

Outlook

We retain our “Accumulate” rating with a TP of Rs261 (previous Rs249), valuing its core business at 11x on FY26E EV/EBITDA and HLF at Rs15.

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