Buy Ashok Leyland; target of Rs 143: HDFC Securities

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26 Aug, 2025 12:21

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Ashok Leyland (AL) delivered in line rev and operating performance. Revenue came  at  Rs. 62.5bn (+47.5% YoY) led by 47% growth in vol (42.1k units) on low  base  (BSIV  and GST transitions). EBIDTA jumped 110% YoY to Rs 6.4bn, with margin at 10.4% (+317bps YoY).  We  believe  M&HCV  truck growth will taper down in the short term owing to the  new GVW norms, however, growth momentum will continue to be strong for medium to long term, driven by 1) Pick-up in infra, construction and mining activities,  2)  pre-purchases  for  BS-VI  in  FY20 and 3) introduction of scrappage  policy  in  FY21.  The  recent sharp correction in AL provides a buying  opportunity  given  the  strong  ROIC (+40%) and FCF profile of the company (net cash & cash equivalents at Rs 36bn) Management  expects, stricter overloading ban will likely offset the impact of  increase  in  rated  freight-carrying capacity (15-17%) of the industry (60-70%  trucks are already overloaded by 25-50%); thus, it may be positive surprise  for CV industry.

We  cut  EPS  estimates  9/12% for FY19/FY20E,  factoring in short term moderation in truck demand. Expect 21% EPS  CAGR  over FY18-20E. Maintain Buy with TP Rs 143 (18x FY20E EPS) vs Rs 166 earlier.

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