Buy Ashok Leyland; target of Rs 148: Motilal Oswal

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26 Aug, 2025 12:21

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Over FY18-21, we expect domestic M&HCV volumes CAGR of ~8% (base case), driven by economic recovery, proliferation of hub & spoke model, and overload restrictions. The growth rate could be even higher (~18% CAGR) if the proposed scrappage policy (for vehicles over 20 years old) is implemented in FY21. The competitive environment is benign, as reflected in the consistent price increases taken by OEMs and the stability in gross margins. After gaining market share profitably over FY15-18, Ashok Leyland (AL) is now shifting its focus toward expanding and creating new revenue/profit pools. This should likely drive revenue/EBITDA/PAT CAGR of 12%/15%/16% over FY18-22. A sharp improvement in the key performance indicators would be key driver of further re-rating.

We roll forward AL's target price to FY21 to capture the negative impact of the potential decline in volumes. On downcycle earnings (10% EBITDA decline in FY21E), we value AL at 9x EV/EBITDA (v/s ten-year average multiple of 8.2x). We assign INR13 to NBFC post 20% hold-co to arrive at a revised target price of INR148 (Mar-21).

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