YES Securities' research report on Ashok Leyland
Ashok Leyland (AL) reported strong results led by ~8% QoQ growth in realisations at Rs1.79b (est at Rs1.65b). This was driven by higher MHCV volume mix at ~66% (v/s ~57% in 3QFY22) and price hikes (~2‐3% in 4Q). This coupled with op leverage and significant cost control led EBITDA margins ~11 quarters high at 8.9% (+480bp QoQ, est at 6.2%). Going forward, with i) strong volume recovery in MHCVs (~31% CAGR over FY22‐24), ii) visible recovery in bus segment (AL being the market leader), iii) improving product mix (growth in defense, exports and LCVs) should help AL’s profitability in the near to med term. This will be further aided by increased price retention (net pricing less of discounts) given positive fleet sentiments. We are building in volume CAGR of ~26% over FY22‐24 with likely margins expansion to 10.1% by FY24 (v/s 4.6% in FY22 but ~80bp lower than FY19 peak). We believe AL’s de‐risking strategy to help as itreduces domestic MHCV exposure by adding new revenue pools such as LCVs (12‐13%), exports (9‐10% of sales) and spares (8‐9% of sales). We believe, sustenance of MHCV market share gains in 4Q (>30%) is likely led by new launched and network expansion.
We upgrade FY23/24 EPS by ~7%/6% to factor in for better ASPs and cost sustainability. We re‐iterate BUY with TP of Rs163 (v/s Rs154 earlier, unchanged at ~13x of FY24 EV/EBITDA) and ~Rs13 for NBFC. AL continues to be one of our top picks among OEMs.
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