Buy Ashok Leyland; target of Rs 200: Prabhudas Lilladher

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26 Aug, 2025 12:21

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We marginally increase our EPS estimates and reduce our target multiple to 13x (14x earlier), in line with long-term average (excl. COVID-19 period), as we enter the mid CV upcycle. Ashok Leyland’s (AL) 3QFY23 EBITDA margin at 8.8% (+230bps QoQ) beat street estimates on the back of (1) higher realization led by price hikes (4-4.5% FYTD23), (2) commodity prices softening (gross margin +170bps QoQ) (some of it might get reversed due to de-inventorization), (3) better product mix (sold higher ASP products) and (4) operating leverage. Going ahead, demand outlook remains robust as MHCV segment should continue to outperform led by strong fundamentals and AL, in our view, is well placed to sustain its market share gains (c32% vs 27% in FY22) led by CV upcycle, bus segment revival, network expansion, new products. LCVs will benefit from strong end market demand and filling of white spaces.

Additionally, price retention due to strong demand, lower input prices and operating leverage will lead to margin expansion (EBITDA margin expansion of 275bps over FY23-25E). Maintain ‘BUY’ at target price of Rs 200 on Dec-24E EV/EBITDA (includes ~Rs 10 for HLF).

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