We increase our FY24/FY25/FY26 EPS estimates by 2%/10%/4% to factor in 2QFY24 results and management commentary on volume and margin sustainability. Ashok Leyland’s (AL) 2QFY24 EBITDA margin at 11.2% beat PLe (10.4%) on the back of lower COGS and employee expenses. AL aims to further build on the margins achieved in 1HFY24 and post higher margins in 2HFY24 thus giving us confidence in its medium term target of reaching midteen. Further, 2HFY24 volume should be better due to seasonality and draw further operating leverage given strong demand for the MHCV segment. We believe AL is well placed to sustain its recent market share gains led by 1) strong demand for modular AVTR trucks, 2) network growth and 3) product launches. LCVs will benefit from filling of white space, growth in end markets and network growth. Price hike, benign input cost, operating leverage and cost control will lead to margin expansion (EBITDA margin +c390bps over FY23-26E).
OutlookMaintain ‘BUY’ at TP of Rs 210 on Sep-25E EV/EBITDA of 11x (previous TP Rs. 220 at EV/EBITDA of 12x) (includes ~Rs 12 for HLF) we reduce the multiple to factor in entry into mid-cycle for the CV industry.
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