Prabhudas Lilladher's research report on Ashok Leyland
We increase our FY24/FY25 EPS estimates by 8% / 3.8%, to factor in 4QFY24 results and management commentary on M&HCV volume and margin sustainability. Ashok Leyland’s (AL) 4QFY23 EBITDA margin at 11% (+c210bps QoQ) beat PL estimates on the back of commodity prices softening, operating leverage and lower discounting. Cost optimization on administrative overhead and debottle-necking for better operational efficiency shall continue to benefit margins. AL gained market share helped by its modular program, AVTR range, launch of CNG ICVs, network expansion, etc. Going ahead, demand outlook remains robust as CV upcycle continues and MHCV segment should continue to outperform led by strong fundamentals. AL, in our view, is well placed to sustain its market share gains of c33% of trucks and c27% of busses in FY24 led by governments focus on infrastructure, replacement demand, scrappage policy and healthy traction from core industries. LCVs will benefit from filling of white space, continued growth in end markets, and network expansion.
Additionally, price hike, lower commodity costs, cost reduction efforts and operating leverage will lead to margin expansion (EBITDA margin expansion of c210bps over FY23-25E). Maintain ‘BUY’ at target price of Rs 215 on Mar-25E EV/EBITDA of 13x (includes ~Rs 11 for HLF).
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