Buy Ashok Leyland; target of Rs 260: Choice Equity Broking

Buy

Choice Equity Broking's report on Ashok Leyland

Despite Switch Mobility UK’s revenue growth from £13.9Mn (INR 1,539Mn) in FY23 to £24.8Mn (INR 2,817Mn) in FY24, its contribution to Switch’s total revenue declined from 60.7% to 37.2%, as Switch Mobility India outpaced it with stronger growth. However, Switch UK accounted for only 0.7% of AL's consolidated revenue in FY24, highlighting its diminishing relevance at the top line. We expect the cessation of Switch UK’s operations to have a 2–4% impact on AL’s consolidated net profit in the short term due to a one-time payout of £5–10Mn (INR 553.6Mn – 1,107.1Mn). However, in the long term, the move is likely to be positive, reducing cash burn and improving economies of scale in India. The cessation is expected to eliminate monthly losses of £2–3Mn (INR 221.4Mn – 332.1Mn), potentially boosting PAT by 8–12%. With the UK operations ceasing, we expect AL to strengthen its consolidated earnings, as the business will no longer weigh down overall profitability.

Outlook

We do not revise our estimates following the INR 7,000Mn defense order, as the potential upside from such contract wins is already factored into our valuation. Similarly, we do not expect a significant impact on EPS from the cessation of Switch Mobility UK in the near term, as the company is valued on a standalone basis. We maintain our ‘BUY’ rating with a target price of INR 260 (valued at 20x FY27E EPS plus the value of Hinduja Leyland Finance Limited).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Ashok Leyland - 01042025 - choice