Emkay Global Financial's research report on Ashok Leyland
AL’s Q2 revenues were below estimates, with margins in-line (up by 118bps QoQ to 11.2%, on operating leverage benefits). We continue to believe that while the domestic CV industry would scale a fresh peak in FY24E, the best of the current upcycle may be behind (with trucking system capacity up 40-50% now vs. FY19, similar to increases seen in the past two upcycles). Further, while AL’s relative outperformance is likely to endure (better growth in highertonnage categories, buses, new products, etc), current valuations (~1SD above LTA on P/B basis) leave risk-reward balanced.
Outlook
We raise FY25E/FY26E EPS by ~7% each (on shift to 25% tax rate) and retain our HOLD rating with a revised down TP of Rs180/share (9x FY26E core EV/EBITDA, rolled over + 20% discount on 1x FY23 P/B for subsidiary Hinduja Leyland Finance).
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