Rating- BUY - All clear to improved industry profitability

Rating: BUY | All clear to improved industry profitability

Ashok Leyland (AL) reported a robust performance in Q2, with a significant increase in Ebitda and recurring PAT by 29-32% q-o-q (2-3x y-o-y), aligning with Jefferies expectations. Volumes witnessed a notable growth of 10% y-o-y (+21% q-o-q), although ASP declined by 2% q-o-q. The Ebitda margin saw a substantial expansion of 120bp q-o-q, reaching 11.2%, primarily driven by operating leverage. The Ebitda/vehicle also reached an all-time high, rising by 9% q-o-q. The net debt showed a considerable reduction of 22% q-o-q to Rs 11bn, despite being higher compared to net cash at the end of FY23. Ashok Leyland anticipates an improvement in industry profitability in 2H, attributed to increased demand and a more favourable commodities environment.

Established in 1948, Ashok Leyland is the second-largest commercial vehicle manufacturer in India, boasting around 30% market share in medium and heavy commercial vehicles (MHCVs). The company has a diversified presence in buses, light commercial vehicles (LCVs), defence, and exports, and operates as part of the Hinduja Group. The price target of Rs 220 is derived from a 5.5x FY25 book value. Key risks to this outlook include a potential downturn in Indian truck demand.