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Price hikes to help ASPs; Downgrade to ADD

Valuation and View

AL’s 4QFY23 operating performance was healthy as EBITDA beat our/street estimates by 8.5-9%. This was led by higher-than-expected ASPs at Rs1.94m/unit (est Rs1.9m/unit, +8.5%/+5.1% YoY/QoQ) and gross margins at 24.4% (est 24.1%, +260bp/ +70bp YoY/QoQ). We believe, margins to continue remain at an elevated level (ex of 1QFY24E) led by 1) cumulative price hikes of 5.5-6% in past 3 quarters (including Apr’23), 2) RM decline, 3) net pricing retention and 4) cost controls. AL continues to gain market share with overall market share at AL’s FY23 MHCV market share expanded across regions at 31.8% (+4.7% FY22) led by AVTR range, increased after sales support and network expansion. Improving demand from higher tonnage segment bode well for margin trajectory of the company.

We are building in MHCV volume CAGR of ~7% over FY23-25E with likely margins expansion to 11% by FY25 (v/s 8.1% in FY23). We believe AL’s de-risking strategy to help as it reduces domestic MHCV exposure by adding new revenue pools such as LCVs (12-13%), exports (9-10% of sales) and spares (8-9% of sales). We believe, sustenance of MHCV market share gains is likely led by new launches and network expansion. We raise FY24 EPS by 5.6% for lower RM and better ASPs while FY25E EPS are largely unchanged. Led by recent valuations expansion, we downgrade the stock to ADD with TP of Rs175 (unchanged at ~11x of Mar’25 EV/EBITDA) and ~Rs14.5 for NBFC. An announcement related to external funding for EV business (Switch) would be value accretive

Result Highlights – EBITDA margins at 11% (est 10.3%), 15 quarter high

• Revenues grew 33% YoY (+28.7% QoQ) at Rs116.2b (est Rs114b) as volume grew 22.5% YoY (25.5% QoQ) at ~59.7k units and ASP grew 8.5% YoY (5.1% QoQ) at Rs1.95m/unit (est Rs1.9m/unit). The growth in ASPs was led by ~4-4.5% cumulative price hikes over past 2 quarters.). Further, ~2% price hike taken in Apr’23 to further support ASP (over and above OBD2 price hikes).

• Gross margins expanded 260bp YoY (+70bp QoQ) at 24.4% (est 24.1%). Led by operating leverage and cost control, EBITDA grew 64.4% YoY (60% QoQ) at Rs12.75b (est Rs11.7b, cons Rs11.7b) with margins expanded 210bp YoY (220bp QoQ) to 15 quarter high at 11% (est 10.3%, cons 10.4%).

• Co reported exceptional gain of Rs564m towards impairment reversal and fair value gains on investments. Consequently, Adj.PAT grew 69.3% YoY (+90.9% QoQ) at Rs6.8b (est Rs5.9b, cons Rs6.3b).

• FY23 performance – Revenues grew 66.7% YoY to Rs361.4b, EBITDA margins expanded to 8.1% (v/s 4.6%) with Adj.PAT at Rs12.96b (v/s Rs172m).

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