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* Decent revenue growth : Ashok Leyland revenue for Q1FY24 came in at Rs 8,189 Cr, rising by 13.4% YoY as the demand was moderate during the quarter across categories however modular Avtrr range and Bada Dost garnering strong response aided by network expansion, on sequential basis the revenue was down by 29.6% due to pre-buying of vehicles ahead of new BSVI-2 norms. Besides, its Power Solution and Aftermarket business posted healthy growth in the overall top-line.

* Strong margins improvement: Gross profit rose by 44% YoY while it declined by 24.1% sequentially to Rs 2,152 Cr with a margin of 26.3% which expanded by 558bps YoY and 188bps QoQ, the price of key raw material price relatively remained higher however, cost reduction measures coupled with better operating efficiency aided in margin expansion. Consequently, EBITDA was significantly up by 156.3% YoY and a margin of 10%, as successive quarter of double digit margins, on the flipside EBITDA was down by 35.7% on the account of high base of previous quarter. Management anticipates the margins to improve as the demand scenario remains optimistic within the industry while softening of commodity prices would further aid in margin expansion.

* Healthy realizations growth amid mixed volumes: Volumes across categories remained moderate due to pre-buying in the previous quarter, MCHV volumes were up by 4.7% YoY to 26,165 units while LCVs were up by 3.4% YoY to 15,164 units while the respective segments were down by 35.4% and 21% sequentially. Despite mixed trend of volumes, the average realizations were up by 8.8% YoY/1.7% QoQ at Rs 19.8 lakhs per unit backed by price hikes taken post the implementation of OBD2 norms. We anticipate the growing trend of realizations to continue further which would be aided by strong volumes and operating leverage.

New range of products witness strong response: The new range of products namely; Avtrr and Bada Dost, have garnered strong response from the customers which will continue to aid in revenue growth as cements, steel and overall infrastructure activities in the economy remains quite robust. Going ahead, the company plans to enter into the sub 2 tonnage segment which has large market size in the LCVs segment, cumulatively, both these aspects are expected to improve company’s market share in the respective segments gradually.

Concall & other key highlights: 1) Company witnessed a significant Net Profit growth on the account of a deferred tax benefit. 2) Management indicated it was their 6th consecutive quarter where in market share remained above 30% (at 31.7% as of Q1FY24). 3) The capex for the quarter stood at Rs 95 Cr while its debt was at ~Rs 1,464 Cr against –Rs 243 Cr at the end of FY23. 4) The company aims to maintain double digit margins in the short term while from long term basis it aims at Mid-Teens margins. 5) Defense business pipeline is building sharply, management anticipates good growth in FY24 and FY25 on low base.

Outlook & Valuations: ALL maintains a healthy market share of 31.7% in the MHCV trucks category while it is amongst the leading players in bus category. It has consistently gained market share across category, going ahead the industry is expected to grow by 8-10% in FY24 which will be driven by strong demand pull in cements, steel, real estate and overall infrastructure activities in the economy and ALL being the industry leader would benefit from such tailwinds and continue to gain market share across category. Given the strong growth outlook, we have revised our estimated wherein its revenue/EBITDA/PAT to grow at a CAGR of 15.3%/26.4%/36.6% over FY23-25E and have maintained Buy rating with a revised target price of Rs 217 valuing the company on a EV/EBITDA multiple of 14x

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