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Sturdy revenue growth: Ashok Leyland posted record quarterly revenue at Rs 11,626 Cr, registering a growth of 33% YoY and 28.7% QoQ. The exceptional growth in revenue was driven by strong demand across verticals especially for the new launches while pre-buying ahead of new OBD norms too aided the revenue growth.

Realizations improve driven by strong volumes: Its domestic Medium & Heavy Commercial Vehicle (MHCV) volumes stood at 37,811 Units registering a growth of 32.3% over last year and 33.7% sequentially, while its Light Commercial Vehicle (LCV) volumes were at 18,840 units, higher by 18% YoY and 15.2% QoQ. Overall export volumes declined by 27% YoY to 3,046 units, however, despite the prevailing macro-economic headwinds, it grew sequentially by 6.5%. As a result of higher volumes, company reported record quarterly realizations of Rs 19,47,446/unit which grew by 8.5% YoY and 2.6% QoQ, led by better operating leverage, improved product mix and price hikes in preceding quarter.

Softening of input cost aid in margins expansion: Gross profit for the quarter came in at Rs 2,837 Cr, up by 49.1% YoY and 32.3% QoQ and gross margin of 24.4% which expanded by 265bps YoY and 66bps QoQ as the price of key raw materials declined while better operating efficiency also aided the growth. Subsequently, EBITDA grew by 64.4% YoY/60% QoQ to Rs 1,276 Cr with a margin of 11% which expanded by 210bps YoY and 214bps QoQ.

Key concall highlights: 1) its market share in trucks and bus segment in FY23 stood at 32.7% and 27.1% with an improvement of ~210bps and ~70bps respectively. 2) Capex for FY23 stood at ~Rs 502 Cr, for FY24 in it is planning a capex outlay of ~Rs 600-700 Cr for capacity augmentation; de-bottle necking of distribution channel while most of it will be used towards product development. 3) Management aims at achieving mid-double digit operating margins in FY24 while maintain it for the coming years. 4) The company took an overall price hike of ~2% in the month of April. 5) Management expects the international sales to improve from FY24 as it foresees improving macro-economic conditions. 6) To launch wide range of EV products in Indian and European markets through its Switch Mobility. 7) Aims to gain market share through the launch of wide range of products in the LCV platforms. 8) Management indicated that the bus industry is expected to grow on ~30% on low base, expects to benefit from it being an industry leader in the segment.

Outlook & Valuations: The commercial vehicle industry is expected to grow ~7-10% in FY24 due to favorable economic outlook towards construction, mining, agriculture and increased capex by companies. ALL will continue to focus on market share gains which will be driven by industry tailwinds as well new launches across its segments. Besides, its stake in Switch Mobility also expected to contribute in the topline growth of the company. Financially, we have estimated its revenue/EBITDA/ PAT to grow at a CAGR of 11.1%/11.4%/19.8% over FY23-25E and have maintained Buy rating with a target price of Rs 185 valuing the company on a EV/EBITDA multiple of 14.7x.

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