Add Ashok Leyland Ltd for Target Rs. 200 - Yes Securities Ltd
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Cost tailwinds to keep margins elevated
Valuation and View
AL’s 2QFY24 operating performance was in-line as EBITDA margins expanded 470bp YoY/ 120bp QoQ at 11.2% (FY18 levels). This was led by combination of factors such as soft RM, better ASPs, operating leverage and cost controls. We believe, margins to continue to remain at an elevated level led by 1) cumulative price hikes of ~8-9% in past 3 quarters), 2) RM decline (~8% in 1Q and 2Q), 3) net pricing retention with continues to be healthy and 4) cost controls initiatives (savings of Rs6-6.5b in FY23). AL continues to gain market share with overall MHCV market share at ~31% in 1HFY24 led by new AVTR range, increased after sales support and network expansion. Improving demand from higher tonnage segment bode well for margin trajectory ahead.
We are building in MHCV volume growth of ~8% in FY24E with a decline of ~5% in FY25E. 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 cut FY24/25 EPS by 3-4% for moderating volume outlook. Led by recent valuations expansion, we maintain the stock to ADD with TP of Rs200 (v/s Rs207 at ~12x 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 – In-line performance
• Revenues grew 16.6% YoY (+17.7% QoQ) at Rs96.4b (est Rs101b, cons Rs99.3b) as volume grew 10% YoY (+20.6% QoQ) at ~49.8k units and ASP grew 6% YoY (- 2.4% QoQ) at Rs1.93m/unit (est Rs2m/unit). Decline in ASPs QoQ is a surprise as share of MHCV in overall volumes were at ~68% in 2Q (v/s 63% in 1Q).
• Gross margins expanded 450bp YoY (+20bp QoQ) at 26.5% (in-line).
• EBITDA grew ~1x YoY (+31.6% QoQ) at Rs10.8b (in-line to our/street) with margins expanded 470bp YoY (+120bp QoQ) to 11.2% (in-line).
• Led by healthy operating performance and higher other income at Rs475m (est Rs400m, +1.3x YoY), Adj.PAT grew 2.2x YoY (+7.8% QoQ) at Rs6.2b (in-line to our/street).
• 1HFY24 revenue/EBITDA/Adj.PAT grew 15%/1.2x/3.2x. at Rs178b/Rs8.6b/Rs12b.
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SEBI Registration number is INZ000185632
