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Revenue for Q3 came at INR 92,730 Mn up 3% on YoY basis and down 4% on sequential basis. The company posted an EBITDA of Rs. 11,139 Mn (up 39.7% YoY / up 3.2% QoQ), surpassing market estimates, primarily driven by robust performance in its non-auto businesses partially offset by higher-than-anticipated other expenses. EBITDA margin expanded by 318 bps YoY to 12.0%, expansion in margin was achieved due to change in mix and reduction in RM cost. Looking ahead, the company aims for a mid-teen EBITDA margin in the medium term. Management expects near term growth in the CV industry to moderate in Q4FY24 and Q1FY25 due to high base and election year. However, demand is expected to rebound post-election as overall economic activity, freight demand, replacement demand are positive. PAT came in at Inr 5,800 Mn up 61% on YoY basis. Effective tax rate was at 35.8%.

Optimizing Market Penetration Strategies for M&HCV and LCV Segments: The M&HCV truck segment, Ashok Leyland witnessed a slight decline in market share, dropping to 30.9% in Q3 from 31.9% in Q2, primarily due to decreased demand in the (>16T segment) and heightened competitive pressures leading to increased discounting strategies. To counter this, Ashok Leyland is planning to expand its dealership network to 1000 touch points by FY24, up from 809 in FY23, with a significant focus on North and East India, particularly in key mining regions. The company aims to achieve a 35% market share in the M&HCV segment in the medium term. FY24 volumes are estimated to be below the FY18 peak, with 4QFY24 expected to see some moderation in growth due to the high base of the previous year. However, this creates room for further growth driven by overall economic activity, freight demand, and replacement demand. The demand for tractor trailers and tippers remains robust, with Ashok Leyland leading the bus volume sector, experiencing a resurgence driven by increased demand from STUs and a revival in intercity transportation.

Key Concall highlights

• Switch Mobility: The Company has approved Rs 1200 crore investment in Switch Mobility through Optare PLC UK. During Q3 AL has invested INR662 crores in the equity capital of Optair PLC. Al shall be inducting the balance equity in more than one tranche over the next few months. The focus is on growing the Indian EV business. The funds will go towards capital expenditure, R&D, and operational needs for Indian operations. Minimal investment is anticipated for Switch India in the future, with the goal of achieving cash neutrality by FY25. A total of Rs 9.5 billion has already been invested in Optare PLC/Switch, driven by promising prospects in electric LCVs and eBuses.

• EV: The first batch of e-LCVs will roll out in a few months. It has signed MoU with customers for ~12-13k units. Similarly, it has an order book for ~1,000 e-buses.

Other Highlights

• Cumulative capex for the nine month period is at INR290 crores.

• During the quarter, the company launched e-comet 1915 CNG, Haulage with 25 ft. loading span, 222 Viking air intercity bus and Dost plus CNG.

• The aftermarket sales reached Rs. 658 crores in Q3FY24 a growth of 33% YoY and power solution grew by 24% YoY.

• The company anticipates defense business revenue of Rs. 800 crores in FY24.

Outlook

Anticipating a tempered demand momentum for domestic commercial vehicles due to the high base of 4QFY23 and the impending general elections in 1HCY24. Nevertheless, leveraging stable raw material costs, reduced discounting, and cost-saving measures, Ashok Leyland is poised to sustain double-digit margins. We expect overall Volume /Revenue growth at 9%/14% over FY25E. We project the Ebitda margins to hover around 12% over FY25E. Given the positive outlook for domestic M&HCV sales volume, we maintain our BUY rating with a target of Rs. 214 (valuing at 10.8 FY25E EPS & 13.5 FY25E PE)

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