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The company posted a stellar margin growth in Q3. CV demand slowed down in Q3 on high base. However, this sector is well supported by higher influx of infra projects, mining & construction activities etc. However, on high base and Union Elections in Q1 FY 25, we see a subdued demand to continue over the next two quarters. New launches and focus on geographic mix seen in Q3 should help AL to further improve sales and fill in the gaps within the portfolio. We expect AL to gain market share in MHCVs now given its new launches, tractor trailer demand and rapid network expansion. Launch of EV truck should add to the volumes. LCV demand has been low, but with higher orders or EV LCVs, we expect FY 25 to be better.

Bus demand is robust on demand from STUs, schools and offices rising. Both bus and LCV demand shall get a further fillip with ongoing strong demand for their EV variants with AL’s EV arm SWITCH Mobility getting good orders. Defense also has been a strong segment for AL off late, with higher order inflows leading to expectations of Rs 8bn topline this year and a four digit number next year. Exports revenues, power solutions volumes and aftermarkets sales all have grown well in Q3, which should add well to the financials. On the margin front, cost cutting initiatives, lower discounting, price hikes, superior product mix along with softening input costs shall aid margin growth. To sum it up, we believe volume growth in MHCVs to fall in mid-term, while bounce back in second half of FY 25 and grow strongly in FY 26, while buses shall grow within the segment at a stronger pace. On the back of strong margin growth, we maintain BUY with a target of ?208 (valuing at rolled over earnings of FY 26E at 17x).