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Ashok Leyland delivered a stellar Q4 FY25 performance, posting its highest-ever quarterly EBITDA, underscoring strong operational execution and cost discipline amid a steady demand environment. Revenue stood at 11,907 crore (+6% YoY), while EBITDA rose to 1,791 crore, reflecting a robust 15% margin - the highest in company history. Net profit surged 38% YoY to 1,246 crore, driven by lower raw material costs (down to 70.6% of revenue) and operating leverage. For FY25, revenue rose to 38,753 crore, EBITDA reached 4,931 crore (12.7% margin, vs. 12% in FY24), and PAT grew 26% YoY to 3,303 crore. Despite volume softness in select segments, strong margin delivery and cost efficiency reflect improving structural resilience.

MHCV Market and Volumes

The domestic MHCV market found its footing in FY '25, with Q4 TIV surging 27% sequentially and 4% YoY. Ashok Leyland's Q4 MHCV volume hit 36,053 units (+4% YoY), with trucks at 29,089 units (+4% YoY) and buses at 6,964 units, holding a commanding 30.9% market share. Full-year MHCV volume was 114,789 units (-1% YoY), with trucks down 5% to 93,540 units and buses soaring 18% to 21,249 units, fuelled by robust demand. FY26 growth is expected to remain moderate, supported by infrastructure momentum, replacement demand from aging truck and LCV fleets, and rising bus volumes.

LCV Segment and Network Expansion

LCV volumes declined slightly, with Q4 at 17,660 units (-2% YoY) and FY '25 at 65,049 units, reducing market share to 18.6% from 19.3%. The SAATHI launch in the sub-2-ton segment targets a 20% share short-term and 25% medium-term. Network expansion added 108 MHCV and 106 LCV touchpoints, reaching 1,889 pan-India, enhancing service reach in North and East.

Electric Vehicles and Subsidiaries

Switch India achieved EBITDA positivity (6% for FY '25, 12% in Q4) with 287 bus and 300 eLCV sales in Q4 and an 1,800-unit order book. OHM operates 650+ buses with 98%+ availability, targeting 1,700 additions in FY '26. EV trucks, including a 55-ton tractor, lead despite <1% penetration, supported by government EV bus initiatives.

Export and Non-CV Business Growth

Exports grew 52% in Q4 and 29% for FY '25 to 15,255 units, driven by localized strategies in GCC, SAARC, and Africa, with Southeast Asia expansion planned. Non-CV businesses performed strongly, with spare parts revenue up 15% in Q4 and 14% for the year, and engine volumes up 9% in Q4 and 2% annually. Defence revenue was stable, with a strong FY '26 order book aiming to double top line in 2-3 years.

Cost Pressures and Margin Strategies

Steel safeguard duties (INR 3-5/kg increase) and AC cabin norms (0.5%-2% cost rise) will pressure Q1-Q2 FY '26, but price hikes and annual cost savings of hundreds of crores aim to sustain mid-teen EBITDA margins. Working capital improved, with inventory down to <7,000 vehicles (from 8,000-9,000) and receivables nearly eliminated.

Outlook & Valuation

We expect CV demand recovery in FY27E, driven by infrastructure spending, stable freight rates, and favourable macros. Ashok Leyland has reduced cyclicality with non-MHCV segments now contributing ~50% of revenue, backed by a strong net cash of INR 4,242 crore for EV and network investments. Margin levers via premiumization and cost efficiency remain intact. We reiterate BUY with a target price of INR 274, based on a 22.3x FY27E PE multiple on an FY27E EPS of INR 12.3, with cumulative Revenue/ EBITDA/PAT growth of 17%/22%/21% expected over FY25-27.

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