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Revenue for Q2 came at INR 96,380 Mn up 17% on YoY basis and 18% on sequential basis which was mainly due to strong underlying demand in core sectors. Company's MHCV segment grew by 10% in H1FY24, driven by a favourable macroeconomic environment and healthy replacement demand, resulting in market share improvement from 31.2% in Q1FY24 to 31.9% in Q2FY24. EBITDA for the quarter stood at INR 10,798 Mn compared to INR 5,373 Mn YoY and Rs 8,207 Mn QoQ. EBITDA margin stood at 11.2% +120bps QoQ and +470bps YoY. This was aided by the softening of commodity prices and operating leverage, which helped maintain double-digit margins. Raw material cost are expected to remain soft for a few more months. We are optimistic about further margin improvements to sustain for the remaining quarters of FY24. PAT came in at Inr 5,610 Mn down 3% on QoQ basis. Effective tax rate was at 35% due to adjustment in deferred tax

Continued Growth Amidst Surging Demand:

M&HCV volumes grew 10% this H1FY24. Management expects the domestic M&HCV industry to remain strong for the rest of the year and next year, driven by healthy replacement demand and favourable macros. Management retains its M&HCV industry growth guidance of 8-10% for FY24.We expect MHCV volumes of AL to grow around 10- 12% over FY24E. LCV industry guidance is around 4-5%. AL's share in the 2-3.5T segment is 20% and company is also considering to enter the 0-2T segment which is a high volume, mature and competitive market. TIV for bus has grown by 46% in the quarter and the corresponding growth for Ashok Leyland was 95%. Bus market share has improved from 28.3% last year to 37.8% now. This is 9.5% increase over market share during the same period last year. Products volumes for TIV has grown by 15% and AL volumes have also grown resulting in 31.1% market share for Ashok Leyland. Sustained expansion within key end-user sectors such as cement, steel, coal, iron ore, and container movements, coupled with notable enhancements in overall manufacturing activities and consumption patterns, continue to bolster demand from fleet operators and diverse customer segments. The remarkable surge in bus requirements across various categories, encompassing tourist, intercity, private carriage, state transport services, as well as school and staff transportation, has significantly bolstered the industry's prospects. Projections suggest a resilient growth trajectory ahead, primarily propelled by robust factors like ongoing developments in mining, infrastructure, notably in road construction, and the steady enhancement of industrial output, serving as pivotal drivers for MHCV trucks. Moreover, the burgeoning need for bus fleet replacements, initiatives to enhance public transportation networks, and requirements for school and staff transport services are poised to stimulate the demand for buses in the foreseeable future.

Enhancing Profitability: Sustainable Double-Digit Margins:

Amidst initial upticks in steel prices during the early stages of FY24, subsequent softening has been observed and is anticipated to persist for the coming months. In response, the company has initiated significant measures aimed at cost reduction across product-related aspects and overheads. These proactive endeavours have yielded commendable results, enabling the achievement of an EBITDA margin of 11.2% for the quarter. We project the Ebitda margins to hover around 10.6% over FY24E and 11.7% over FY25E.

Other Highlights

Switch Mobility: AL will invest Rs12bn in Optare, which is the holding company for Switch UK and Switch India. This equity will be inducted in one or more tranches over the next 3-6 months. Company has secured orders for 1,100 buses and holds LOIs for over 10,000 electric LCVs. Initial deliveries of electric LCVs are scheduled for 4QFY24, alongside progress in developing the E1 bus for the European market. Amidst these developments, Ashok Leyland launched new products and expanded its network to bolster market presence and drive revenue growth

Market share: The Company's market share in the MHCV segment remained above 30% for the seventh consecutive quarter at 31.9%. Bus market share improved by 950bps YoY to 37.8%

Exports: Export volume stood at 2,901 vehicles +4.3% YoY in 2QFY24.

Outlook and Valuation:

We expect robust overall Volume /Revenue growth at 9%/14% over FY24E. We project the Ebitda margins to hover around 10.6% over FY24E and 11.7% over FY25E.Given the positive outlook for domestic M&HCV sales volume, we confidently maintain our BUY rating with a target of Rs. 214 (valuing at 10.8 FY25E EPS & 13.5 FY25E PE).

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