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Delivers strong operational performance; Maintain buy!

Healthy overall performance: Ashok Leyland revenue for Q2FY24 revenue came in line with our expectation at Rs 9,638 Cr, experiencing a healthy growth of 16.6% YoY/17.7% QoQ. The growth in revenue was driven by strong volume across division with MHCV volume growth at 15.2% YoY/22.6% QoQ while LCV volume growth was at 1.8% YoY/17.1% QoQ. Despite the macro-economic situations exports volume posted healthy growth of 4.4% YoY/30.6% QoQ primarily driven by LCV segment.

Strong margin expansion: Gross profit came in at Rs 2,552 Cr, registering a growth of 40.3% YoY/18.6% QoQ followed by a margin expansion of 446bps YoY/19bps QoQ to 26.5%. Consequently, EBITDA was reported at Rs 1,080 Cr with a growth of 101% YoY/31.6% QoQ while margin expanded by 470bps YoY/118bps QoQ. The company delivered strong operational performance on the back of healthy volume, pricing actions and favorable commodity prices which resulted in better operating leverage.

Traction in Switch Mobility business: The company has been witnessing encouraging response from customers towards the new launches from its Switch Mobility subsidiary. It currently has an order book for ~1,200 Buses while it has also signed an MOU ~13,000 e-LCVs which the company will start delivering by Q4FY24. Further the company announced it will be making an investment of ~Rs 1,200 Cr towards R&D and other operational requirements. The overall outlook in its subsidiary looks quite robust and shall aid in revenue growth for the company.

Concall & other key highlights: 1) The management expects to maintain double digit margin over the coming quarters and gradually improve to mid-teens in the long term. 2) After-market sales was up by 35% YoY to Rs 655 Cr. 3) Power solution business grew at a healthy rate of ~15% YoY. 4) Truck market share at 31% while buses market share was up by ~950bps YoY to 37.8%. 5) Management indicated that the LCV segment growth was lower than anticipate, however, expects gradual improvement in H2FY24.

Outlook & Valuations: ALL maintains a healthy market share of 31.7% in the trucks category while it is amongst the leading players in bus category. It has consistently gained market share across category, going ahead we anticipate it will continue to gain market share as the industry is expected to grow in the range of 8-10% on the back of strong demand pull in cements, steel and overall infrastructure in the economy and ALL being amongst the industry leaders, we anticipate it to continue to deliver on all fronts. Given the strong growth outlook, we have estimated revenue/ EBITDA/PAT to grow at a CAGR of 15.3%/28.8%/39.9% over FY23-25E and have maintained a Buy rating with a target price of Rs 217 valuing the company on EV/EBITDA multiple of 13.4x.

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