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In Q2 FY25, Ashok Leyland reported revenues of INR 8,769 crores, marking a 9% YoY decline primarily due to unfavourable weather impacts and sluggish government capital expenditure, which resulted in a 12% reduction in MHCV industry volumes. Nevertheless, the company registered a notable 37% rise in PAT to INR 770 crores, attributable to enhanced operational efficiencies and a strategic pivot towards high-margin non-CV segments. The EBITDA margin also improved to 12.9%, bolstered by cost-saving measures and favourable raw material prices. Ashok Leyland's commitment to product innovation and geographic expansion highlights its adaptability. Going forward, the company expresses confidence for H2 FY25, expecting a rebound in demand as macroeconomic conditions normalize and government investment increases, thus setting the stage for sustained medium-term growth.

Industry Performance

The company reported a 12% drop in industry volume due to seasonal factors such as extreme weather and slow government capital expenditure. Despite these challenges, the company remains optimistic about recovery in H2 FY25, anticipating a rebound driven by improved fleet utilization and positive macroeconomic indicators. The management expects industry growth to stabilize, projecting a potential increase of 6-10% in H2, supported by rising private capital expenditure and government spending.

Market Share Gains and Strategic Initiatives

The company reported an increase in its domestic MHCV market share to 31.2%, driven by robust sales strategies and product launches, including the new Barabos I-five LCV and Oysters ZIAC bus. In the LCV segment, it achieved a market share of 19.8%. The management highlighted ongoing investments in product innovation and significant orders for electric trucks, reinforcing competitiveness and aligning with growing demand for sustainable transport solutions. Notably, Switch is actively fulfilling a substantial order for 1,200 e-buses from DTC, with deliveries expected to commence later this year. This focus on expanding product offerings, including electric vehicles, is expected to enhance competitive positioning and capture additional market share in both domestic and international markets.

Updates on Other Businesses

The company reported healthy growth in its non-CV segments, with spare parts revenue increasing by 13% YoY and significant contributions from power solutions. The company continues to enhance its aftermarket services, maintaining a dealership position with a market share of nearly 35% in the parts segment. Additionally, the development of alternate fuel vehicles is progressing well, with a large order of 180 electric trucks received. The company is also focused on expanding its service capabilities through initiatives like the Uptime Solution Center, which provides 24/7 support and diagnostic services to fleet operators.

Outlook and Valuation

The outlook for Ashok Leyland remains robust, with expectations of a recovery in CV demand in H2 FY25, propelled by increased government spending and improved fleet utilization projected to reach 95%. The company targets mid-teen EBITDA margins while aiming to maintain a 35% market share in the MHCV segment. With a strong cash flow and reduced net debt, Ashok Leyland is well-positioned for sustainable growth. Given the positive sentiment in the MHCV sector, we reiterate our BUY rating with a target price of Rs. 264, based on a multiple of 12.2x FY25E EPS and 21x FY25E PE.

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