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Ashok Leyland (AL) reported topline growth of 5% yoy and a decline of 24% qoq on seasonality. Volumes during the quarter saw a growth of 6% yoy growth. Realizations de-grew by 1.1% yoy. The company witnessed good growth in bus market share. EBITDA margins moved up to 10.6% up by 60 bps yoy from 10%. There was a sequential fall in margins by 350 bps. This was due to increased commodity costs (72.2% of sales v/s 71.8% qoq), unfavorable product mix and a one-time expense sitting in other expenses. Other income was down sharply both qoq and yoy at ?223 mn, while tax rate was at 25% as the company has shifted to new tax regime. PAT came in at ?5.2bn , down 9% yoy.

Volume growth to revive by Q4 FY25, FY 26 to see a strong growth

MHCV segment grew at 10% growth in Q1, on lower base of last year and a 50% growth in the bus segment. However, the MHCV trucks segment posted a decline of 2-3%, due to elections in the country leading to lower demand. However, underlying drivers such as infrastructure & mining, construction and demand from big fleet operators for transportation of cement, steel, coal, iron ore etc. is going at a steady pace. The company is also gaining orders from the fleet owners mainly from the e-commerce and the logistics industries. Demand for Tippers was down in Q1, while there was a strong shift from MAVs to Tractor Trailers (20% up) as construction and mining activities gained momentum. Q2 is seeing a good pick up in Tippers as per the management. Even the demand for ICVs was good in Q1. The demand for buses is also very high from schools, offices and orders from various STUs. Also the EV version of buses are getting an encouraging response. AL has a growing order book for its EV busses from places like Delhi (560 buses to be supplied by March‘25 and 400 at a later date), Bangalore (300+), UP (100+) and other cities as well and has received LOIs of ~10K buses. The deeper penetration has led to higher sales in Northern and Eastern parts of the country as well where AL is traditionally has a low presence. The company has been continuously adding dealerships and service centres across India. The company plans to touch 1000 dealers and service centres soon, mainly led by North and East India

AL launched various model variants in most of its segments across HPs. The company recently launched the e-Comet 1915 CNG, Boss 1815, Avatar 3525, couple of AC buses, Dost CNG, a School bus and a defense vehicle to address the gap in its portfolio. All these models are fetching a very strong demand especially the Avatar range of trucks.

Apart from the high base effect we do not believe there are any structural hindrances for the CV sector to not report a recovery in Q4 FY25 and a higher growth in FY 26. Overall, we expect AL’s market share to reach ~35% in FY2026E with new launches. With robust bus segment growth and capex cycle boost expected to support growth in the MHCVs in mid to long term, we expect AL to outperform the industry post a slow growth expected to continue in Q2 and Q3. Management expects the MHCV trucks segment to grow flattish or at a single digit in FY 25

Margins to be driven by various factors…

Q1 witnessed a yoy growth of 60 bps in margins. We saw little rise in input costs mainly in copper and aluminium. Going forward, management expects input costs to post slight growth. Management has not taken any price hike in Q1 or in Q2 till date. The company is also into stringent cost cutting initiatives, adding value added products to their portfolio, whilst improving demand for higher tonnage trucks and tractor trailers. Operating leverage shall further come into play as volumes further grow. We expect 12.2%/12.5% EBITDA margins in FY25E/26E respectively.

Outlook and valuation

We believe volume growth in MHCVs to remain subdued in mid-term, while bounce back in Q4 and grow strongly in FY 26. Buses shall grow within the segment at a stronger pace mainly on EV demand. GoI’s continuous thrust on capex and strong Infrastructure outlay shall ensure MHCV to lead a come back. LCV demand is in place and shall grow at mid to higher single digit in FY 25. Also on the back of improving margin profile, we maintain BUY with a raised target price of ?284 (valuing at 21X times FY 26E earnings).

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