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In-line quarter; RM tailwinds and favourable mix to aid margins

In 1QFY26, Ashok Leyland (AL) reported EBITDA margin of 11.1% (+50bps YoY), in-line with JMFe. The company expects mid-single-digit growth in the domestic CV industry in FY26, with LCVs marginally outpacing MHCVs, supported by higher government capex, stable freight rates, improved fleet utilisation, renewed construction/mining activity, and RBI rate cuts. A healthy defence order book and growth momentum in export markets should further aid volumes. We expect ~7% volume CAGR over FY25–27E, driven by favourable macroeconomic conditions, new product launches, and expanding touchpoints. Further, we expect margins to benefit from benign commodity costs, an increasing share of high-margin non-MHCV and export segments, and continued cost control initiatives. Therefore, we revise our EBITDA margin estimates upward by 40bps/30bps for FY26E/FY27E. Maintain BUY with a Mar’27 TP of INR 140 (20x FY27E EPS). Competitive intensity remains a key risk.

* 1QFY26 – Margin in-line with JMFe: In 1QFY26, AL reported net sales of INR 87.2bn (+2% YoY, -27%QoQ), in-line with JMFe. Blended realisations grew by 0.7% YoY (-2% QoQ). Total volume grew 0.8% YoY (-25% QoQ). EBITDA margin stood at 11.1% (+50bps YoY; -390bps QoQ), in-line with JMFe. EBITDA stood at INR 9.7bn (+6% YoY, - 46% QoQ), 2% above JMFe. PAT was at INR 5.9bn (+13% YoY; -53% QoQ), 4% above JMFe.

* Demand outlook: Ashok Leyland (AL) highlighted that the MHCV industry volumes declined by 2% YoY in 1QFY26, due to a high base. Supported by increased government capital expenditure, stable freight rates and fleet utilisation, renewed activity in construction and mining sectors, and the RBI rate cuts, the company expects mid-singledigit growth in the MHCV industry for FY26, with strong growth anticipated in 2HFY26. AL’s domestic MHCV market share stood at 31.1% (vs. 30.9% in FY25). In the LCV (0– 7.5T) segment, market share improved to 12.9% (+120bps YoY). The LCV industry is also expected to post mid-single-digit growth in FY26, marginally outpacing MHCV growth. The defence order book remains healthy for FY26, ensuring steady contribution from this segment. On the exports front, volumes grew ~29% YoY in 1Q, and the company expects strong momentum to continue, with demand recovery in the SAARC and Africa regions. Overall, supported by favourable macroeconomic conditions, new product launches, and expanding touchpoints, we expect AL’s volumes to deliver a CAGR of ~7% over FY25–27E.

* Profitability outlook: During 1QFY26, EBITDA margin improved by 50bps YoY to 11.1%, driven by better realisations, a favourable product mix (aided by an increasing share of non-MHCV business), and sustained cost-control initiatives. The company successfully passed on the additional costs arising from AC norm compliance. AL also indicated that it remains insulated from tariff-related risks and expects commodity price uncertainty to settle going forward.

* Update on EV business: Switch Mobility has an order book of over 1,500 buses and achieved PBT breakeven in 1Q, with PAT breakeven targeted in FY26. AL’s e-MaaS arm, OHM, operates 800 buses with 98%+ fleet availability and aims to scale to 2,500 buses within the next twelve months.

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