Buy Ashok Leyland Ltd for the Target Rs 240 by Emkay Global Financial Services Ltd
AL posted a mixed set of 1QFY27 results, with revenue growing 10% yoy, led by 10% yoy volume growth despite 3% qoq ASP decline. EBITDAM contracted 450bps qoq to 10.1%, impacted by higher staff costs/other expenses. 50% of the gross margin pressure was offset through price hikes (2.25%/3.5% cumulative price hikes in MHCV/LCV in FY27TD, including ~1%/2% in Jul-26), with the remaining 50% offset through cost savings and inventory benefits. The management expects stronger 2Q momentum, with FY27 MHCV industry growth expected in the high single digits (despite a higher base), while LCV growth is expected to be slightly higher. While near-term margins are likely to remain under pressure amid elevated commodity costs, strong CV demand momentum (~26% yoy growth in retail demand in Jul-26), market-share gains (AL expects further share gains led by the ramp up of newer products like HIPPO/TAURUS/air-suspension trucks from 2H), pricing actions, improving product mix, and continued traction in non-MHCV verticals provide comfort on the growth outlook. Commodity prices are expected to soften from 3Q, with meaningful benefits from 4Q. We believe AL remains an attractive play on domestic MHCV recovery and improving HCV retail share (Refer to: India CVs: Reacceleration in motion), providing incremental earnings optionality as the upcycle gathers pace. Retain BUY, with an unchanged TP of Rs240 (15x Jun-28E EV/EBITDA).
Healthy topline print; margins impacted by higher staff costs/other expenses
AL posted a mix set of results. Revenue grew 10% yoy to Rs96.3bn, led by 10% yoy volume growth to 48.8k units despite 3% fall in ASPs. EBITDA was flattish yoy at Rs9.7bn, with EBITDAM declining ~450bps qoq to 10.1% (our/street estimates at 11.7%/ 9.6%), driven by GM contraction and higher employee costs and other expenses. Overall, APAT stood at Rs6.1bn, largely in line with street estimates.
Earnings call KTAs
1) Overall CV volumes hit a 1Q record at 48.8k units.
2) EBITDA was flattish yoy, with EBITDAM declining due to lower GM and higher employee costs/other expenses; the management expects commodity pressure in 2Q, softening from 3Q. 3) AL has cumulatively taken price hikes of ~2.25%/3.5% in MHCV/LCV in FY27TD, including ~1%/2% increases in Jul-26; further pricing and discount optimization remain under consideration; cost saving initiatives, mix improvement, and premiumization should partly offset RM inflation.
4) MHCV industry growth accelerated in Jun/Jul-26 after a weak May, with the management expecting stronger 2Q momentum, with FY27 MHCV growth in the high-single-digits and LCV growth slightly higher.
5) AL expects further MHCV share gains, led by HIPPO, TAURUS, and new air-suspension trucks, with higher-horsepower products and Defence/Power Solutions supporting mix.
6) 1Q exports declined 18% yoy due to temporary RAK plant disruptions; GCC operations are recovering, while SAARC/Africa grew 40–60% yoy; the management is accelerating its Saudi plant given strong GCC demand.
7) 1Q capex was Rs1.5bn, with annual capex at ~Rs9bn– 10bn from Rs4bn–5bn historically; capex is expected to increase further over the next 2–3Y toward EVs, alternate powertrains, new products, and white spaces; net cash stood at Rs22.5bn.
8) Defence/Power Solutions/aftermarket revenue grew ~64/51/13% yoy.
9) Switch mobility secured a 650 e-bus order, taking its order book to ~2,100 units; HLF AUM/PPOP/PAT grew 20/56/37% yoy. The reverse merger of HLF with NDL is progressing as planned.
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