Buy Ashok LeylandLtd For Target Rs.195 by Choice Institutional Equities Ltd
Resilient CV demand drives strong Q1FY27 performance:
AL delivered record Q1FY27 revenue, growing 10% YoY, driven by 10.2% YoY growth in volumes. EBITDA remained broadly flat and PAT increased 3% YoY, despite elevated commodity inflation. EBITDA margin declined 100 bps YoY to 10.1%, with material costs rising 90 bps. Domestic MHCV/LCV volumes grew 15%/21% YoY, taking market shares to 29%/13.2%, respectively, supported by replacement demand and GST-led price rationalisation.
Product launches and diversification strengthen growth visibility:
AL introduced industry-first air suspension technology offering 4-tonne additional payload, while Hippo tractors and Taurus tippers continued to see healthy traction. Switch Mobility secured a 650-unit e-bus order, taking its order book to 2,100 units, while OHM Mobility expanded its operational fleet to 1,900+ e-buses. HLF delivered a strong performance, with AUM/PAT growing 20%/37% YoY.
Outlook remains positive, but margin warrants caution:
The management expects high-single-digit MHCV and LCV volume growth in H2FY27E, supported by a resilient replacement demand, although higher diesel prices and commodity inflation remain near-term risks. Price hikes have offset ~50% of raw-material inflation, while the “Achieve 2K” programme is expected to support savings in H2FY27E. We believe AL remains well positioned for sustained growth, supported by market-share gains, diversification and lower structural breakeven levels. However, commodity inflation and fuel-price volatility could constrain near-term margin and earnings momentum
Q1FY27: Result is lower than our estimate on all fronts
* Revenue was up 10.4% YoY and down 32.0% QoQ to INR 96,344 Mn (vs CIE est. of INR 97,612 Mn) led by 10.2% YoY growth in volume and 0.2% YoY growth in ASP
* EBITDA was flat YoY and down 53.1% QoQ to INR 9,695 Mn (vs CIE est. of INR 11,421 Mn). EBITDA margin was down 105 bps YoY and 452 bps QoQ to 10.1% (vs CIE est. of 11.7%)
* APAT was up 2.6% YoY and down 56.6% QoQ to INR 6,091 Mn (vs CIE est. of INR 7,235 Mn)
View and Valuation:
We lower our FY27E EPS estimate by 3.8%, factoring in near-term margin pressure from commodity inflation. We value AL’s core business at 21x FY28E EPS (maintained), while assigning INR 13/share to Hinduja Leyland Finance and INR 5/share to Switch Mobility, arriving at a target price of INR 195 (maintained). We retain our ‘BUY’ rating, supported by a strong longterm growth visibility
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