Hold Ashok Leyland Ltd For Target Rs. 144 by Arete Securities Ltd
Ashok Leyland Limited delivered a robust financial performance in Q1 FY '26, achieving its highest-ever first-quarter revenue, EBITDA, and net profit. The company reported revenue of INR 8,725 crores, up 1.5% year-on-year, with EBITDA rising 6.4% to INR 970 crores, yielding an improved margin of 11.1%. Net profit soared 13% to INR 594 crores. These gains, driven by effective cost recovery, a premium vehicle mix, and disciplined cost management, reflect Ashok Leyland's resilience amid a 2% domestic MHCV industry decline.This strong showing underscores the company's strategic focus on premiumization and cost leadership, positioning it for sustained profitable growth in a competitive landscape.
Performance & Updates of Subsidiaries and Financial Services:
* Switch India has turned profitable at the operating level, reaching PBT breakeven in Q1, supported by an order book of 1,500 buses, and is targeting PAT positivity ahead.
* Switch U.K. is expected to complete its redundancy process by early Q3, with production being shifted globally.
* OHM expanded its E-MaaS fleet to more than 850 buses with 98%+ availability, adding over 200 units during the quarter; it is targeting over 2,500 buses in the next 12 months, pursuing tenders for more than 10,000 PM E-DRIVE units, delivering double-digit IRRs in GCC markets, and remains sufficiently funded with 300 crore until March 2026.
* HLF & HHF grew AUM by 25% YoY to 50,430 crore and 14,265 crore respectively, with consolidated NNPA standing at 1.63%.
* HLF is progressing on its RBI-approved merger with NXTDigital, with listing expected in the next 2-3 quarters, while asset quality remains stable despite seasonal risks.
Capacity Expansion & Network Growth:
Company is enhancing production with the Andhra Pradesh plant ramping to 200 units/month by year-end and the Lucknow bus facility starting Q3. Bus capacity at Alwar and Trichy is being scaled from ~950 to 1,650 units/month to address OEM demand shifts. The domestic network expanded by 36 touchpoints, reaching 1,073 MHCV and 851 LCV outlets, with a 2,000 combined target by FY-end, focused on North and Central India. International expansion covers SAARC, Africa, GCC, and ASEAN. Overall capacity utilization stands at ~70%, providing sufficient room for the next 2-3 years, while targeted expansions in bus plants and regional facilities cater to evolving demand and product mix requirements.
Margin Expansion with Strong Segmental Performance:
Company's EBITDA margin improved to 11.1% (+51 bps YoY), driven by lower material cost at 70.6% of revenue (-151 bps YoY) despite duty and tariff pressures. Pricing power was reinforced through full pass-through of mandatory AC implementation and additional price hikes, while the i-VAC system launch addressed mileage drag. Product mix benefited from higher multi-axle contribution, and high-margin businesses delivered strong growth with aftermarket up +8% YoY, Power Solutions +28.5% YoY, and exports +29% YoY, led by GCC growth of over 60%.
Product Strategy & Innovation:
Company is executing an aggressive product and innovation roadmap in FY26, with launches across MHCV and LCV segments to lead market share gains. In MHCVs, the company will introduce 280-360 HP tippers, tractor trailers, and premium multi-axle variants equipped with industry-best peak power, torque, and heavy-duty aggregates, alongside upgraded 13.5m and new 15m buses. Its first LNG models are also scheduled for launch later this year. In LCVs, a bi-fuel variant will address demand in large metros, supported by international upgrades. Electrification momentum is building, with e-trucks on BOSS and AVTR platforms already securing early customer orders.
Outlook & Valuation:
Ashok Leyland's Q1 FY26 update reflects resilient execution despite muted MHCV industry demand, with modest volume improvement, and strengthening balance sheet health. The company's differentiated product strategy-spanning highhorsepower MHCVs, LNG-powered trucks, and bi-fuel LCVs-provides visibility on share gains in H2FY26 and beyond, underpinned by export traction and a healthy defence order book. Subsidiaries such as Switch India and OHM are scaling profitably, while HLF's steady AUM growth and merger progress bolster financial stability. We assign a HOLD rating with a TP of INR144, valuing the stock at 20.8x FY27E PE on an EPS of 6.9. We forecast Revenue/EBITDA/ PAT to grow at 10%/12%/11% CAGR over FY25-27. Near-term cyclical softness warrants caution, with cash flows likely moderated in FY26 but long-term upside rests on product launches and export led growth.
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