Target: ₹300
CMP: ₹248.30
We met KM Balaji, CFO.
Key takeaways: Truck volumes, while weak, could potentially improve from H2, aided by a more benign base; mid-to-long term outlook would be driven by sustained economic growth and triggering of replacement-led demand, as fleet-age remains at record levels; DFC not yet seen as a meaningful threat.
Ashok Leyland is gaining share in buses/LCVs, with the non-vehicle (spares, defense, and power solutions) business also faring quite well. Sustained pricing discipline (even in the current weak demand scenario), with improving mix/cost controls, gives confidence on mid-teen margin guidance (vs 12 per cent in FY24).
Outlook on profitability remains strong, aided by price competition remaining under check (discounts declined by ₹20,000/unit in Q1 which has sustained in Q2), improving mix amid rising share of the margin-accretive non-truck businesses, material cost savings initiatives (cumulatively saved ₹2,000 crore over the past 3 years; targets another ₹650 crore savings this year), benign commodity prices; operating leverage benefits may potentially lead to earlier-than-expected delivery on mid-teen margin aspiration.
We assign 14x EV/EBITDA + 2x P/B for HLFL, implying 24x Sep-26 PER. Ashok Leyland is one of the least expensive OEMs, with 13 per cent EPS CAGR, net-cash b/s, >25 over RoCE.