Target: ₹140

CMP: ₹172.65

We believe MHCV industry has peaked in FY24E with muted future outlook (trucking system capacity up about 40-50 per cent over FY19-24, like increases in past 2 upcycles) as bulk of replacement-led upturn seems behind us.

Ashok Leyland’s relative outperformance over the past two years is now getting eroded, particularly in higher-tonnage categories (8-quarter low domestic truck market share in Q3-FY24), as risk-reward remains adverse (trades at 1SD above LTA on PBR) , but ignoring the worsening industry outlook and Ashok Leyland’s weakening competitive positioning, in our view. We note the B/S improvement in recent years (-0.1x Net Debt/Equity in FY26E) is in-line with past cycles (-0.1x average over FY17-19, 0.1x average over FY05-07).

We cut FY25E/FY26 EPS by about 13/20 per cent (lower volumes, limited operating leverage, possible raw materials hardening), downgrading Ashok Leyland to Sell from Reduce with revised TP of ₹140/share (from ₹180) at 3.3x FY26E P/B (15 per cent discount to LTA; 9x FY26E EV/EBITDA earlier), and 20 per cent discount on 1x FY23 P/B for Hinduja Leyland Finance (HLF).

Key risks: Revival in MHCV momentum, AL share loss reversal.