Kotak Securities

Ashok Leyland (Accumulate)

Target: ₹129

CMP: ₹113.25

Ashok Leyland Ltd's (ALL) second quarter FY18 results were broadly as per our estimates. ALL’s number includes Hinduja Foundry Limited (HFL) results and thereby not comparable. Revenue grew by 31 per cent YoY on the back of 23 per cent growth in sales volume. EBITDA margin improved QoQ on higher volumes but was lower YoY.

At 10.1 per cent, EBITDA margin was slightly below our estimate of 10.4 per cent. PAT for the quarter grew by 14 per cent YoY and came as per our estimate.

Given government focus on infrastructure activities, expected re-bound in economic activities and possible strict implementation of overloading ban, truck demand in India will likely grow at healthy rate in the next 2 years.

ALL’s EBITDA margin performance is expected to witness gradual improvement on account of operating leverage from volume growth, further improvement in HFL’s EBITDA margin and possible reduction in discounting levels. We retain ACCUMULATE with revised price target of ₹126 (earlier ₹110).