Shares of Ashok Leyland rallied nearly 6 per cent to hit an all-time high of Rs 222.85 apiece on May 27 after the Street cheered its robust January-March quarter (Q4FY24) performance.
This was after the company’s fourth quarter performance was a beat, driven by improved mix and cost-control measures. This resulted in an EBITDA margin expansion of 14.1 per cent.
The company’s profit after tax (PAT) jumped 19.8 per cent year-on-year (Y-o-Y) at Rs 900 crore as against Rs 751 crore in the year-ago quarter. However, operating income was down 3 per cent Y-o-Y at Rs 11,277 crore, amid 6 per cent de-growth in volumes to 56,267 units.
Cash flow generation for the year was robust at around Rs 4,000 crore, resulting in the company turning net cash positive on the balance sheet front. The company said it generated Rs 1,658 crore cash in Q4FY24.
The management said the results were backed by an all-round performance with contributions from all business verticals. In the medium and heavy commercial vehicles (M&HCV) Bus segment, Ashok Leyland emerged as the market leader with a market share gain of 5.8 per cent points.
Overall commercial vehicles (CV) volumes at 194,553 units were very close to the previous high of 197,366. Light commercial vehicles (LCV) volumes in the 2-3.5T category were maintained despite the industry witnessing a reduction in volumes.
What Should Investors Do?
Analysts at Emkay Institutional Equities upgraded Ashok Leyland to ‘buy’ from ‘sell’ with a target price of Rs 250 per share, implying an upside of 12 per cent from current levels.
“Amid intact fleet operator profitability, we believe the pricing power/margin expansion for CV OEMs will sustain; this drives FY26E EPS up ~19 per cent. Despite the 21 per cent increase in stock price in 3 months, Ashok Leyland remains among the least-expensive OEMs,” they wrote in a result-review analysis.
JM Financial, too, maintained a ‘buy’ call on Ashok Leyland and shared a target price of Rs 275 per share as it reiterated its focus on profitable growth. “Benign commodity cost and astute cost control initiatives are expected to support profitability. We estimate 8 per cent/ 22 per cent revenue/ EPS CAGR over FY24-26E,” analysts added.
Domestic brokerage firm Motilal Oswal expects a recovery in commercial vehicle demand from the second half of the financial year 2025 onwards as structural demand drivers remain intact.
“AL is the best investment choice in the CV growth cycle, as it has positioned itself to expand revenue/profit pools. Moreover, its focus on profitable growth driven by lower discounts, a better mix, and cost control measures should bode well for EBITDA margin expansion over FY24-26E,” it said in a note while reiterating a ‘Buy’ rating, with a target price of Rs 245 per share.
Prabhudas lilladher has retained its ‘Buy’ rating on the stock, and increased its target price to Rs 239 from Rs 210 per share earlier, citing delivery of healthy margin expansion.
According to the brokerage, the management said that it will continue to work towards improving its EBITDA margin towards mid-teens, which will be led by pricing action, cost cutting initiatives and discipline on discounts.
Prabhudas lilladher believes Ashok Leyland is well-placed to deliver on market share gains and volume growth, which it said will be driven by new launches and demand for higher tonnage CVs.
Jefferies believes the stock will be rangebound until demand visibility improves. The brokerage expects a capex-led economic cycle to fuel demand growth ahead.
It said the stock is already at 5.2 times financial year 2025 PB (price-book) on consensus as against its last cycle peak of 5.8 times.
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