Target: ₹290
CMP: ₹224.24
Surpassing our ₹920 crore estimate on the better-than-expected gross margin, Ashok Leyland’s Q2 EBITDA slipped 6 per cent yoy to ₹1,020 crore. We expect India’s M&H CV sector to turn positive with 6 per cent growth in H2 and clock a 7 per cent CAGR over FY25-27, led by robust bus demand (an 8 per cent CAGR), continuing replacement demand, infra/economic activity ( order awarding is robust) and the favorable base.
Exports would record a strong 12 per cent CAGR, led by recovery in Africa/Asia and the low base. The EBITDA margin would rise due to the greater focus on profit (similar to peers) and the tonnage mix. We introduce our FY27e, with 11/14/17 per cent revenue/EBITDA/PAT growths. Valuations are reasonable at 18x FY26/15x FY27. We retain a Buy with a large price of ₹290, 13x FY27e EV/EBITDA (earlier ₹290, 13x FY26e) and Hinduja Leyland Finance at ₹11/sh.
We expect 7/11 per cent revenue/EBITDA CAGRs over FY24-27. We lower our FY25/26 EBITDA up to 15 per cent due to lower-than-expected M&H CV volumes and margins in H1 FY25.
Key risks: Less-than-anticipated growth in underlying segments; keener competition, adverse commodity movements.