Ashok Leyland Q1 Review - Seasonality Defies Profitability; Valuation Captures The Positives: ICICI Securities
As against flat M&HCV volume YoY, LCV volume was up 3%, spares revenue was up ~33% YoY and power genset volume grew ~two times YoY
BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.
ICICI Securities Report
Ashok Leyland Ltd.’s Q1 FY24 Ebitda margin at 10% (up 560 basis points YoY) was ~100 bps ahead of consensus estimate, despite it being a seasonally weak quarter.
Margin expansion was led primarily by gross margin improvement through favorable mix (higher mix of spares and gensets), controlled discounting and cost-saving initiatives.
Ashok Leyland expects further margin improvement in the coming quarters led by falling commodity prices, better operating leverage and pricing discipline. Capex in Q1 FY24 was ~Rs 950 million, and the targeted investment for Switch Mobility remains at Rs 12 billion for FY24.
Ashok Leyland’s medium and heavy commercial vehicle market share during Q1 FY24 was at ~32%, up 100 bps YoY, and the company expects to increase it further by enhancing its share in the northern and eastern states, where it is currently sub-30%.
We estimate Ashok Leyland’s M&HCV volume compound annual growth rate at ~5% in FY23-FY25E, with its market share at ~33% (Ashok Leyland expects M&HCV industry growth of 6-8% in FY24).
Post ~30% rally in last three months and no change in estimates, we downgrade Ashok Leyland to 'Hold' (from 'Add') with a revised discounted cash flow-based target price of Rs 185 (earlier: Rs 176), implying 11 times FY25E enterprise value/Ebitda.
Click on the attachment to read the full report:
DISCLAIMER
This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.
Users have no license to copy, modify, or distribute the content without permission of the Original Owner.