Ashok Leyland Q4 Results Review — The Best Seems To Be Behind: Dolat Capital

Ashok Leyland (AL) exhibited a stellar performance in 4Q. EBITDA margin expanded 214 bps QoQ to 10.97% led by softening commodity price and better product mix along with benefit of operating leverage.

Despite a high base, Al’s expect the CV Industry to grow at 10% in FY24. We maintain our positive view on long industry growth prospects, but are mindful of rising interest rates and sharp price hikes of vehicles, which may affect near to medium term demand. We expect growth and margin would be constrained in 1HFY24 because of the high base, strong pre-buying in past two quarters due to RD norms transition, price increase, lower discounts, and the ripple effect of high-interest rates in many sectors.

Switch mobility - Expect faster acceleration in EVs business. The company has launched double decker EVs bus and are planning to launch E-LCV (electric version of Dost and Bada dost). The company to incur capex of Rs 12bn for a period of 5-6 years.

While we remain positive on AL’s improving fundamentals, we believe that valuations at 23/19x for FY24/25E EPS appear punchy at the almost top of CV cycle. We recommend Reduce with TP Rs 155 (based on 20xFY25E EPS).