- Ashok Leyland reported record Q1 commercial vehicle volume and 10.4% revenue growth year-on-year
- Net profit rose 2.5%, but EBITDA margin fell to 10.1% from 11.1% due to rising material costs
- Brokerages are divided, with some raising targets and others cautious on margin pressures
Ashok Leyland's record first quarter has left the Street looking beyond strong commercial vehicle demand and towards a tougher question i.e. how much of that growth can translate into margins as commodity costs rise? That tension has triggered a clear split among brokerages, with four firms raising their targets while others remain cautious.
Goldman Sachs, Kotak Institutional Equities, CLSA and UBS have raised their target prices, while Citi cut its target marginally. Jefferies retained its Hold rating and Rs 160 target.
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The split comes even as most brokerages remain constructive on CV demand, with margin pressure emerging as the key swing factor for the stock.
Record Q1, But Margins Take A Hit
Ashok Leyland reported its highest-ever Q1 commercial vehicle volume at 48,763 units, up from 44,238 units a year ago. Revenue also hit a record Rs 9,634 crore, rising 10.4% year-on-year, while net profit increased 2.5% to Rs 609 crore.
The weak spot was profitability. EBITDA remained flat at Rs 970 crore, while the EBITDA margin contracted to 10.1% from 11.1% a year ago, as rising material costs weighed on performance.
The company, however, strengthened its balance sheet, ending the quarter with net cash of Rs 2,252 crore, a Rs 1,432 crore improvement from last year.
Why Brokerages Are Divided
Goldman Sachs raised its target to Rs 175 from Rs 162, while Kotak Institutional Equities lifted its target to Rs 180 from Rs 170. CLSA increased its target to Rs 196 from Rs 183 and UBS raised it to Rs 210 from Rs 208.
Goldman expects high-single-digit truck volume growth in FY27 but warned that higher-cost inventory could pressure margins in Q2. Kotak also expects a near-term margin softening due to the commodity cost lead-lag, but sees price hikes, a favourable non-auto mix and cost controls supporting recovery in the second half.
CLSA expects margins to "gradually normalise from Q3" as key commodity prices stabilise. UBS, meanwhile, said pricing discipline remains intact despite a mixed quarter.
Citi retained Buy but trimmed its target to Rs 200 from Rs 205, citing strong CV demand and potential market-share gains from new high-payload models, while flagging commodity costs as a margin concern.
Jefferies remained more cautious, retaining Hold at Rs 160 and pointing to valuations of 15x forward EV/EBITDA versus its 13x 10-year average.
Demand Holds Up, Margins Hold The Key
Management expects strong CV demand to continue, with MHCV truck volumes excluding defence rising 15% in Q1 and domestic LCV volumes increasing 21%. LCV volumes of 18,874 units were the company's highest ever for a quarter.
The company has also taken price hikes of 225 basis points in MHCVs and more than 350 basis points in LCVs so far in FY27, which could help offset some commodity pressure.
"Rising material costs remain a concern," said Managing Director and CEO Shenu Agarwal, adding that the company is working on price realisation, cost savings, product mix and inventory management.
For investors, the next leg of the Ashok Leyland story could therefore hinge less on whether CV demand remains strong and more on whether pricing actions and cost controls can protect margins as the commodity cycle turns tougher.
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