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ICICI Securities Report
Post recovering ~120% in volume terms from the lows of FY21, domestic goods medium and heavy commercial vehicle market is currently up ~20- 25% above its tonnage-adjusted incremental supply level in the previous peak of FY19.
We are building in flat volume for domestic goods M&HCV industry in FY25E, followed by a year of ~10% decline in FY26E. In line with industry decline, we are building in goods M&HCV volume decline of 10% for Ashok Leyland in FY26E, post remaining flat in FY24-25E.
We are building in Ebitdam for Ashok Leyland in FY26E at 8% versus 10.5% in FY25E, on the back of adverse operating leverage and potential pressure on pricing.
We downgrade Ashok Leyland to Sell from Hold, with a revised discounted cash flow-based target price of Rs 140 (earlier Rs 177), implying 12 times FY26E enterprise value/Ebitda. Change in target price is primarily due to valuation rollover to a weaker FY26.
Upside risks
Growth in domestic goods MHCVs in FY25 and FY26 driven by enhanced focus on capex cycle by the government post elections
Ashok Leyland executing its target mid-teen margin ahead from current ~11-12% levels
Ashok Leyland being able to sell stake in Switch Mobility down the line, thus helping it get back the Rs 16 billion paid from its standalone cashflow.
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