Ashok Leyland beats estimates in Q3, upbeat outlook despite CV volume moderation

Ashok Leyland in focus: Ashok Leyland (AL) has reported strong results for the third quarter of financial year 2024 (FY24), surpassing expectations with a notable expansion in earnings before interest, tax, depreciation and amortisation (EBITDA) margins, analysts said. 

Image Credits: Ashok Leyland

The company's focus on cost-saving initiatives, particularly in raw material (RM) expenses, has bolstered its margins, which surged by 320 basis points year-on-year to reach 12 per cent, brokerage firm Motilal Oswal said in a note.

Despite a projected moderation in commercial vehicle (CV) volume growth for the fourth quarter of financial year 2024 (FY24) and the first quarter of financial year 2025 (FY25), Ashok Leyland remains optimistic about sustaining its margins through a strategy stressing profitable growth. 

The management anticipates that the moderation in volume growth is attributed to the high base of the previous year and a slowdown in the tendering process across various industries until the upcoming elections in the first half of calendar year 2024.

In terms of revenue performance, Ashok Leyland showed resilience, with revenue, EBITDA, and adjusted profit after tax (PAT) growing by approximately 3 per cent, 40 per cent, and 63 per cent respectively year-on-year in the third quarter of FY24. 

Notably, the company achieved better average selling prices (ASPs) driven by price hikes in both medium and heavy commercial vehicles (MHCVs) and light commercial vehicles (LCVs).

The company's management highlighted its positive outlook on MHCV growth, notwithstanding the anticipated moderation in volumes until the elections. 

Additionally, Ashok Leyland showcased strength in the domestic LCV market, where it recorded a 2 per cent year-on-year growth despite a 3 per cent decline in the industry's addressable market.

Furthermore, Ashok Leyland is set to venture into electric vehicles (EVs), with plans to roll out e-LCVs and e-buses in the near future. The company has already secured orders and made major equity investments in Optare PLC, indicating its commitment to expanding its presence in the EV segment.

Although the demand momentum for domestic CVs is expected to moderate due to a high base and impending elections, Ashok Leyland's stable raw material (RM) costs, reduced discounting, and focus on diversifying revenue streams position it for sustained profitability, the brokerage firm noted. 

Despite valuations reflecting mid-cycle recovery, the company's initiatives in new revenue streams warrant attention from investors. Therefore, Motilal Oswal analysts maintain a positive outlook on Ashok Leyland, reiterating a ‘Buy’ rating with a target price of Rs 205.

As of 9:33 am, shares of Ashok Leyland were trading marginally lower at Rs 179.90 per share.