Buy Ashok Leyland; target of Rs 147: LKP Research

LKP Research's research report on Ashok Leyland

Ashok Leyland (AL) reported revenues of ₹87,245 mn in Q1FY26 (up 1.5% YoY / down 27% QoQ), broadly in line with expectations, supported by volume growth and strong traction in non-CV businesses. Market share improved to 31.1% in MHCV and 12.9% in LCV segments, despite a decline in domestic MHCV industry volumes. Defence revenues moderated on account of a large order executed in the base period but are expected to recover ahead. Aftermarket revenues remained firm, while the Power Solutions business grew 28.5% YoY. EBITDA margin expanded by ~52 bps YoY to 11.1%, aided by gross margin improvement, better pricing, favourable mix, and operating efficiencies, partly offset by higher steel costs. The company successfully passed on the incremental AC-related costs to customers. AL continues to prioritize margin improvement over aggressive market share gains, focusing on premiumization, service excellence, and cost control. PBT/PAT stood at ₹7,977 mn / ₹2,040 mn, up 13.7%/13% YoY, respectively. Overall volumes grew 29% YoY, supported by healthy momentum in key export markets such as GCC, Africa, and SAARC, despite prevailing geopolitical uncertainties.

Outlook

We estimate revenue/EBITDA/PBT to grow at 6.8%/11.2%/12.8% CAGR over FY25–27E. Assigning a 21x P/E multiple on FY27E EPS, we arrive at a target price of ₹147, implying a positive riskreward given strong execution and diversified growth levers.

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