Ashok Leyland hits record high in subdued market; rallies 8% in two days

The company said it has partnered with 'Aidrivers' for producing autonomous electric terminal trucks to address the Net Zero emissions needs of the port industry

Shares of Ashok Leyland hit a record high of Rs 170.15, gaining 3.5 per cent on the BSE in Monday's intra-day trade in an otherwise subdued market. It surpassed its previous high of Rs 169.40, touched on September 6, 2022. In comparison, the S&P BSE Sensex was down 0.15 per cent at 63,291 at 10:37 AM.

In the past two trading days, the stock of the flagship Hinduja Group and commercial vehicles (CV) company has rallied 8 per cent after the company partnered with 'Aidrivers' for producing autonomous electric terminal trucks to address the Net Zero emissions needs of the port industry.

Ashok Leyland, in an exchange filing, said the company constantly explores various opportunities including, but not limited, to newer technologies and tie-ups with relevant companies. The Company has communicated its readiness in the aforesaid area, which will enable the prospective customers to take note of and explore their options with the company, it added.

Meanwhile, according to analysts, the industry-wide pricing discipline is aiding double digit margin trajectory, coupled with upswing in domestic commercial vehicle (CV) space aided by greater infra spends by government.

The management expects margins to remain in double digits in FY24E on the back of pricing discipline, softening in commodity prices, and operating leverage gains. Further, the management continues to focus on attaining margin in mid-teens during the mid to long term.

Ashok Leyland's management also plans to improve earnings before interest, taxes, depreciation, and amortization (ebitda) margins to mid-teens by market share-driven revenue momentum, cost reduction, modular platform benefit in manufacturing efficiency and productivity improvement.

Management feels MHCV sales volume could grow in the next few years and the company is not yet at peak as freight availability for trucks and bus/ tipper orders are strong. With the absorption of interest rate hike impact and new emission upgrade cost, it expects industry to recover to growth path from Jul-Sep 2023 quarter.

"It has won 80 per cent of land mobility order from defence forces in recent years, which it expects to deliver Rs 3,500 crore sales in next 2-years vs Rs 2,000 crore seen in last 3-years. It is helping government initiatives of import substitution of spare parts for existing machines," InCred Equities said in a analysts' meet takeaway.

Management reiterated that CV cycle is on multi-year rise and will recover post Q1 flattish trend, aided by Government of India infra build, easing interest rates and rising industrial output. The brokerage firm said it sees upside risk to their EPS estimate from Ebitda margin aggression of management (vs our 10 per cent Ebitda margin for FY25F).

Ashok Leyland is, according to Prabhudas Lilladher, well placed to sustain its market share gains of 33 per cent of trucks and 27 per cent of busses in FY24. Moreover, multiple white space in the LCV segment give opportunities to increase market share, they said.

"Ashok Leyland should see structural increase in margin due to lower discounting, cost engineering over the last few years, mix improvement and operating leverage and reach mid-teen margins in the midterm (double digit in FY24). The company’s focus on international market, growing non CV revenues are steps to reduce impact on financials in a CV down-cycle," the brokerage firm said.