According to ICRA, the Commercial Vehicles (CV) industry in India is poised for growth, with retail volumes increasing by 2.9% year-on-year in the first ten months of FY2024. Tata Motors leads the market with a 38% share, contributing to over 967,000 units sold in FY2023, reflecting a strong economic recovery and infrastructure investment.
With a market capitalization of Rs 65,658.51 crore, the shares of Ashok Leyland Ltd were trading around Rs 221.85 per share, decreased around 3.2 percent in the morning session as compared to the previous closing price of Rs 222.50 apiece.
Brokerage target:-
CLSA, one of the well-known brokerages globally, gave a ‘sell’ call on the automobile stock with a target price of Rs 188 apiece, indicating a potential upside of 15 percent from Wednesday’s price of Rs 221.85 per share.
Rational:-
As per the brokerage, the company has seen a 10 percent decrease in domestic truck sales during the first half of the financial year 2025 indicating the beginning of a downturn in the CV sector, which is expected to continue until FY2026.
Moreover, Domestic truck sales are declining due to an oversupply in the road freight market following strong growth between fiscal years 2022 and 2024. CLSA expects a year-on-year decline of 5 percent in Medium & Heavy Commercial Vehicle (M&HCV) volumes for fiscal years 2025 and 2026.
Ashok Leyland is facing challenges with shrinking scale and increased discount risks, which could lead to a 200 basis point drop in margins, down to 10.4 percent by fiscal year 2026 from 12.4 percent two years ago.
As a result, CLSA has lowered its EPS forecasts for Ashok Leyland for fiscal years 2025, 2026, and 2027 by 12.6 percent, 34.9 percent, and 23.5 percent, respectively.
Financial performance:-
In Q1 FY25, total commercial vehicle volumes hit a record 43,893 units, growing 6% year-on-year. Medium and Heavy Commercial Vehicle (MHCV) volumes increased by 10%, with Ashok Leyland maintaining a 31% market share. Light Commercial Vehicle (LCV) volumes also rose 4% year-on-year.
On a standalone basis, revenue for Q1 FY25 reached an all-time high, growing 5% from the previous year. EBITDA increased by 11% to ₹911 crores, with margins improving to 10.6%. Profit Before Tax (PBT) rose 13% to ₹701 crores, and Profit After Tax (PAT) hit ₹526 crores, a record high.
Market outlook:-
Management is optimistic about the commercial vehicle industry’s outlook, supported by favorable macroeconomic factors, a good monsoon, and strong economic measures from the recent budget. Despite concerns about elections and monsoon unpredictability, they expect positive growth momentum to continue into Q2 and FY25.
Challenges:-
The company faces challenges in its power solutions segment, with a 20% volume decline due to last year’s pre-buy activities. However, aging commercial vehicle fleets offer replacement demand opportunities. Management maintains pricing discipline, with no price increases in Q1 or July, despite stable pricing conditions.
Company Snapshot:-
Ashok Leyland has a lengthy history in the domestic medium and heavy commercial vehicle (M&HCV) industry. The firm has a strong brand, a diverse distribution and service network across the country, and a presence in 50 countries, making it one of the most completely integrated manufacturing enterprises.
Written by:- Abhishek Singh
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