Ashok leyland reported a Q1FY24 Ebitda margin of 10%, surpassing the estimates of Nomura (8.7%) and the consensus (8.4%). The average selling price (ASP) reached Rs 1.98 million, showing a quarterly increase of about 2% (Nomura projected Rs 1.92 million). Additionally, the company managed to reduce its raw material/sales ratio by 190 bps to 73.7% (Nomura estimated 74.5%). Moreover, the staff cost was lower at 6.6% (Nomura projected 7.6%), but this reduction was partly offset by higher other expenses at 9.7% (Nomura estimated 9.2%).
AL expects the medium and heavy commercial vehicle (MHCV) industry to grow by 8-10% in FY24F. The company has been gaining market share through network expansion and the success of its automated visionary transport (AVTR) platform, particularly evident in Q1FY24. AL is also intensifying its efforts in international markets. Margins have been supported by strong growth in power solutions and spares, contributing to the overall growth. AL remains focused on sustaining double-digit margins. Additionally, in line with the global trend towards electric vehicles, Switch Mobility, a subsidiary of Ashok Leyland, is gearing up for EV bus launches in FY24.
We estimate the MHCV industry to grow +10%/ 5%/ 5% y-o-y in FY24/25F/26F. Our demand framework suggests CV cycle will continue as long as GDP growth remains at >6% over FY24-26F and capex push by the government continues. While Q1 demand for the industry was weak due to the impact of pre-buy in Q4FY23, our demand trackers remain positive. Margins will continue to move up through the upcycle as both Tata Motors and AL are focussed on improving margins. Our MHCV volume estimates remain unchanged. We raise FY24-25F Ebitda margin to 11%/11.3%, leading to 9%-6% higher Ebitda for FY24-25F. We expect 11.4% Ebitda margins in FY26F.