Broker’s call: Ashok Leyland (Outperform)

Target: ₹300

CMP: ₹239.85

Ashok Leyland’s margin beat and outperformance vs peers continued in Q4. Improved profitability has also come with superior FCF generation. Even if its working capital normalises, and investments in subsidiaries continue in FY26, we see AL continuing to enjoy FCF conversion superior to historical levels, further supporting its valuation.

Early this year, we added Ashok Leyland to our sector top picks along with MSIL and MM, and see it now starting to deliver on our expectations. Ashok Leyland’s Q4-FY25 revenue was marginally lower than the Bloomberg consensus (BBGe) and our estimates. EBITDA margin, however, beat our much-above-consensus expectations, driven by better gross margin, resulting from raw-material cost savings and favourable commodity prices.

It expects growth across the sub-segments of the CV industry in FY26 driven by: pent-up demand in the truck and bus segment, shift to higher tonnage in tractor trailers and a positive outlook for core sectors.

Various high-frequency indicators we track have started turning favourable for CV demand, indicating a start of the upcycle. AL is entering a new CV upcycle with the highest margin and FCF conversion, while the stock is trading much below its last 10-year median NTM P/E, making the set-up look very attractive to us.

Published on May 26, 2025