Ashok Leyland gets multiple target price cuts after Q2 results despite record profit

Ashok Leyland will be in focus on November 11 after the automaker reported its results for the July to September 2024 quarter on Friday. Several brokerages reduced their target prices on the trcuk maker's stock despite the company reporting record profit and beating CNBC-TV18 poll estimates across parameters.

The company’s bottomline rose 37% year-on-year to ₹770 crore, compared to ₹561 crore in the corresponding period of last year. The profit figure was also higher than CNBC-TV18's poll of ₹561 crore. However, the topline declined by 9% year-on-year to ₹8769 crore but was higher than CNBC-TV18's poll of ₹8,764 crore. The company posted a revenue of ₹9638 crore in the same period a year ago.

In a post-earnings chat, Managing Director & CEO Ashok Leyland said that heatwaves, uneven monsoon, and elections impacted CV demand in the first half of the fiscal but his firm expects a pick-up in H2.

Ashok Leyland shares traded 3% higher at Rs 228.60 on NSE at 9:56 am.

Here’s what brokerages make of Ashok Leyland Q2 results

Following the Q2 results, Morgan Stanely has cut the target price on Ashok Leyland shares to ₹268, which means the brokerage still expects the stock to rise 25% from the closing price of November 8.

MS said that the Q2 EBITDA was a touch ahead of estimates and it expects volume trends to gradually improve helped by a favourable base. The industry focus on margins, gradual volume recovery and valuation support drive its overweight stance on the company, the brokerage explained.

JPMorgan has assigned an overweight rating to Ashok Leyland with a target price of ₹250, highlighting that its Q2 performance exceeded expectations due to stronger-than-anticipated gross margins. “This is in line with Ashok Leyland’s stated goal (as well as its competitor TTMT’s) of prioritising profitability over volumes/market-share in near term,” it said.

The company's pricing discipline and growth in non-vehicle segments contributed to an EBITDA margin expansion of 40 basis points year-on-year, reaching 11.6%, despite an 8.5% decline in volume. Management expects year-on-year volume growth to turn positive in the second half of the fiscal year, in contrast to the first half's decline, according to JPMorgan.

JPMorgan has, however, cut its FY25-27 EBITDA forecast by 4-14%, citing ongoing volume weakness that may extend for a few quarters, with recovery anticipated to begin in FY26.

Nomura has reiterated its buy rating on Ashok Leyland but lowered the target to ₹247, projecting a positive growth trend from Q4 of FY25. The brokerage noted that the company’s margins remain stable due to disciplined pricing, adding that the commercial vehicles market is likely to rebound. Despite recent sluggish demand for CVs, Nomura maintains a positive outlook on the sector.

In contrast, CLSA has an underperform rating on Ashok Leyland with a target of ₹188. CLSA acknowledged that Q2 EBITDA and gross margins were supported by lower steel prices and cost-cutting initiatives. Following a subdued first half, management is optimistic about 0-2% growth for medium and heavy commercial vehicles (M&HCVs) in FY25, driven in part by a 34% year-on-year growth in M&HCV buses. However, CLSA remains cautious, pointing to oversupply risks that could prolong the M&HCV downcycle into FY26.

Citi has set a target price of ₹260 with a buy rating as it noted better-than-expected gross margin offset lower operating leverage and also that the management’s outlook is positive.

The brokerage pointed out that the management noted that the firm has been focused on margins, and therefore has not increased discounts. It also believes new products should aid market share, particularly in buses and LCVs. “A strong result notwithstanding, is a tad cautious on overall industry demand, particularly in the MHCV segment (trucks +buses),” Citi said.

Jefferies has a hold rating on the stocks of Ashok Leyland with a target price of Rs 235 as it likes Ashok Leyland’s high focus on profitability.

The second quarter EBITDA fell 6% YoY, which was still above Jefferies’ estimates, and that EBITDA margin rose 40bp YoY despite 8% lower volumes. Truck industry growth has slowed down from 45% CAGR over FY21-23 to 0%/-8% in FY24 and the first half of FY25, but a capex-led economic cycle shall drive better demand ahead, the brokerage expects.

However, the stock is at 5.6 times FY26E P/B and is unlikely to rise much until demand visibility improves, Jefferies said and cut the FY25-27 EPS projection by 7-8%.

On the contrary to others, Kotak Institutional Equities has upgraded its rating on the stock to add with a target price of ₹235. The brokerage expects a gradual recovery in truck and LCV segments from FY2026, coupled with steady demand trends in the bus segment, to drive a 6% volume CAGR over FY2025-27. It also expects profitability trends to continue to improve, driven by an increase in non-auto mix and cost-control measures.