AL expects FY24 industry volumes to grow over 10% for M&HCV and 5% for LCV.

At its 2023 Investor meet, AshokLeyland (AL) emphasised its commitment to achieving profitable growth in the domestic M&HCV (medium and heavy commercial vehicle) segment. Additionally, the company aims to expand its non-M&HCV revenue at a faster pace and highlighted the forthcoming inflection point for switch mobility, its electric vehicle (EV) division, which plans to launch six platforms within the next two years. The company’s management expressed confidence in the continued upward trend of the M&HCV market and intends to increase its market share by 3 percentage points to reach 35%. To achieve this, the company will focus on expanding its presence in the LCV (light commercial vehicle) segment, with the objective of significantly increasing its market share.

In terms of financial performance, AL has set a target of achieving a double-digit Ebitda margin in FY24. Furthermore, the company aims to sustain a midteens Ebitda margin in the medium term, indicating its focus on maintaining a healthy level of profitability.

AL expects FY24 industry volumes to grow over 10% for M&HCV and 5% for LCV. While Q1FY24 is weak due to pre-buying ahead of BS-6 Phase-2 norms, AL expects a strong recovery in volumes from Jul’23. This is based on strong feedback from its customers, who have a good order pipeline. AL expects the ongoing healthy CV cycle to extend, considering favourable underlying macros and a positive outlook for the key end industries.

The average age of M&HCVs has increased to 10 years, which should augur well for replacement demand. AL is starting to see some recovery in replacement demand. In the total M&HCV population of 5.2m units, over 1.1m vehicles are more than 15 years old. While currently there are no major benefits of voluntary scrappage policy (w.e.f Apr’23), strict enforcement by the government would be key for the success of this policy. Moreover, infrastructure for scrapping is currently poor and needs to be developed to support large-scale scrapping.

AL aims to increase its market share in the domestic M&HCV segment to 35% by gaining market share in weak markets like North (25% now) and East (24% now), and increasing share in ICV trucks to 35% from 25% and ICV buses to 30% from 15%. To strengthen its presence in North and East, AL will continue to expand its network in these regions as well as in key mining pockets. It added 79 outlets in FY23 (to 803) and plans to add 66 outlets in FY24 in North and East India.

The demand environment is expected to remain stable, bolstered by enhanced pricing power and consistent raw material prices. These factors are anticipated to drive robust earnings. AL emerges as a prime investment option in the CV growth cycle, owing to its strategic positioning to expand revenue and profit pools. While valuations at 17.3x FY25E P/E and 9.3x EV/Ebitda are reflecting the mid-cycle recovery, they do not fully reflect AL’s focus on the diversification of new revenue streams and increasing profit pools.

Courtesy: FE, Mint