Can Ashok Leyland replicate its June quarter margin show?

livemint.com:

Ashok Leyland Ltd seems to have got this right. The company’s performance in the first quarter of FY24 (Q1FY24) has lifted investors’ spirits with the stock hitting a new 52-week high of ₹186.50 apiece on Monday. The automaker clocked Ebitda margin of 10% in Q1 whereas analysts were expecting the measure to be in the high single-digits.

This is the second continuous quarter that the company has reported a double-digit margin. In Q1, Ebitda margin has expanded as much as 560 basis points (bps) year-on-year despite volume rising by just 4%. Recall that in Q4, the commercial vehicle (CV) industry had seen pre-buying ahead of transition to Bharat Stage-VI phase 2 norms which led to lower volume in Q1.

What is more, Ashok Leyland sees levers for margin expansion in upcoming quarters. In the earnings call, the company said it expects commodity prices to soften in coming months. Steel prices are likely to remain benign in second half of FY24, according to the company.

This coupled with cost reduction measures will aid profitability. Further, vehicle discounts have come down in CV industry. “Currently, the industry is seeing a pricing discipline and we expect this to sustain on the back of an upward volume trajectory," said Varun Baxi, an analyst at Antique Stock Broking.

Ashok Leyland hiked prices in Q1 and noted that retention of such increases is improving. Moreover, operating leverage, too, is expected to kick in as the company expects volume momentum to pick up pace from Q2. Ashok Leyland reiterated its guidance of 8-10% growth in medium & heavy CV (M&HCV) industry in FY24.