Rough road ahead for Ashok Leyland
BENGALURU : For Ashok Leyland Ltd, this financial year is likely to be a notable one in terms of profitability. After four years, the commercial vehicle (CV) maker is on course to clock double-digit Ebitda margin in FY24. In the first half of FY24, the measure stood at 10.7% and the company expects the second half to benefit from the twin tailwinds of better demand and softer commodity costs.
Ebitda is short for earnings before interest, tax, depreciation, and amortization. As such, an improving margin performance is one reason that aided the 22% rise in Ashok Leyland’s shares so far in 2023. But further significant upsides may be difficult.
Analysts reckon that the best of the current CV upcycle is over. Thus, industry growth is set to moderate. Ashok Leyland foresees the medium & heavy CV industry to grow by 8-10% in FY24.
In comparison, Kotak Institutional Equities expects volumes to see a compound annual growth rate of 7-8% over FY23-25. This suggests a drop in the growth rate in FY25. Moreover, rising competition adds to the woes.
“As demand trends start to moderate, we expect competitive intensity (discounts) to increase, which will weigh on profitability of the industry," said Kotak’s analysts in a report on 10 November. However, the bright spot is that Ashok Leyland’s market share in the medium & heavy CV segment was up by 70 basis points sequentially to 31.9% in Q2. To be sure, in the September quarter (Q2FY24), Ashok Leyland’s realization per vehicle fell sequentially after seven consecutive quarters of growth.
This is because the company could not retain the 3% price hike taken in Q1. Given its aim to achieve mid-teen margin in the medium term, the margin trajectory needs closer monitoring. Further, the need
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