Ashok Leyland forays into battery ecosystem; Nomura analyses implications

Nomura noted that management remains mindful of internal rate of return (IRR) and intends to step up into full-fledged cell manufacturing only if reasonable returns are visible.

Nomura on Ashok Leyland: Foreign brokerage Nomura believes Ashok Leyland’s (AL) entry into the domestic battery ecosystem marks a “calibrated approach” toward EV technology, with the company focusing first on technology development and scale rather than aggressive capital deployment. 

 

The brokerage noted that management remains mindful of internal rate of return (IRR) and intends to step up into full-fledged cell manufacturing only if reasonable returns are visible.

 

While battery economics are currently low-margin and low-ROCE, Nomura highlighted management’s confidence that scale and wider adoption could help the venture achieve global-benchmark Ebitda margins of 18-19 per cent over time. It added that a likely GST reduction on EVs should be positive for retail buyers, while the near-term impact on medium and heavy commercial vehicle (MHCV) volumes may be limited. Over time, however, lower taxes could spur replacement demand as consumption improves. 

 

“AL’s margins can improve further as discounts come down,” Nomura said. The brokerage maintained its ‘Buy’ rating with a target price of ₹144, valuing the stock at around 9x FY27F EV/Ebitda (adjusted for subsidiaries).  Track Stock Market LIVE Updates 

The move

 

Ashok Leyland, on September 1, announced plans to invest about ₹5,000 crore over the next 7-10 years to build a domestic battery ecosystem in India. 

 

The initiative comes through an exclusive long-term partnership with China’s CALB Group. Ashok Leyland will initially import cells from CALB and assemble localised battery packs in India, with operations expected to begin in the first half of FY27. 

 

Initial investments of ₹300-600 crore will be made over the next 2-3 years, while the broader investment has a 10-year horizon. The plan will be housed under a separate Ashok Leyalnd entity and not as a joint venture. The management, meanwhile, expects a payback in 4-5 years.

 

Besides, the company’s first focus will be on captive EV requirements of Ashok Leyland and Switch Mobility, estimated at 4-6 GWh over the next 4-5 years, before moving to non-captive demand across the auto and energy storage markets. 

 

The company will also be CALB’s exclusive partner in India, with all relevant local products routed through it once domestic manufacturing scales up.

 

Ashok Leyland will initially work on Lithium Iron Phosphate (LFP) chemistry and establish a Global Centre of Excellence in India, focusing on advanced materials, recycling, battery management systems, and manufacturing processes. 

 

Management likened the move to its earlier in-house engine development strategy, underscoring the strategic importance of batteries, which account for about 30-40 per cent of OEM costs.

 

On the bourses, however, Ashok Leyland’s share price was trading 0.92 per cent lower at ₹129.15 apiece at 10 AM, even as the BSE Sensex hovered flat with a slight negative bias at 80,133.06.