Volume growth, margin recovery to support gains for Ashok Leyland

Ashok Leyland expects robust volume growth in the near term and margin recovery from Q3FY27, aided by price hikes, cost controls, replacement demand and market-share gains

The 2026-27 (FY27) first-quarter (April-June/Q1) results of Ashok Leyland were a mixed bag. While revenue growth was broadly in line with estimates, operating performance was impacted by higher raw material prices. However, the truckmaker was able to partially offset the sharply higher raw material costs through a combination of price hikes, favourable mix aided by higher margin products, and cost control. 

The firm expects volume growth to remain robust in the near term, while margins should recover from the third quarter (October-December/Q3) of FY27. While the stock, currently at ₹176, has gained 16 per cent over the past three months, the strong outlook should help support the stock price in the near term. 

Profitability was impacted during the quarter, with operating profit margins falling by 100 basis points (bps) year-on-year (Y-o-Y) to 10.1 per cent, with the sequential decline much sharper at 450 bps. While the decline in margins was on account of commodity inflation, higher staff costs, and other expenses, it was partially offset by a 1.25 per cent price hike, cost savings, favourable mix, and opportunity-based inventory buildup. The company expects margins to ease by Q3. 

JM Financial Research expects margins to be impacted in the near term on account of high-cost inventory and commodity pressures. However, incremental price hikes of 1 per cent or more for medium and heavy commercial vehicles (M&HCVs) and 2 per cent or more for light commercial vehicles (LCVs) in July, along with another hike expected before the end of the second quarter (July-September/Q2) of FY27, are expected to provide some cushion, it adds. The brokerage has maintained a “buy” rating with a target price of ₹200. 

Revenue growth for the country’s second-largest commercial vehicle (CV) player came in at 10 per cent Y-o-Y, led by a similar quantum of volume growth. Blended realisations, however, were flat on a Y-o-Y basis and fell 3 per cent sequentially. The company reported 15 per cent Y-o-Y growth in domestic M&HCVs, which was slightly ahead of industry growth of 13 per cent, with market share pegged at 29 per cent. It outperformed the sector in the LCV segment, with its share improving by 30 bps Y-o-Y to 13.2 per cent. Overall volumes were dented by the export market, which fell 18 per cent Y-o-Y as the Gulf region was impacted by geopolitical tensions and international logistics disruptions. 

Going ahead, revenue growth is expected to remain healthy as M&HCV volumes rebounded by more than 20 per cent in June and July after a temporary slowdown in May. The company expects high-single-digit M&HCV industry growth and stronger LCV growth in FY27. This is expected to be supported by replacement demand, as the average truck fleet age remains at 10 years.

Analyst Sanchit Karekar of Axis Securities points out that premiumisation, pricing, cost optimisation, exports, defence, and electric vehicle (Switch Mobility and OHM Mobility) growth should support margins and cash flows. The brokerage has a “buy” rating and has increased the target price marginally to ₹200. 

While near-term margins are likely to remain under pressure amid elevated commodity costs, analysts at Emkay Research, led by Chirag Jain, expect strong CV demand momentum (26 per cent Y-o-Y growth in retail demand in July), pricing actions, improving product mix, and continued traction in non-M&HCV verticals to provide comfort on the growth outlook.

The company expects further market-share gains led by the rampup of newer products such as Hippo, Taurus, and air-suspension trucks from the second half of FY27. The brokerage has retained a “buy” rating with an unchanged target price of ₹240.