Ashok Leyland's Q3 margin surprises Street; analyst mixed on future growth

On the bourses, Ashok Leyland share price jumped as much as 2.59 per cent to hit an intraday high of ₹225.30 apiece

Ashok Leyland's December quarter results (Q3FY25) that surpassed Street estimates have sparked a wave of optimism among analysts. The Ebitda margin of the country’s second-largest manufacturer of commercial vehicles expanded 80 basis points (bps) to 12.8 per cent in Q3FY25, up from 12 per cent in Q3FY24.

 

On the bourses, Ashok Leyland share price soared as much as 2.59 per cent to hit an intraday high of ₹225.30 per share on Thursday, before setting 1.16 per cent lower at ₹217.05. In comparison, the BSE Sensex settled 0.04 per cent lower at 76,138.97. Given the strong operational performance, brokerages are generally positive about the company’s medium-term prospects, but opinions differ on growth expectations, especially on volume performance.

 

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"Ashok Leyland continues to execute strongly on margins despite tough markets," stated Nomura, underscoring the company’s ability to sustain margin growth even as broader conditions remain difficult. The brokerage expects growth in FY26, driven by increasing government capital expenditure, a fall in interest rates, and the replacement of older fleets. "Margins should keep rising through the upcycle, as the industry follows pricing discipline," Nomura added, increasing the target price to ₹250, from ₹247, with a 14 per cent upside potential. 

 

Nuvama, while acknowledging the company’s healthy Q3 performance, took a more cautious stance, forecasting "a subdued volume performance ahead at a 1 per cent annual growth over FY25-27" due to slowing government road construction spending and increased competition from railways. “We are building in a muted revenue/operating profit growth of 4 per cent/3 per cent in FY25–27. Retain ‘reduce’ with unchanged target of ₹211 based on 10 times enterprise value to operating profit on FY27 estimates and investment value/share at ₹33,” said analysts at Nuvama.

 

Emkay Research has a more optimistic view, particularly with regard to margins. "Despite muted volumes, Ashok Leyland delivered another strong quarter of margin expansion, achieving an all-time high Q3 operating profit margin of 12.8 per cent," it said. Emkay noted that the improved mix within medium and heavy commercial vehicles (MHCVs), sustained industry pricing discipline, and growth in non-vehicle revenues (like defense and power solutions) are driving these strong results.

 

"We upgrade our FY25/26/27 earnings estimates by 12 per cent/4 per cent/3 per cent," the brokerage said, maintaining a ‘buy’ rating with an unchanged target price of ₹260, driven by the expected growth in MHCVs after a period of flat industry volumes.

 

Those at Macquarie, while maintaining a ‘neutral’ stance, pointed out that Ashok Leyland’s Q3 operating profit margins surprised on the upside, driven by better-than-expected blended realisations and cost-saving measures. "Demand outlook remains positive," Macquarie noted, expecting further improvements supported by macroeconomic factors, such as lower interest rates. The brokerage has a target price of ₹226.

 

Goldman Sachs is the most bullish among brokerages, maintaining a ‘buy’ rating and raising the target price from ₹260 to ₹280, citing robust growth and margin drivers. "At 18 times forward price to earnings, we like the growth and margin drivers," Goldman Sachs stated, highlighting the low base heading into FY26 and the ongoing reverse merger with HLFL, which is on track for completion by Q1FY26. "We raise FY25-27 earnings earnings per share by 8-10 per cent," they added, exuding confidence in the company’s ability to continue delivering solid earnings.

 

While there is broad consensus on Ashok Leyland’s impressive margin performance and the potential for future growth, brokerages differ in their expectations for volume growth. Nomura and Emkay are relatively optimistic about the medium-term outlook, whereas Nuvama and Macquarie take a more cautious approach. The company's ability to maintain pricing discipline, expand in exports, and tap into electric vehicle orders, analysts believe, will be key factors in determining the future trajectory of its stock.