Ashok Leyland set to ride CV upcycle; Choice hikes target, retains 'Buy'

Choice Institutional Equities has raised its target on Ashok Leyland to ₹196 per share, from ₹161 earlier, maintaining a ‘Buy’ rating. The brokerage believes Ashok Leyland is poised to be a major beneficiary of India’s ongoing commercial vehicle (CV) upcycle, helped by firming domestic demand, rising exports and a structurally stronger business mix.

Solid Q2 performance underlines cycle recovery

Ashok Leyland delivered a strong operational performance in Q2FY26, with the Medium and Heavy Commercial Vehicles (MHCV) truck volumes of 21,647 units and bus volumes of 4,660 units, while early indicators from October 2025 to November 2025 point to sustained momentum in Q3FY26E. 

 

 

The performance reflects a steady recovery in domestic CV demand, healthy export traction and disciplined execution, according to the brokerage. 

 

Further, the company maintained its leadership position with 31 per cent domestic MHCV market share in H1FY26, up 50 basis points (bps) year-on-year (Y-o-Y), while light commercial vehicle (LCV) domestic volumes grew 6.4 per cent Y-o-Y to 17,697 units, translating into a 13.2 per cent Vahan market share (90 bps Y-o-Y), reinforcing its position as a pure-play proxy on the CV cycle.

Structural drivers: Ageing fleet, infra spend and BS-VII pre-buying

Analysts see the MHCV cycle to be in a structural upturn, supported by higher freight rates, acceleration in infrastructure execution, and an ageing fleet that is due for replacement. India’s MHCV fleet is now estimated to be around 10 years old on average, with roughly 1.1 million trucks over 15 years expected to come under the Vehicle Fleet Modernisation (scrappage) programme, driving replacement-led demand.

 

Demand visibility is further aided by regulatory pre-buying ahead of BS-VII norms, expected by FY28E, alongside fleet modernisation and a gradual capex revival. Additionally, goods and services tax (GST) rationalisation (28 per cent to 18 per cent) has lowered acquisition costs by approximately ₹2.5 lakh per truck, improving affordability and accelerating medium-term volume growth.

Premiumisation and new products to lift margins

Ashok Leyland continues to sharpen its product mix towards higher-value offerings, noted Choice. The company is preparing to launch 320HP and 360HP higher-horsepower trucks with six-cylinder engines, aimed primarily at mining and construction applications. These models are expected to be margin-accretive and strengthen AL’s positioning in heavy-duty segments.

 

In LCVs, the ‘Saathi’ platform has emerged as an important growth driver, now contributing about 22–25 per cent of LCV volumes. With a 45HP engine, 110 Nm torque and 1,120 kg payload, Saathi is targeted at urban and last-mile logistics. A bi-fuel variant is planned over the next two quarters, which could further deepen its presence in this space.

Exports and diversified revenue mix reduce cyclicality

Exports are a key pillar of the growth strategy and an important support for margins, according to the brokerage. In Q2FY26, export volumes rose to 4,784 units, up 45 per cent Y-o-Y, while H1FY26 exports were up 38 per cent, driven by strong traction across the GCC (around 30 per cent share), Africa and SAARC markets.

 

Management has reiterated a medium-term export volume target of 25,000 units, implying about 20 per cent compound annual growth rate (CAGR), underscoring the structural growth opportunity and margin upside from overseas markets.

 

Further, nontruck segments, buses (13 per cent), LCVs (12 per cent), spares (10 per cent), defence, power solutions and exports now contribute about 50 per cent of revenue, significantly reducing cyclicality. This diversified mix has reduced MHCV breakeven volumes to 1,000–1,200 units per month, significantly improving earnings resilience across cycles.

EV business turns profitable; margins seen improving

Electric operations under Switch India have turned Earnings before interest, tax, depreciation and amortisation (Ebitda) and profit after tax (PAT)-positive in H1FY26, supported by scale gains and a healthy e-bus order book. Management expects Switch to become free-cash-flow positive by FY27E, adding a layer of medium-term earnings optionality for the group.

 

Overall margins are supported by a richer product mix, operating leverage, lower discounting and benign commodity trends. Choice expects Ebitda margin to gradually improve over FY26–28E, with the management guiding towards mid-teen margin over the medium term.

 

Disclaimer: View and outlook shared on the stock belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.