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On Monday, UBS analyst Pramod Kumar increased the price target for Ashok Leyland (NSE:ASOK) Ltd. (AL:IN) to INR 295 from INR 285, while reiterating a Buy rating on the stock. This adjustment follows a robust fourth-quarter performance by the commercial vehicle manufacturer.
Ashok Leyland’s EBITDA for the fourth fiscal quarter of 2025 surpassed UBS estimates and consensus by 1% and 5%, respectively. The company’s profit margins expanded by 90 basis points year-over-year to 15%, significantly outperforming its competitors Tata Motors (NYSE:TTM) Commercial Vehicles and VECV, which posted EBITDA margins of 12.2% and 10.3% for the same period.
According to Kumar’s analysis, the medium and heavy commercial vehicle (MHCV) industry is experiencing a volume acceleration with strong pricing power due to its duopolistic nature. This comes at a time when the volume growth for two-wheelers and cars is moderating amid high competitive intensity. The MHCV industry is undergoing a paradigm shift, with a noticeable smoothing of cyclicality and operating margins moving to a higher band.
The current down-cycle in the industry, spanning from FY23 to FY25, has seen a relatively modest decline in MHCV truck volumes of only 10% from the peak, compared to the 50-70% declines observed in past down-cycles. During this period, Ashok Leyland’s EBITDA margins expanded significantly by 460 basis points to 12.7%.
In light of these developments, UBS maintains its Buy rating for Ashok Leyland, with Kumar emphasizing the potential for a re-rating of the MHCV industry. The revised price target reflects the firm’s confidence in the company’s performance and the overall sector’s outlook.
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