Choice Equity Broking has reaffirmed a BUY rating on commercial vehicle manufacturer Ashok Leyland following a robust Q2FY26 performance highlighted by a 9.3% year-on-year revenue increase to Rs 95,882 million and a notable 14.2% rise in EBITDA. The company has fortified its domestic market leadership in the medium and heavy commercial vehicle (MHCV) segment while making significant inroads in light commercial vehicles (LCV) and exports. With operational resilience, cost management, and aggressive product launches—especially in premium heavy-duty trucks and expanding export markets—Ashok Leyland is positioned for sustained growth. The revised target price stands at Rs 161, offering investors a potential upside of 15.6%.

Impressive Q2FY26 Financial Performance

Ashok Leyland reported revenue of Rs 95,882 million in Q2FY26, up 9.3% year-on-year, driven by a 7.7% volume growth and a 1.6% rise in average selling price (ASP). EBITDA expanded by 14.2% year-on-year to Rs 11,622 million, with the EBITDA margin improving by 51 basis points to 12.1%. Adjusted profit after tax (APAT) surged 24.3% to Rs 8,111 million, comfortably surpassing estimates. The company also showcased operational efficiency with stable material expense ratios (71.2% of sales) and improved working capital management, resulting in a positive net cash position of Rs 10,000 million — a Rs 15,000 million turnaround year-on-year.

Market Share Gains and Expanding Product Mix

Ashok Leyland has consolidated a 31% share in the domestic MHCV segment, up 50 basis points year-on-year, while LCV market share has risen to 13.2%, outpacing industry growth. Export volumes witnessed a remarkable 45% jump year-on-year, with strong demand in the GCC, Africa, and SAARC regions. The company's strategy to introduce premium 320HP and 360HP heavy-duty trucks featuring advanced six-cylinder engines with 20-30% higher torque is expected to further enhance profitability in mining and construction sectors.

Innovation and Capacity Expansion Fueling Growth

The LCV portfolio's momentum continues, anchored by the success of the ‘Saathi’ model, which now accounts for 22-25% of 2-4 ton sales with minimal cannibalization. Planned launches of bi-fuel CNG-petrol and CNG-diesel variants in the upcoming two quarters will broaden market reach, especially in urban logistics. Bus manufacturing capacity is set to nearly double from 12,000 to over 20,000 units annually following expansion at plants in Andhra Pradesh and Lucknow, catering to growing domestic and export demand. Switch Mobility, a subsidiary, exhibited promising growth with nearly 600 buses and e-LCVs sold in H1FY26, turning EBITDA and PAT positive, aiming for free cash flow positivity by FY27E.

Valuation and Target Price Upside

Choice Equity Broking values Ashok Leyland’s core business at 20 times average FY27-28 estimated EPS, arriving at Rs 142 per share. Additional stakes in Hinduja Leyland Finance Ltd. (HLFL) valued at Rs 15 and Switch Mobility at Rs 4 bring the sum-of-the-parts valuation to Rs 161. This reflects a 15.6% upside from current levels (CMP Rs 142) with a maintained BUY rating. The research house has raised FY26 and FY27 EPS estimates by 2.2% and 2.9%, respectively, underscoring positive revisions backed by robust export growth, premiumization, and cost efficiencies.

Key Stock Levels and Targets

Investors should monitor the following technical levels based on recent analyst guidance:

Additional Highlights

• Break-even volume for MHCV trucks has fallen significantly to about 1,000-1,200 units monthly, shielding the company from heavy-duty segment cyclicality.
• GST rationalization cutting cost of truck ownership by nearly 10% is expected to enhance freight demand and sector momentum.
• Capex guidance remains Rs 10,000 million for FY26, with possible additional investments up to Rs 5,000 million in associates like Hinduja Leyland Finance Ltd.
• The company maintains a positive outlook fueled by fleet replacement cycle revival, infrastructure development momentum, and an expanding alternative fuel vehicle portfolio.

Bottomline for Investors

Choice Equity Broking’s latest research underscores Ashok Leyland’s formidable market positioning supported by accelerating volume growth, strategic premium product launches, and broadening export avenues. The stock presents a compelling investment case with a solid balance sheet, operational leverage, and a BUY recommendation featuring an upside potential of over 15%. Investors are advised to accumulate around Rs 135 support, targeting Rs 161 within a 12-month horizon, aligning with the robust sectoral tailwinds and company-specific strengths.