Can Ashok Leyland sustain its rally after a 27% surge since November?

ET Intelligence Group: Shares of Ashok Leyland have been trading near record highs after the sales volume of the commercial vehicles maker grew in double digits, sequentially as well as year-on-year in the December quarter aided by GST rate cut and demand traction. The company expects the second half of FY26 to be better than the first half, driven by lower tax and improving infrastructure activity. It is currently ramping up capacity to take advantage of upbeat demand. The stock has gained 27% since November 12, when the company declared the second quarter result.

Sales volumes (domestic and exports) rose 17.3% sequentially and 24.2% year-on-year to 57,625 units in the third quarter of FY26, reflecting sustained demand momentum. Domestic sales grew 24.6% year-on-year to 52,660 units, outpacing the 20.7% growth for the sector. In exports, it aims to increase FY26 sales volume by 20% year-on-year to 18,000 units and to sustain a similar growth rate over the next two-three years to reach 25,000 units. The company is also on track to make it electric vehicles (EV) unit Switch Mobility profitable. It achieved break-even at operating profit before depreciation and amortisation (Ebitda) level in the first half of FY26.

Apart from making EVs, the company plans to invest around ₹5,000 crore over the next decade to develop and manufacture batteries for automotive and energy storage applications. It has entered a long-term exclusive partnership with China-based CALB Group to produce batteries in India.

Its Lucknow plant will be operational shortly, and along with the ramp-up at the Andhra Pradesh facility, the annual bus body-building capacity will increase to over 20,000 units from the present 12,000 units. The current light commercial vehicles (LCV) capacity is about 80,000 units. Depending upon the demand trend, it can be scaled up to 110,000-120,000 units within 6-9 months via process improvements and minor capex.

Emkay Global Financial Services has raised the revenue estimate by 3-7% and earnings per share target by 6-10% for FY27 and FY28 respectively citing improving growth ou-tlook. However, at Tuesday's closing price of ₹186 on the BSE, the stock traded above the broking firm's target price of ₹160, which may result in profit booking in near term.