Should you invest in Ashok Leyland for long term? Stock Analysis by Finology

Ashok Leyland, India’s 2nd Largest Commercial Vehicle Manufacturer, makes 1 in every 3 Medium & Heavy CV (M&HCV) sold in India.

Finology Research Desk has analysed the company this week, providing a clear verdict on whether Ashok Leyland Ltd. is good for long term investing or not. Find out in this article.

Why is the Commercial Vehicle Industry special?

The Indian automotive industry is expected to reach US$ 300 billion by 2026. The auto sector contributes ~7.1% to India’s GDP (up from 2.77% in 1992-93) and employs ~19 million people directly and indirectly. In April-September FY25, the total vehicle production across all segments in the automobile sector stood at 15.6 million units, translating to 80,000 automobile production every day. India's automobile exports reached 4.5 million units in FY24, positioning the country as a major global hub for vehicle manufacturing.

Source: IBEF Report FY24

The commercial vehicle (CV) industry is the backbone of economic growth, facilitating transportation, trade, and infrastructure development. As infrastructure development accelerates and transportation and trade demand surges, the CV industry’s long-term growth prospects remain strong.

The CV industry is highly cyclical in nature, and is considered as a leading indicator of an upturn or downturn of an economy.

While the sector saw 10% growth in Q1 FY25, Q2 witnessed a 12% decline due to seasonal slowdowns and lower government spending. Still, fleet utilisation (actively used vehicles) remains high at ~95%, signalling strong underlying demand.

India’s Commercial Vehicle Market

The commercial vehicle (CV) segment accounts for approximately 2.87% of the Indian automobile industry, highlighting its role and growth potential within the sector.

Source: IBEF Industry Report FY24

India’s CV industry is oligopolistic in nature- being dominated by few big players like Tata Motors and Ashok Leyland, with steady competition from Mahindra & Mahindra, Eicher, and BharatBenz. In the month - December 2024, Tata Motors led the industry, selling 24,185 units with a ~33.6% market share.

Ashok Leyland Ltd. is the 2nd largest CV player in India.

Business Model of Ashoka Leyland Ltd.

Ashok Leyland, part of the Hinduja Group, manufactures and sells trucks, buses, and light commercial vehicles. The company is also involved in manufacturing the critical components used in commercial vehicles like engines, forgings, and castings. Along with selling vehicles, it provides spare parts and services through Leykart - its online mobile app. It also helps customers with vehicle and housing loans through its financial arm. The company is one of India’s largest commercial vehicle makers. For December 2024, the company sold 11,566 units of commercial vehicles, having a market share of ~16%. 

Revenue Mix of Ashok Leyland Ltd.

Source: Finology Research Desk, Annual Report

Sales of Products

This includes the sale of commercial vehicles- the company’s core business, engines, spare parts, and ferrous casting materials— accounting for the majority ~86% of the overall revenues. The company operates in commercial vehicles, with a strong presence in:

• Medium & Heavy Commercial Vehicles (M&HCVs): These are trucks and buses designed for long-haul, construction, and logistics applications. The buses segment showed a strong growth momentum growing by 67% in FY24 vs 38% growth for the overall bus industry. The company sold 17,956 buses (excluding defence vehicles) increasing its market share, by 5.8% to 33.8%, thus becoming the market leader in the bus segment. The company sold 98,113 M&HCV Trucks, including Defence vehicles, for FY24 vs 1,03,480 M&HCV for FY23. This was a decline in volumes by ~5% as compared to last year.

Source: Company

• Light Commercial Vehicles (LCVs)

Source: Company

LCVs are compact-size vehicles used for transporting goods within a small range mainly within cities. In FY24, the overall LCV industry declined by 1.5%, yet the company maintained stable sales at 66,633 units (flat YoY). Over the long term (FY19–FY24), LCV volumes grew at a modest CAGR of 4.1%, with sales rebounding 1.42X from FY21 lows. The company gained market share but lacked volume growth due to a broader industry slowdown.

• Power Solutions Business (Engines)

The Power Solutions Business (PSB) provides engines and power systems for industrial, agricultural, and infrastructure applications. It serves key sectors like construction, mining, and farming, where reliable power is essential.

With the CAGR of 12.5% growth in this segment over FY20-24 and strong infrastructure push, Power Solutions is an emerging growth driver. Future expansion into new applications and export markets will be key to sustaining momentum.

Sale of Services

This segment includes revenue from after-sales services, such as extended warranties, annual maintenance contracts (AMC), free services, and freight charges. These services are typically sold alongside the main product. This segment contributes around ~5% of the total revenue.

Financial Services

Apart from manufacturing commercial vehicles, the company also provides vehicle and housing financing services. This means it helps customers buy vehicles and homes by offering loans. The revenue from this segment primarily comes from interest income and other finance-related earnings from these loans.

Financial Services account for ~11% of the company's total revenue—a significant but secondary income stream compared to vehicle sales.

Other Operating Revenues

Other operating revenue encompasses income from supporting activities like scrap sales and export incentives.

Sales Volume Performance (FY20–24)

Segment (Figures in Units)	CAGR (FY20–24)	Growth (X times)
Overall Domestic Sales	+12%	1.57X
Exports	+7.4%	1.33X
MHCV (Total)	+13%	1.63X
- Buses	-0.3%	0.99X
- Trucks	+16.5%	1.84X
LCV	+9.3%	1.43X
Power Solutions	+12.5%	1.59X

Source: Finology Research Desk, Annual Reports

Domestic Market: The company’s domestic sales continue to be the primary growth driver, accounting for ~92-94% of total volumes. Post-pandemic recovery has been strong for the company, with 3-year volumes CAGR (FY21-FY24) at 25.3%, signalling a strong demand resurgence. Despite short-term fluctuations, long-term volumes have grown, with domestic sales rebounding 1.57X from FY21 lows. However, the 5-year CAGR (FY19-FY24) is slightly negative at -0.3%, indicating that while demand has picked up, the industry is still recovering.

Exports Market: While Ashok Leyland’s domestic business has shown a strong recovery, exports continue to face macroeconomic headwinds, impacting overall international growth. In FY24, Ashok Leyland’s international sales stood at 11,853 units, reflecting a 5% YoY growth. This performance is notable, considering the broader Indian commercial vehicle (CV) export industry declined by 16.3% during the year. The downturn in exports follows a 14.8% contraction in FY23, indicating persistent challenges in global markets.

Why did we take interest in Ashok Leyland Ltd.?

What caught our attention about Ashok Leyland is its strong market position and impressive financial performance over the past few years. The company has demonstrated:

• Market Leadership: India’s 2nd largest commercial vehicle manufacturer, playing a key role in logistics, transportation, and infrastructure growth.
• Dominance in M&HCV Segment: Holds a 34% market share in the medium & heavy commercial vehicle (M&HCV) category, reinforcing its leadership in the industry.
• Strong Profit Growth: Achieved a 244% CAGR growth in profitability over the last three years, driven by cost optimisation, operational efficiency, and demand recovery.
• Strong Investment Returns: Delivered 19% CAGR returns over the past five years, highlighting its financial discipline and strategic investments.

Source: Ticker Finology

With a solid foundation and promising growth trajectory, Ashok Leyland stood out as a key player in India's commercial vehicle industry. The company's business is primarily focused only on commercial vehicles, unlike its other listed competitors, like TATA Motors Ltd., whose business model is focused on passenger and commercial vehicles.

Why we did not recommend Ashok Leyland Ltd. in Finology 30?

While the company is the market leader and dominates the M&HCV segment, still we found a few concerning factors that can’t be ignored.

1. Inefficient Cash Conversion

Despite posting a PAT of ₹2,484 Cr in FY24, its cash flow from operations (CFO) is negative at -₹6,258 Cr, indicating that these profits are not translating into real cash inflows. The company is generating profits on paper but is struggling to collect actual cash. This signals serious liquidity concerns.

Source: Finology Ticker

2. Increasing Debt Burden

The company’s debt-to-equity (D/E) ratio has been on a consistent upward trend, increasing from 1.7x in 2015 to 3.5x in 2024.

Source: Company, Finology Research Desk

A rising D/E ratio means the company is financing its growth primarily through debt rather than internal cash flows or equity. As debt increases, interest payments become a larger fixed cost, reducing net profit margins.

The company spends ~₹7 on loan interest expenses for every ₹100 it earns, which significantly impacts its profitability. In contrast, its peers (Tata Motors, and Force Motors) spend only ₹1-2 on loan interest for every ₹100 they earn.

This higher interest burden reduces the company’s net earnings, limiting its ability to:

• Distribute dividends to shareholders, making it a less attractive investment.
• Invest in growth initiatives, such as R&D or expanding operations.
• Offer competitive salaries to attract and retain top talent.

In contrast, a company with lower debt (and lower interest costs) retains more earnings, giving it the flexibility to reward investors, invest in expansion, and improve employee compensation, strengthening its long-term competitive position.

3. High Promoter Pledging

From a financial safety perspective, it is crucial to assess the extent of promoter share pledging. The chart below illustrates the percentage of shares pledged by Ashok Leyland's promoters, which has risen significantly from 15% in 2023 to 30.1% in 2024.

Source: Finology Ticker

Promoter pledging is generally viewed as a last resort for raising funds. Ideally, promoters should rely on equity or debt financing instead. A high level of pledged shares raises concerns among investors as it increases financial risk, stock price volatility, and potential corporate governance issues. If promoters fail to meet margin requirements, lenders may sell the pledged shares, leading to sharp stock price declines and eroding investor confidence as the shareholding of promoters will get reduced in the business.

The Bottom Line

Ashok Leyland Ltd. is a key player in the commercial vehicle industry, and it could benefit from its strong brand, diverse product portfolio, and government-led infrastructure push in the economy.

Initially, we saw strong market potential and found it interesting to study. However, a deeper analysis revealed significant concerns—inefficient cash conversion, rising debt burdens, and promoter stake pledging, which we could not ignore. These challenges outweighed the potential benefits, making it an unviable option. Therefore, we decided to step back and focus on better opportunities aligned with our goals.

For Finology 30, our ideology has always been to prioritise strong business models with robust financials. Keeping this in mind, we chose not to proceed with Ashok Leyland Ltd.

However, there are very few stocks that made it to Finology 30. Check them out here.