Motilal Oswal is bullish on Hero MotoCorp and has recommended buy rating on the stock with a target of Rs 2340 in its July 20, 2012 research report.
"Hero MotoCorp's 1QFY13 operating performance is in-line, with adj EBITDA margin at 10.8% (v/s est 10.7%) and adj PAT of INR6.15b (v/s est INR6.13b). While lower than estimated volumes and realizations resulted in marginally below estimated EBITDA, impact of which was offset by higher other income."
"Volumes grew 7.4% YoY (+4.5% QoQ) to 1.64m units (v/s est 1.67m). Realization were flat QoQ (+ 2.6% YoY) to INR37,799 (v/s est INR38,284) impacted by adverse market mix, despite price increases in April & May and higher excise benefit at Haridwar plant (due to excise increase). As a result, net sales grew by 10% YoY (+4% QoQ) to INR62.1b (v/s est INR63.9b). Adj EBITDA margin at 10.8% were flat QoQ/YoY as benefit of operating leverage as offset by part impact of weaker INR on RM and royalty. EBITDA grew 14.5% YoY (+5% QoQ) to INR9b (v/s est INR9.2b)."
"Higher other income and lower tax boosted reported PAT to INR6.15b (v/s est INR6.13b). The management has maintained its industry growth guidance at 9-10%. Its inventory levels have now increased to 4 weeks (v/s 3 weeks earlier). It expects short-run margins to remain under-pressure due to weaker INR (70-80bp impact in 2QFY13) and increase in advertising spend (v/s lower spend in 1QFY13). We maintain our EPS estimates for FY13/FY14 at INR132/INR146. We model in for volume growth of 9%/12.5% for FY13/FY14, and EBITDA margins of 14.4%/14.7% respectively."
"We maintain our EPS estimates for FY13/FY14 at INR132/INR146. We model in for volume growth of 9%/12.5% for FY13/FY14, and EBITDA margins of 14.4%/14.7% respectively. Hero MotoCorp has outperformed Sensex (by 10% in last 6 months and24% in last 12 months) on the back of strong volume growth. However, volume momentum in domestic 2W industry is expected to moderate in 1HFY13 to 6%, but expected to pick up in 2HFY13. Also, there are no near term catalysts, as margins remain under pressure and profit growth below-normal. However, long term potential remains intact, with significant volume growth and margin expansion potential ahead. The stock trades at 15.8x FY13 and 14.3x FY14 EPS. Maintain Buy with target price of INR2,340 (16x FY14E EPS)," says Motilal Oswal research report.
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