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Buy Hero MotoCorp; target Rs 2340: Motilal Oswal
21 Jul 2012, 04:57 PM
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 and 24% 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
 
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