Industry slowdown to weigh on Hero MotoCorp ahead: Analysts

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Industry slowdown to weigh on Hero MotoCorp ahead: Analysts

Hero MotoCorp on Thursday reported a 43% year-on-year jump in net profit for the third quarter and revenue was up 17%. Its two-wheeler sales in October-December were also highest ever for the quarter at 15.89 lakh units.

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Hero MotoCorp on Thursday reported a 43% year-on-year jump in net profit for the third quarter and revenue was up 17%. Its two-wheeler sales in October-December were also highest ever for the quarter at 15.89 lakh units.

However, analysts say that the slowdown witnessed in two-wheeler industry since the last couple of months and the increasing competition in the company's bread and butter commuter motorcycle segment will be a challenge going ahead.

Here are some analysts comments on the company's performance and outlook:

Brics Securities: Hero MotoCorp's volume growth remained better than our estimates. We upgrade volume estimates for FY12 by 2% to 6.2 million and by 1.5% for FY13 to 7 million. (However) the stock trades at 17x FY12 and 15x FY13 (earnings), which we believe is expensive. Rating: Reduce. Target Rs 1,864.

Edelweiss: One of the major arguments of bulls for preferring Hero MotoCorp has been the scope of margin expansion. Q3 numbers disappoint to that extent. With sales growth slowing down and competition increasing, margin expansion is likely to be a difficult task. Hence the focus is likely to shift to domestic sales growth and exports plans. Rating: Hold. Target: Rs 2,130.

Emkay: (We) continue to have concerns with concentrated product portfolio and lack of clarity on research & development (R&D)...We lower our FY13 volumes by 3% to 6.9 million units as we factor in moderation in industry volumes. Rating: Cut to Hold from Accumulate. Target: Rs 2,170.

LKP Securities: We believe new launches also will support the domestic growth of Hero. However, rapid expansion of Honda and overall slowdown in the two-wheeler market will arrest a strong growth in market share, due to which we believe the volumes will not grow above 10% in FY13. Rating: Neutral. Target: 1,996.
 
MSFL Research: We expect domestic industry sales growth to moderate in FY13 to 11-13%. We expect the executive segment, bread and butter segment for Hero MotoCorp, to be most competitive segment and reducing margin power. Rating: Sell. Target: Rs 1,920.

Nomura: Going ahead, we believe that volume growth can come under pressure due to a potential industry slowdown and increased competition from Honda. Therefore, we see downside risks to our EPS estimates. Rating: Neutral. Target: Rs 2,237.

Pinc Research: Hero MotoCorp has demonstrated its ability to post a double digit volume growth despite the high base. We have increased our volume estimate for FY12 and FY13 by 2.9% and 1.2% to 6.2 million and 6.9 million units respectively. This has led to an upward revision in our FY12 and FY13 earnings estimate by 5% and 2.2% to Rs119.9 and Rs135.5 per share respectively. Rating: Accumulate. Target: Rs 2,101.

Hero MotoCorp shares closed Friday at Rs 1,946.60 on NSE, up 2.2%.