Accumulate Hero Motocorp; target of Rs 2101: PINC Research

“Hero MotoCorp (HMCL) Q3FY12 results were a tad below our estimate with lower than expected realisations. Average realisations at Rs37.9k/unit were up 0.5% sequentially as against our estimate of 1.0% growth. This in tandem with a 1.1% QoQ increase in raw material cost per vehicle impacted margins to the extent of 10bps. Thus, despite a lower than expected tax rate, net profits at Rs6.13bn were 1% lower than our estimate of Rs6.2bn.”

“HMCL beat peers Bajaj Auto and TVS Motor with a domestic motorcycle segment volume growth of 10.7% as compared to 7.3% for Bajaj Auto and a 12% decline for TVS Motor. This enabled the company to expand its marketshare by 125bps QoQ to 56.2%. Exports too received a leg-up growing 19.7% to 46k units. Scooter sales continue to do well despite capacity expansion by market leader Honda Motorcycle & Scooters India. Overall volumes were up 11.3% YoY to 1.59mn units, highest ever for the company. The capacity expansion enabled the company produce 560k units in the month of December alone.”

“HMCL 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 6.2mn and 6.9mn 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 respectively. We also introduce FY14 earnings estimate of Rs142.2. The stock is currently trading at 14.0x its FY13E earnings. We see limited upside from the current levels and reiterate an ‘ACCUMULATE’ rating on the stock with a revised target price of Rs 2101 (earlier Rs 2055) discounting FY13E earnings 15.5x,” says PINC Research report.      

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