Angel Broking neutral on Hero MotoCorp

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Angel Broking neutral on Hero MotoCorp

Angel Broking has maintained neutral rating on Hero MotoCorp (HMCL) in its January 20, 2012 research report.

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Angel Broking has maintained neutral rating on Hero MotoCorp (HMCL) in its January 20, 2012 research report.

"Hero MotoCorp's (HMCL) 3QFY2012 results were slightly lower than our expectations on the operating front as EBITDA margin contracted (sequentially) due to adverse product mix and higher royalty expenses, led by unfavorable forex movement. Going ahead, we expect slight moderation in the domestic industry demand and increase in competitive intensity, thereby pressurizing HMCL's market share. We believe the stock is fairly valued at current levels and maintain our Neutral rating on the stock."

"HMCL registered in-line net sales growth of 16.9% yoy (3.5% qoq) to Rs 6,031cr, driven by volume growth of 11.3% yoy (2.9% qoq) and a 5% yoy (0.5% qoq) improvement in average net realization. Volume performance was driven by 10.6% (2.6% qoq) and 20.4% yoy (6.4% qoq) growth in motorcycle and scooter sales, respectively. Adjusted EBITDA margin (adjusted for royalty payments) came in lower than expected at 11.9% (down 30bp qoq) due to adverse product mix and higher royalty outgo, led by unfavorable forex movement. Other expenses to net sales declined by 50bp qoq due to lower advertisement and rebranding expenses. Net profit, however, registered strong growth of 20.5% yoy (1.6% qoq) to Rs 613cr aided by lower tax rate and increased other income."

"We broadly maintain our volume estimates for HMCL and model 10.4% volume growth in FY2013. We believe the benefits of lower raw-material costs will be negated due to higher advertising and R&D expenses that HMCL intends to incur going ahead. Further, due to increased competitive activity in the two-wheeler segment, HMCL's market share will also remain under pressure. At Rs 1,951, HMCL's stock is fairly valued at 14.4x FY2013E earnings (historical multiple - 15x). We maintain our Neutral rating on the stock," says Angel Broking research report.

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To read the full report click on the attachment