Buy Hero Motocorp; target of Rs 2050: FIFL

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Buy Hero Motocorp; target of Rs 2050: FIFL

Fortune Interfinance (FIFL) is bullish on Hero Motocorp and has recommended buy rating on the stock with a target of Rs 2050 in its January 20, 2012 research report.

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Fortune Interfinance (FIFL) is bullish on Hero Motocorp and has recommended buy rating on the stock with a target of Rs 2050 in its January 20, 2012 research report.

"Hero Moto Corp's Q3FY12 revenues and PAT outperformed market expectations. Revenue growth, up y-o-y and q-o-q, was driven by volume growth and higher realization. EBIT margin improved y-o-y on the back of lower raw material cost. Adjusted PAT also improved y-o-y due to higher than expected interest income and lower than expected tax outgo. We are likely to revise our earnings estimate upwards."

"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 market share 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. Average realisations during the quarter were up 0.5% QoQ to Rs37.9k/unit.The increase in raw material cost per vehicle at 1.1% QoQ outpaced the growth in realisation, thus adversely impacting margins by 10bps QoQ to 15.6% EBITDA per vehicle was flat QoQ at Rs5.9k/unit."

"Depreciation charge for the quarter rose 7.2% sequentially to Rs3.0bn On account of the decline in the rupee vis-a-vis the Japanese yen. Increased contribution from the tax exempt Haridwar facility helped in lowering of tax rate for the quarter by 140bps QoQ to 15.3%. However, despite the benefit of a lower tax rate, the underperformance at the EBITDA level led to a lower net profit of Rs6.13bn. After three years of better-than-industry growth rate, we expect HMCL's motorcycle sales volume to moderate to mid-single digit levels. To reflect the Same, we have marginally revised downwards our FY13 profitability estimates. Export and scooter sales would however; clock double-digit growth rates even in FY13.We at FIFL believe that at the CMP of Rs 1,945 the stock is trading at 13.50x FY13E EPS.We recommend 'BUY' on the stock with a target price of Rs 2050 based on 14.20 x FY13E EPS.," says Fortune Interfinance research report.  

Public holding more than 90% in Indian cos

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To read the full report click on the attachment