Emkay Global Financial Services is bullish on Hero Motocorp
and has recommended buy rating on the stock with a target of Rs 2250 in its March 19, 2013 research report.
- Demand scenario remains weak as consumers cut discretionary spending expect a 6 percent volume growth in FY14
- Improved market share in the past four months as the earlier loss was owing to inventory liquidation and brand migration
- New product pipeline from in-house R&D and technical tieups should start contributing from mid-2014
- Confident that investor concerns over product development capabilities and line-up would be addressed by then
- Maintain BUY with a TP of Rs 2,250 though lacks near term catalysts, we believe concerns over product development capability and aggressive plans of Honda are overdone
“HMCL management sounded cautious on the near term demand outlook expecting a 6 percent volume growth in FY14, that too back-ended. Urban consumers have significantly cut discretionary spending and rural demand has shown some signs of tapering down. Expect rural demand to bounce back on a normal monsoon, but urban rebound is contingent to macro-recovery. Down-trading clearly visible as sales from the 150cc+ category are being affected, in favour of the 125cc segment should likely revert once discretionary spending revives.”
“Margins have bottomed out in Q3 - Q3 margin impacted on one-time marketing costs and a poor product mix. Product mix has already started improving and the company would likely see positive impact of the Yen depreciation. However, expect FY14 margins to hover between 13-14 percent (below historical avg.) as not all cost increases have been passed on consumers in the wake of reduced buying power and as R&D cost gradually inches up from 0.8 percent to 1.5 percent of revenues. Management sounded very confident of retaining market share broadly at current levels as the loss reported earlier in the year was largely on account of inventory liquidation and brand migration the company has recovered back some market share in the past four months. Also management sounded confident that concerns over product development capability and line-up would be addressed by mid-2014 once products from its own R&D centre and global technical alliances start rolling out.”
“While in the near term poor demand environment will play a spoil sport on any volume margin surprises, we believe that investor concerns over product development capability and aggressive plans of Honda are overdone. At a P/E of 11.0x FY15E, we believe the stock is trading significantly cheaper to historical averages and it should re-rate once there is visibility on volume growth and confidence on market share retention,” says Emkay Global Financial Services research report.
Institutional holding more than 40% in Indian cos
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