Hold Hero Motocorp; target of Rs 2170: Emkay

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Hold Hero Motocorp; target of Rs 2170: Emkay

Emkay Global Financial Services has recommended hold rating on Hero Motocorp with a target of Rs 2170, in its January 20, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on Hero Motocorp with a target of Rs 2170, in its January 20, 2012 research report.

"Hero Motocorp, net sales at Rs 60.3bn was marginally ahead of our est. of Rs 59.7bn. Average selling price at Rs 37,951 (~1% above our est.) was up 5% YoY and flat QoQ. EBIDTA (including royalty amortization) disappointed at Rs 9.4bn vs our est. of Rs 9.8bn. EBIDTA margins stood at 15.6% vs our est. of 16.4%. Higher than expected raw material and staff costs impacted margins. RM to sales came at 72.9% vs our est of 72.1%. Staff cost at Rs 2bn was also higher than our est. of Rs 1.8bn. Other expenses at Rs 4.9bn was in line with our est. Amortisation of royalty at Rs 2.3bn was inline with our expectation. APAT at Rs 6.1bn (our est. of Rs 6.3bn) benefited from lower effective tax rates. Tax rate at 15.3% was lower than our est. of 16.7%. Other income, depreciation and interest costs at Rs 763mn, Rs 716mn and Rs -32mn were inline with our est."

"We fine tune our volume estimates for FY12 to 6.3mn units. We lower our FY13 vols by ~3% to 6.9mn units as we factor in moderation in industry volumes. We expect Hero Motocorp to grow by ~10% in domestic market and ~23% in export market in FY13. We lower our FY12/FY13 EPS estimate by 2.2%/3.6% to Rs 120.2/Rs 140.1."

"At CMP of Rs 1,951, the stock trades at PER of 16.2x/13.9x and EV/EBIDTA of 14.6x/12.6x our FY12/FY13 estimates. We lower our target price to Rs 2,170 implying PER of 18.1x/15.5x PER and EV/EBITDA of 14.5x/11.8x our FY12/FY13 estimates. We downgrade our rating to HOLD due to limited upside from current levels," says Emkay Global Financial Services research report. 

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