Buy Hero Motocorp; target Rs 2100: Dolat Capital

Dolat Capital is bullish on Hero Motocorp and has recommended buy rating on the stock with a target price of Rs 2100 in its January 16, 2013 research report.

"Hero Motocorp reported top-line revenue at Rs 61.8bn, up 3% YoY despite volume decline of 1% YoY. The company sold 1.57mn two wheelers. It had sold 1.33mn two wheelers in 2QFY13. The company’s operating margins declined 130bps QoQ to 12.6% led by higher raw material costs and higher other expenses. The management mentioned raw material costs were higher due to change in sales-mix and other expenses included higher ad spend for product launches and brand building. It may get some breather due to weakening yen in the coming quarters but ad spend will continue to remain in the ~2% of sales range. EBIDTA for the quarter was Rs 7.8bn, down 17% YoY. HMCL lost its market share by 290bps to Honda Motorcycles. Its market share stood at 52.9% in 3QFY13. However, during the same period, it gained market share in the fast growing scooter segment. Its market share stood at 18.1% in December 2012. PAT reported at Rs 4.8bn in 3QFY13. The company reported its PAT at `4.8bn, down 20% YoY. View and valuation: The company has re-launched all its premium segment bikes during this quarter. Apart from that, the company has newly launched Impulse, Ignitor and Maestro. It has planned a capex of Rs 25bn over the next 18-24 months to add new capacity in its two plants at Rajasthan and Gujarat. The total capacity addition will be ~2.2mn and take its total capacity to 9mn by end of FY14. Also, it has planned to enter Africa and Latin America by end of this fiscal year. We introduce our FY15 EPS estimate at Rs 140.3. The recent underperformance makes it the best bet in the two wheeler segment. It is currently trading at 13xFY15E. We maintain Buy with a target price of Rs 2100," says Dolat Capital research report. Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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