Accumulate Hero Motocorp; target of Rs 2000: Emkay

Emkay Global Financial Services is bullish on Hero Motocorp (HMCL) and has recommended accumulate rating on the stock with a target of Rs 2000 in its October 23, 2012 research report.

“HMCL Q2FY13 operating performance was in-line with est. Net revenues for the quarter stood at Rs 51.8 bn (-11% YoY, -17% QoQ) driven by - 13.7% YoY/-18.8% QoQ decline in overall volumes and 3.1% YoY/2.3% QoQ increase in average realisations Higher share of 125cc motorcycles/scooters and strong 15% YoY growth in spare part revenues led to sequential growth in average realizations.”
“EBITDA margins was marginally above estimate at 13.9% (-50 bps YoY, -140 bps QoQ) driven by ~100 bps QoQ decline in raw material costs Royalty amortisation benefitted to the extent of Rs 140 mn sequentially due to favorable currency and hence was below est. Net profit at Rs 4.4bn (-27% YoY, -28.4% QoQ) was marginally above estimate on better operating margins and lower royalty amortization.”
We expect the soft domestic demand environment would continue to weigh upon the stock in the near-term and believe that the 4-5% volume growth guidance from the company would most likely be missed. The stock is currently trading at 14.5x/10.8x FY13/FY14 P/E - with an eye on FY15 where the license fees cost to erstwhile partner Honda gets completely amortized, we believe that current valuations do not fully discount the sharp earnings growth then. Accumulate with a target price of Rs 2,000 - our TP is based on 16xFY14E earnings;” says  Emkay Global Financial Services  research report. 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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