Emkay's research report on Hero MotocorpHMCL’s operating performance came largely in-line with our/consensus estimate, with OPM at 15.7% (+330 bps YoY/ flattish QoQ) vs our estimate of 16.1%. Gross margin expanded 90 bps QoQ led by favorable input costs and higher share of spare part sales; benefit of strong gross margin was however offset by higher R&D provisioning done during the quarter. Mgmt expects recovery in demand in H2 driven by a good monsoon; it also expects to maintain ~15% operating margins. We broadly retain our earnings estimate as we maintain our FY17/FY18 volume growth estimate at +7%/+12% and expect OPM to sustain owing to benefits of the LEAP program and higher pricing power in an improving demand scenario. With improving outlook for rural growth on the back of a good monsoon and positive macro environment for urban revival we expect double digit volume growth trajectory back in FY18; maintain BUY with a TP of Rs 3,400 based on 17x FY18 EPS. For all recommendations, click here 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.
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