ICICIdirect.com's report on Hero MotoCorp
Hero MotoCorp’s (HMCL) revenues stood at Rs 6794 crore (up 4.3% YoY) vs. our estimate of Rs 6515 crore
EBITDA margins came in at 12.3% (down ~139 bps YoY), mainly due to other expenses and rise in advertisement & marketing expense
Adjusting for the one-time provision (Rs 155 crore of EBR), PAT came in at Rs 631.5 crore, higher than our estimates of Rs 598 crore
Amid a rural slowdown coupled with intensifying competition in the space, we have cut our FY16E and FY17E earnings by ~15% and ~17%, respectively, thus reducing our target price to Rs 2505
"HMCL’s business profile remains relatively attractive from a financial standpoint. It remains a debt free franchise with high return ratios but the market leadership profile is the most important. Considering the intensifying competition in the space in addition to demand drying up, we have moderated our earnings estimate to ~11% CAGR (FY15-17E). We value HMCL at 15x FY17E EPS to arrive at a target price of Rs 2505. We would wait for the demand revival in the space helping the company to gain market shares or margins to jump significantly before upgrading our recommendation. We maintain HOLD rating on the stock", says ICICIdirect.com research report.
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