Hold Hero Motocorp; target of Rs 3036: ICICIdirect

ICICIdirect.com's report on Hero Motocorp

Hero MotoCorp (HMCL) reported revenues of Rs 6839 crore vs. our estimate of Rs 6877 crore (YoY decline of ~0.5%) with overall volumes down ~1.9% YoY, gross ASP up 0.6% YoY at Rs 44,287

EBITDA margins came in at 12.0% (down ~110 bps YoY), lower than our estimates as other expenses shot up 100 bps YoY owing to increased branding expenses related to the global foray (Tiger Woods hired as brand ambassador for four years)

PAT at ~Rs 583 crore was lower on the back of a weak operational performance "HMCL’s business profile remains relatively attractive from a financial standpoint and it remains a debt free franchise with high return ratios but the market leadership profile is the most important. We expect earnings to rise ~24% CAGR (FY14-17E). We value HMCL at 15x FY17E EPS (in line with Bajaj Auto) to arrive at a target price of Rs 3036. We would wait for either market shares to grow 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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