Hold Hero MotoCorp; target of Rs 3365: Edelweiss

Hero MotoCorp’s (HMCL) Q1FY17 EBITDA of INR 12.3bn (18% YoY) was 3% below our estimate as net vehicle realisations were impacted by lower spare revenues. Key con‐call highlights: (1) scooter industry to log 15‐ 18% growth in FY17 (26% in Q1FY17); motorcycle growth to pickup in H2FY17 on rural recovery; (2) HMCL to post double digit growth in Q2FY17 and high single digit growth in H2FY17; (3) despite recent slowdown in scooter dispatches, retail volumes remained stable at 70K units/month; 4) does not expect higher commodity prices to materially impact margins; and 5) reiterated long term sustainable margin target of 14‐16%. Maintain ‘HOLD’ with revised TP of INR 3,365 (INR 2,904 earlier).

 

We raise our FY17/18E core EPS by 3% each to factor in improved volume outlook. We upgrade our target multiple to 17x (from 15x) FY18E core EPS to reflect potential GST impact on demand. We assign cash/share of INR 373 to arrive at a revised target price of INR 3,365. We maintain ‘HOLD/SU as we believe the positives are priced in. At CMP, the stock trades at 17x FY18E PER.