Revenues fell 12% YoY to Rs63.6bn (est Rs62.3bn), with realizations beating expectations and rising 1% YoY. Once again, margins defied expectations of rising RM costs by expanding 131bps YoY to 17% (est.15.4%), with gross margins expanding 274bps (RM purchase lag). PAT fell 3% YoY to Rs7.7 bn. HMCL's strong balance sheet, attractive RoEs (~35%) and dominant distribution network remain as positives, and rural spending is likely to rebound by Q1/Q2FY18. However, long term, we remain skeptical of Hero's prospects given; 1) A maturing motorcycle segment; 2) Industry price hikes due to BSIV impacting demand; 3) Margins tapering due to excise benefit expiry in FY19; 4) Weak presence in more premium segments and 5) Higher R&D; spending....