Hero MotoCorp Ltd. share price target

Hero MotoCorp's (HMCL) Q2FY21 operating performance beat estimates due to above-expected ASP.

Hero MotoCorp (HMCL) 2QFY21 numbers were broadly in line estimates. EBITDA increased by 17% YoY to Rs.12.8bn with margin at 13.7% (-81bps YoY). Increase in RM prices was offset by cost control measures and better operating leverage. The management sounded positive on domestic sales outlook with demand back to pre Covid level, expecting momentum to continue into the festive season. Festive sales have started off well for the company and retail sales reached 96% of last year during the Navratri period...

Hero Q2FY2021 results were in line with street expectations. Net sales and EBIDTA grew 24% and 17% y-o-y respectively. Hero is witnessing improvement in demand with retail sales reaching 96% of last year level in initial part of the festive season. Company expects further improvement in festives and has ramped up production. We expect strong recovery from FY22 driven by normalisation of economic activities. Operating leverage, price hikes, and cost saving under the leap programme would result in margin improvement. We expect Hero to reach its historical margin range of 15%-16%....

Hero Motocorp Ltd (HMCL) is the market leader in the 2W industry with a market share of ~39% (as of Aug 2021). Hero is present in both the motorcycles and the scooter segments, having market share of about ~53% and ~10%, respectively.

Seminal year for industry provides interesting insights However, amid all the gloom, the engineering and production prowess of the industry (along with its value chain) shone brightly as it successfully completed the world's fastest switchover to Euro 6 equivalent emission norms i.e. BS-VI as per schedule. Much of the post festive period was focused on the transition, with the entire ecosystem estimated to have spent ~| 70,000 crore towards the technological leap. Covid-19 crisis struck India in the run up to April 2020, just as the changeover...

It has the best positioned portfolio, with HF Deluxe in the Economy segment, Splendor in Executive 100cc, and Super Splendor / Glamour in Executive 125cc, covering all the price points with multiple variants. With an apt product portfolio for the rural market, the highest brand value, and a strong distribution network, Hero is best placed to benefit from low penetration and ongoing momentum in the rural economy. HMCLs market share in Executive 100cc was at ~87% in FY20 (v/s 84% in FY19), and with the launch of the new Passion, it has gained further market share to 90% in FY21YTD. HMCLs market share declined by 700bp to ~51% in FY20 in the 125cc segment post the launch of the Bajaj Pulsar 125. However, post the launch of the new Super Splendor and Glamour, it regained market share by 225bps FY21YTD.

We continue to prefer Hero MotoCorp Ltd on the back of robust rural & semi urban demand, downtrading trend and preference for entry level motorcycles (Hero being the market leader), along with a shift in preference for Personal mobility.

We are initiating coverage on Hero Motocorp Ltd (Hero) with a BUY rating and a Target Price of Rs 3,450, which implies ~10% upside from the current levels.

Retail sales have been consistently improving on m-o-m basis. Early August trends also indicate improvement over July levels. Inventory is lower than normalised levels and Hero is ramping up...

Hero MotoCorp reports 92% drop in Q1 PAT, misses estimates On a consolidated basis, the two-wheeler maker's net profit tumbled 95.3% to Rs 59.14 crore on a 63.7% decline in net sales to Rs 2,969.08 crore in Q1 FY21 over Q1 FY20. EBITDA fell 90.7% to Rs 108 crore in Q1 June 2020 from Rs 1,158 crore in Q1 June 2019. EBITDA margin was at 3.6% as on 30 June 2020 as compared to 14.4% as on 30 June 2019. Profit before tax in the June quarter stood at Rs 79.49 crore, down by 95.8% from Rs 1873.83...