Hero MotoCorp Ltd. share price target

24 October 2019 Revenue declined 16.7% YoY to higher spare sales. EBITDA declined ~20% YoY (-5% QoQ) to ~INR11b (our 13.4% due to lower RM cost, cost savings and lower-than-estimated variable market spend. PBT before EO item declined 24% YoY. PAT decline to ~6% (at INR9.2b versus our estimate of INR8.6b). (a) Festive season is building up well with low- single-digit growth in retails (after a 12% decline in the preceding six months). Even after Dussehra, there is no let-up but a build-up in momentum. However, it expects a sustained recovery to take some time. (b) Pick-up is prominent in rural and not in urban markets. (c) First indication of a rural recovery to be visible from the third week of November when Rabi sowing starts.

BS-VI transition to weigh on growth prospects! The domestic 2-W segment is poised at an interesting juncture. Existing channel inventory remains abnormally high (~60 days as per latest available FADA release) despite intensely competitive pricing environment during the ongoing festive period. The upcoming changeover to BS-VI emission controls from April 2020 complicates matters further. Soon, industry efforts would be concentrated towards de-stocking BS-IV vehicles and accelerating BS-VI model rollouts. The new norms would result in ~10% increase in 2-W...

estimates by 16%, while reported PAT stood at Rs8.7bn. We believe that current margin of 14.5% is commendable, despite negative operating leverage of 21% YoY, inventory correction, cost inflation for safety norms and overall competitive business environment. In view of expected rural revival in FY21E, company's strong market share position to capitalise demand...

Demand shows sequential improvement, corporate tax cuts to support earnings Better than expected numbers in Q2 Total net revenues in the quarter went down by 16.7% yoy and 5.7% qoq as volumes were...

On the Path of Recovery Maintain BUY: During Q2FY20, HMCL s sales declined by 16.7 percent YoY to Rs 75.7Bn (our Estimates Rs 73.5Bn).

Hero MotoCorp reported 36% rise in its consolidated profit after tax to Rs 1256.69 crore for the first quarter ended June 2019. The company had posted a PAT of Rs 924.74 crore for the same period previous fiscal. Total income from operations for the quarter under review stood at Rs 8185.66 crore as against Rs 8,912.98 crore in the same period last fiscal, lower by 8%. The increase in June quarter profit was on account of one-time gain with respect to reversal of a calamity fund. Else, at the PBT before EO level, the company registered 16% drop in profits. Bottomline was also boosted by big rise in other income. Performance was weighed...

During Q1FY20, HMCLs sales declined by 8.8% YoY to Rs80.3bn (our Estimates Rs83.9bn). Its EBITDA margins contracted by 121bps YoY to 14.4% (Our estimates 13.9%). PAT declined by 16.1% YoY to Rs7.6bn which was 6% below our estimates.

Maintain BUY as (1) Hero has successfully defended market share in the 2W segment in the current downturn. (2) The premium launches will further enhance its addressable customer base. The market share shift away from scooters will benefit given its motorbike dominant portfolio. (3) The stock is trading at attractive valuations of 13.7x on FY20E estimates and offers a dividend yield of ~3.9%. The co has healthy return ratios with an ROE of 24%. 1QFY20 operating performance was a beat as margins at 14.4% were up +90bps QoQ on improved cost management. Amidst an uncertain environment, Hero is addressing white spaces in its portfolio and upgrading its existing products. Re-iterate BUY, with a TP of Rs 2,875 (16x FY21 EPS).

Hero MotoCorp (HMCL) Q1FY20 EBITDA margin was higher than our and consensus estimates. EBITDA margin for the quarter stood at 14.4% vs our and consensus estimates of 13.4% and 14.1% respectively. We expect weaker consumer sentiment, higher inventory, competitive intensity and tight liquidity conditions to put pressure on HMCL's volume growth. We factor slowdown in H1FY20 and cut our FY20/21 volume estimates by 8% each. We cut our revenue/earnings estimates by 9%/6% and 10%/12% for FY20/FY21...

Near term headwinds to limit volume growth in FY19-21E! Domestic 2-W industry has benefitted from increasing farm income, urbanisation and rising participation of women in workforce with volumes growing at a CAGR of 7.4% in FY13-19. It was largely led by growing scooter category (15% CAGR in the aforesaid period). However, with scooters now reaching multiple penetration saturation in urban India and muted farm income amid healthy ~40%+ penetration of 2-W domestically, we expect growth of the 2-W industry to taper. In the near term, with elevated inventory...