Hero MotoCorp Ltd. share price target

Hero Motocorp's Q1FY20 performance was in-line, with EBITDA margins at Change in Estimates | Target | Reco 14.4%, lower 120bps YoY but up 80bps QoQ. The sustenance of margins at current levels to continue led by commodity tailwinds in coming quarters....

Attractive Valuation to Own Strong Company; Upgrade to BUY Hero MotoCorp (HMCL) has delivered better-than-expected performance in 1QFY20 with its operating margin coming in at 14.4% vs. our estimate of 13.6%, declined by 121bps YoY (+86bps QoQ). Its revenue fell by 9% YoY (+2% QoQ) to Rs80.3bn (vs. our estimate Rs81.7bn), while EBIDTA decreased by 16% YoY (+8% QoQ) to Rs11.6bn due to higher other expenses. EBIDTA margin contracted by 121bps YoY on account of limited ability to pass on higher input cost amid intensified competition. Its ASP improved by 4% YoY due to price hike for implementation of safety norms. HMCL's adjusted PAT declined by 14% YoY (+8% QoQ) to Rs7.86bn surpassing...

Op. performance above expectations on lower cost; expects recovery in 2H Margins above estimates; higher depreciation drags PAT: Revenue declined 9% YoY to INR80.3b (our estimate: INR81b). Realizations were up 4% YoY to INR43.6k (our estimate: INR43.9k) led by price hikes; however, lower spare sales hurt realizations sequentially (-1.6% QoQ). EBITDA declined 16% YoY to INR11.6b (our estimate: INR10.8b), with the margin expanding 80bp QoQ (120bp YoY) to ~14.4% (our estimate: 13.3%). Higher depreciation restricted adj. PAT to INR7.2b (in-line; -21% YoY). Earnings call highlights: (a) Retail volumes declined 6% in 1Q. Inquiry levels...

We attended Hero MotoCorp's (HMCL) analyst meet where management reiterated its dual focus of making inroads into the premium segment and retaining its hold on the deluxe segment. While acknowledging immediate concerns from higher insurance costs, new ABS/CBS norms and cramped liquidity, HMCL believes India's macro climate is favourable. Management also remains optimistic on exports and expansion into newer markets....

Hero MotoCorp Analyst Meet shared medium to long-term vision for the Change in Estimates | Target | Reco Indian 2W market and HMCL's strategy. The management remains optimistic about long term 2W demand scenario and expects HMCL to be the key...

We attended Hero MotoCorp's (HMCL) analyst meet where management reiterated its dual focus of making inroads into the premium segment and retaining its hold on the deluxe segment. While acknowledging immediate concerns from higher insurance costs, new ABS/CBS norms and cramped liquidity, HMCL believes India's macro climate is favourable. Management also remains optimistic on exports and expansion into newer markets. Macro climate favouring long-term industry growth: HMCL is optimistic on growth prospects of the 2W industry in the mid-to-long term, underpinned by...

We met Mr. Niranjan Gupta (CFO), Mr Sanjay Bhan (Head- Sales) and Mr Malo Le Masson (Head - Global Product Planning) of Hero MotoCorp (HMCL) ( Link) to get an update on the (a) long-term growth potential of the domestic 2W industry, (b) product positioning in the 125cc Scooter and Premium motorcycle segments, (c) company's strategy and preparedness for BS-VI regulations, and (d ) the scale-up in the global business.

In Q4FY19,revenue fell by 8% YoY to Rs7,884 cr due to fall in volume growth by 11% . Realisation improved by 3.5% despite the volume drop for the quarter. PAT declined by 25%. Management commented single digit growth in H1FY20 and growth to recover in double digit from H2FY20. Company is planning to launch two new vehicles Maestro Edge in the scooter segment and Xpulse in the motorcycle segment by next month. We expect the volume growth to improve...

The stock is trading at an attractive valuation of 14.2x on FY20E and it offers a dividend yield of ~3.4%. At this valuation, the risk reward is favorable. We have a BUY rating on the stock, with a TP of Rs 3,080 (16x FY21 EPS). Hero upping the ante in the premium segment: Hero has launched a range of premium 200cc bikes as it addresses white spaces in its portfolio. The OEM has been practically absent from the premium segment, post its split with Honda in 2010. The new launches reflect Heros commitment to gain market share in the high end segment, which accounts for ~20% of the overall motorbike market. By offering a complete portfolio, Hero will be better able to withstand competition as other OEMs have been increasing competitive intensity in the entry level segment. Also, these launches will enable the market leader to retain market share at 50% in the overall bike segment, in our view.

With the overhang of the insurance cost rise as well as the liquidity crunch still persistent in the market, consumer sentiment continues to be weak. Despite the festive season / wedding season in the north (Apr onwards), rural demand has not shown any recovery. Further, in spite of huge inventory correction undertaken by the company over Q4FY19, HMCL's current inventory stands higher at 45-60 days and the management expects further correction in Q1FY20. Management expects the industry to grow at mid-single digits over the current fiscal with H2FY20 growing ~10% YoY on the back of...