CMP: Rs. 1646.95; Buy at
current levels.
Medium to Long term Target: Rs. 1842; STOP LOSS – Rs. 1515.20; Market Cap: Rs. 32,887.53 Cr; 52 Week High/Low: Rs. 2249.00 / Rs. 1615.00
Medium to Long term Target: Rs. 1842; STOP LOSS – Rs. 1515.20; Market Cap: Rs. 32,887.53 Cr; 52 Week High/Low: Rs. 2249.00 / Rs. 1615.00
Total Shares: 19,96,87,500 shares;
Promoters : 10,42,59,490 shares –52.21 %; Total Public holding : 9,54,28,010
shares – 47.79 %; Book Value: Rs. 148.58;
Face Value: Rs. 2.00; EPS: Rs. 107.54; Div: 5250 % ; P/E: 15.31 times; Ind. P/E:
16.50; EV/EBITDA: 10.72.
Total Debt: 1,491.16 Cr; Enterprise Value: Rs. 34,378.70 Cr.
HERO
MOTOCORP LIMITED: HEROMOTOCORP Ltd was incorporated in 1984 and is based in New Delhi, India. The
company changed its name to HeroMotoCorp from Hero Honda Motors Ltd in July
2011. HeroMotoCorp engages in the manufacturing and sales of motorcycles in
India. It provides a range of two wheeler products, including motorcycles and
scooters and spare parts. The company markets its product under various brands,
including CD Dawn, CD Deluxe, Splendor
Plus, Splendor NXC, Passion and Passion Pro, Passion Plus, Glamour, Super
Splendor Pro, Achiever, Glamour FI, Hunk, CBZ X-treme, Karizma, Pleasure and
Karizma ZMR. The company offers its product Achiever in 135 cubic
centimeter segment. In the 150 cubic centimeters and above the company offers
brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers 100
cubic centimeter scooter Pleasure. It offers its products through a network of
dealers, service and spare parts outlets and dealer-appointed outlets. The company’s
bikes are manufactured across three manufacturing facilities. Two of these are
based in Gurgoan and Dharuhera which are located in the state of Haryana in
northern India. The third manufacturing plant is based at Haridwar, in the hill
state of Uttrakhand. The company was a joint venture between India’s Hero Group
and Japan’s Honda Motors Co whereby the promoter the Munjal’s bought the stake
of Honda in July 2011. The company is compared to Bajaj Auto Ltd, TVS Motor
Company Ltd, Atlas Cycles (Haryana) & Ashok Leyland Ltd locally and is compared
with Shimano Inc of Japan globally.
Investment Rationale:
HEROMOTOCORP
(HEROMOTOCO) management has indicated to launch seven to eight new variants
every year. The company is targeting
1 million two wheelers to be annually exported by FY17E. The management also
stated that it has neither offered discounts or freebies nor it plans to do so in
the future. It has hiked dealer commissions by Rs.100 since October 2012, which
is a regular revision followed by the company. HeroMotoCorp’s Q3 FY13 result
was lower than street estimates; HeroMotoCorp’s
volume in Q3 FY13 was down 1% YoY but up 18% Q-o-Q to 15,73,135 units due to
festival season in Q3 in this FY. Contribution from 75-125 cc segments has increased
by 97 bps YoY but down 207 bps Q-o-Q. Major contribution in 75-125 cc segments
have been 125 cc segments namely Ignitor, Super Splendor and Glamour which has led
to growth in realization. Management expects industry and HeroMotoCorp to
grow at 5% - 6%. HeroMotoCorp’s Revenue was marginally lower at Rs. 6,151
Cr largely led by higher realization of Rs. 39,102/unit. EBITDA were lower than
street estimates at Rs. 779 Cr. and EBIDTA margin were around 12.6%. Other
expenditure was higher at Rs. 625 Cr. despite volumes which were down by 1% YoY
due to increase in dealer margin by 50% on incremental sales and higher Ad spending
in wake of intense competition. PAT for the HeroMotoCorp was at Rs. 488 Cr. Other
expenses were high at 10.2% due to brand building and product launches. The management
expects these expenses to continue in Q4FY13. It expects ad-spend to remain at
2% of sales. The Tax rate is expected to increase to 23% in FY14 from 16.3%
currently as the Haridwar plant will no longer be eligible for tax breaks. The
management expects better y-o-y volume growth in Q4FY13 than in Q3FY13. Management is expecting some relief in raw material cost
due to depreciating YEN. Hero Moto Corp shipped its first lot of motorcycles to Latin America, it intends to increase its exports to 10% of its total sales. This was one of the key reasons that Hero parted with Honda, to be able to pursue its interests in the International market. The company hopes to sell in around 30 countries around the globe. It is expected that the company will launch 'Hero' as a brand in the south America markets in the next few weeks. It also intends to set up an assembly units in these markets once the relevant volumes are achieved.
Outlook and Valuation:
Hero
MotoCorp’s efforts for brand building post the Honda split and its investment
phase and intensifying competition in two-wheelers will exert pressure on its profitability
in the short term. However, its fundamentals are intact given its leadership
position, robust rural reach and strong brand recall. HeroMotoCorp’s market share
in two-wheelers rose by 2.93% quarter on quarter to 38.6%. It also gained
market share from Honda in its core domestic motorcycle segment – its market
share rose by 1.93% Q-o-Q to 51.9%.
Hero MotoCorp's manufacturing plant at Haridwar |
HeroMotoCorp has started the construction
of its fourth manufacturing plant which will have an capacity of 7.50
lakh units per annum and started a new global parts center in Neemrana, Rajasthan at a
capex of around Rs. 550 Cr. This plant is spread over an area of 47 acres and will provide employment to over 1,000 people These are expected to be operational by the end of FY14.
Company is also in the process of acquiring land for the Gujarat plant, this
plant is expected to be operational by FY15. The Rajasthan and Gujarat projects
will take up the total installed capacity to 85 lakh units. Despite festive
season, inventory pile-up continues at the dealer’s level on poor demands. Since
the rural region accounts for nearly 46% of sales, weak monsoons at the outset have
impacted sales volume. Honda’s new launches in the sub-125 cc segment and
commissioning of capacities well ahead of HeroMotoCorp’s new capacities is
the biggest concern for HeroMotoCorp from its market share erosion point of
view. The benefit on account of reduction in royalty Q1 FY15 onward would
compensate the incremental cost pressure for HeroMotoCorp. At current price of Rs.
1646.95, the stock is trading at P/E of 15.23 x on FY13 estimates & 13.77 x on
FY14 estimates. In my view HeroMotocorp could post EPS of Rs.108.10 for FY13E
& Rs.119.60 for FY14E and one can ACCUMULATE the stock and would advise
investors to use declines in the stock to buy with a long term view with a
target price of Rs. 1842.00 for Medium to Long term investment.
KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
---|---|---|---|---|
SALES (Rs. Crs) | 23,878.90 | 24,076.80 | 26,451.70 | 29,663.70 |
NET PROFIT(Rs. Crs) | 2,378.80 | 2,157.90 | 2,357.90 | 2,999.70 |
EPS (Rs.) | 119.10 | 108.10 | 119.60 | 150.20 |
PE (x) | 15.00 | 16.50 | 14.90 | 11.90 |
P/BV (x) | 8.30 | 6.50 | 5.20 | 4.20 |
EV/EBITDA (x) | 8.90 | 9.30 | 8.20 | 6.90 |
ROE (%) | 65.70 | 44.10 | 38.70 | 39.10 |
ROCE (%) | 69.50 | 46.00 | 43.60 | 46.60 |
I would buy HERO MOTOCORP LTD with a price target of Rs. 1842
for Medium to Long term. As I always say, I am a long term believer in markets
& I do respect the markets and will keep a strict stop loss of 8 % or Rs. 1515.20 on every purchase.
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE
Its really on the road of success,no doubt!!
ReplyDeleteHero motocorp was out performer in 2008 also. It's fundamentals are very strong.What is your view on TVS.
ReplyDeletemcxtipsfreetrial
Thanks For the information
ReplyDelete