HERO HONDA: Sep-10 volumes below estimates; Up 8% YoY (2% MoM) to 433,461; Impacted by flooding in North India
- Hero Honda reported Sep-10 volumes of 433,461 units (v/s est 470,000), a growth of 8% YoY (2.1% MoM).
- Volumes were impacted due to floods in North India (including its plant at Uttarakhand), disrupting movement of goods. As a result it is carrying inventory of ~35,000 units across its plants.
- Although short-term headwinds exist, the outlook seems buoyant, as indicated by Mr Anil Dua, Sr VP (Mktg) in his comments - “The record sale in H1 of FY11 is extremely encouraging as it has set the pace for the second half of this financial year. We have recently introduced two new bikes this month, the New Super Splendor and Splendor Pro. Splendor Pro has brought in the biggest-ever change in Splendor since its launch. Leading into the festive season, we have lined up a couple of more launches - including a Limited Edition bike. With these slew of launches, high-decibel communication and activation, we are confident of doubling our pace of growth during the festive season."
- Hero Honda’s volume continues to disappoint over last few months, led by supply constraints and other issues. As a result, it is losing out on strong demand at retail level and might see impact on its festive sales.
- Line 3 at its Haridwar plant is now operational, taking total capacity to 5.4m from 4.8m units. Further, it would be de-bottlenecking capacity at Haridwar taking total capacity at Haridwar to 2.1m and overall capacity to 5.7m.
- We model volume growth of 15% for FY11 to 5.3m units (implying a residual monthly run rate of 461,724 units v/s 419,967 units in FY11YTD), higher contribution from Haridwar plant (~34% of volumes), and 220bp decline in margins to 14.7%.
- The stock trades at 16.2x FY11E EPS of Rs114.2 and 13.8x FY12 EPS of Rs134.6. Maintain Buy.
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