Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Honda
Underweight
HROH.BO, HH IN
2QFY11 PAT at Rs.5.1B declines -15% yoy on lower
operating margins
• 2Q results below estimates as PAT declines -15% yoy; EBITDA margins at
13.4% declines -60bp qoq: Hero Honda reported 2Q PAT at Rs.5.1B, which
was -8% below our estimates. The variance was led by rising raw material
costs, which increased +150bp qoq on higher costs related to the upgrade of
products to comply with the BS III standards as well as firm input costs. We reiterate
our UW stance on the company given rising competitive intensity and
margin pressures.
• Revising Estimates lower to factor in the 2Q results: We are lowering our
estimates by 5% to factor in the lower volume growth as well as the decline in
margins over 2Q. We believe that the street will be revising their estimates
lower as well as to factor in the same.
• Results highlights: The company reported unit sales of 1.3m units over the
quarter – a growth of 9% yoy (significantly below industry growth of 26%).
Sales were impacted by production constraints given shortage of components,
also competition has gained market share over 2Q – led by Bajaj Auto.
EBITDA margins at 13.4% declined -60bps qoq and -500bp yoy led by higher
raw material expenses, which increased +150bp qoq & +460bp yoy as
highlighted above. Higher depreciation expenses at Rs.608m (+25% qoq) also
surprised.
• Key highlights: Over the quarter, the company launched variants to the
Splendor - the Splendor Pro (100cc) with electric start as well as the Super
Splendor (125cc). Media reports (Bloomberg, etc.) highlight that the two JV
partners – Hero and Honda are potentially parting ways. We believe that the
stock performance over the near term is likely to be impacted by developments
on the same.
• Price target: We are reducing our price target to Rs.1,760 to factor in the lower
earnings forecasts. We continue to value the company at 14x on forward
earnings – inline with mid cycle multiples (unchanged from our earlier valuation
methodology). Key upside risks: higher than anticipated industry growth rates
and market share gains for Hero Honda
No comments:
Post a Comment