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Hero Honda Motors
RECO : REDUCE TP : Rs1,540
Investment Rationale
§ We believe current valuations do not leave room for negative surprises. Negative surprises can come
from lower margins and market share loss
§ Pressure on margins can come due to higher spend on re-branding, technological arrangement, entry in
export markets. Also there is pressure on margins due to commodity cost pressures. Give low EBIDTA
margins (~12.5%), the delta impact is higher vis a vis Bajaj Auto
§ We believe that there is clear risk of loss of market share once Honda enters the India motorcycle market
over next 18 months. We are of the view that it will be easy for Honda to take market share from Hero
Honda rather than Bajaj Auto
Valuations
§ We have valued the stock at a target PER of 14x, which is 10% lower than that of Bajaj Auto. We believe
that the difference is justified given the strong R&D, export market and margin profile of Bajaj Auto
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Honda Motors
RECO : REDUCE TP : Rs1,540
Investment Rationale
§ We believe current valuations do not leave room for negative surprises. Negative surprises can come
from lower margins and market share loss
§ Pressure on margins can come due to higher spend on re-branding, technological arrangement, entry in
export markets. Also there is pressure on margins due to commodity cost pressures. Give low EBIDTA
margins (~12.5%), the delta impact is higher vis a vis Bajaj Auto
§ We believe that there is clear risk of loss of market share once Honda enters the India motorcycle market
over next 18 months. We are of the view that it will be easy for Honda to take market share from Hero
Honda rather than Bajaj Auto
Valuations
§ We have valued the stock at a target PER of 14x, which is 10% lower than that of Bajaj Auto. We believe
that the difference is justified given the strong R&D, export market and margin profile of Bajaj Auto
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