Hero Honda Q4FY11 Result Update; Operating performance in line, Upgrade:: Emkay

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Hero Honda Q4FY11 Result Update; Operating performance in line, Upgrade to Hold; Target: Rs 1,775

n    EBIDTA at Rs 6.5bn was line with est. Net profit at Rs 5bn was 8% below est. due to lower other income and higher tax rate (23.9% vs est. of 19%) due adj. for royalty

n    Demand outlook remains strong. Retail sales are in line with wholesales billings. Inventory in system is 240,000 units (dealers ~140,000 units, balance in transit)

n    Royalty amount is fixed at Rs 24.8bn amortized over 14 quarters ending June 2014. This has resulted in 50 bps inc. in FY13 margins.  FY12 EPS lowered by 3% to Rs 110.2

n    Introduce FY13 est. with volumes of 6.8mn units (10% YoY) and EPS of Rs 127.7. Upgrade to rating to HOLD with a TP of Rs 1775. Key risks are subdued margins for 1QFY12