Hero Honda Motors July’11 volume: Steady volume growth ::Standard Chartered Research,

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Hero Honda Motors
July’11 volume: Steady volume growth


 HH’s July sales rose 15% yoy to 491,036 units.
 HH crosses the 2m mark in the first four months of the
fiscal; YTD sales up 22% yoy.
 Volume outlook strong, but cost pressure (re-branding,
R&D investments, ad-spend, etc) to likely to limit margin
expansion.
 We believe HH is fully valued at 12.7x FY13E earnings
and at 8.1x EV/EBITDA. Maintain IN-LINE.


Total sales up 15% yoy. HH’s total sales in July 2011 were
up 15% yoy to 491,036 units.  
Crosses the 2m mark in the first four months of the
fiscal. Led by sustained robust volume momentum, HH has
crossed the 2m mark in the first four months of the fiscal.
YTD total sales were up 22% yoy to 2.02m.
Valuation. We expect 2W demand momentum to continue
with HH targeting the 6m mark this year. However, while
commodity cost pressure is declining, the increase in other
operating expenses (re-branding, R&D, ad spend, etc) are
likely to limit margin expansion going forward. The Hero
group will continue to be in investment phase over the next
couple of years to develop products on its own, establish its
brand without Honda, spend on capacity addition and
establish its presence in export markets, which are likely to
hurt return ratios. Even after factoring in 100bps margin
expansion from current levels for FY12, the stock is trading
at 12.7x FY13E earnings and at 8.1x EV/EBITDA and
appears fully valued. Maintain IN-LINE with a price target of
Rs1,780.