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Hero MotoCorp’s (HMCL) 2QFY2012 results surprised positively on the
bottom-line front on account of better-than-expected operating margin. Strong
top-line growth of 28.1% yoy (2.6% qoq) was on expected lines, driven by 20.1%
(1% qoq) and 6.8% yoy (1.6% qoq) growth in total volumes and net average
realization, respectively. We maintain our volume estimates at 6.1mn/6.8mn for
FY2012E/FY2013E; however, our earnings estimates are marginally revised as
we expect slight improvement in operating margins going ahead. We maintain
our Neutral view on the stock.
Above-expectation operating performance: HMCL reported in-line net sales
growth of 28.1% yoy to `5,829cr, aided by strong 20.2% and 15% yoy growth in
domestic and exports volumes, respectively. Scooter volumes sustained their
robust performance, posting 32% yoy growth; and motorcycle sales grew by
19.3% yoy. Adjusted EBITDA margin (adjusted for royalty payments) stood at
12.2% (up 93bp qoq), above our estimates, led by improved product mix, price
increases and lower raw-material expenses. Other expenses, however, increased
by 70bp qoq due to rebranding-related costs. Led by better-than-expected
operating performance and lower tax rate, net profit registered strong growth of
19.4% yoy (8.2% qoq) to `604cr. Royalty outgo was higher during 2QFY2012 as
Yen exposure was unhedged and Yen appreciated against the INR.
Outlook and valuation: While we maintain our volume estimates for HMCL,
we expect volume growth to taper off in 2HFY2012 on account of high base
effect. We believe the benefits of lower raw-material cost will be limited as the
company intends to incur higher advertising, rebranding and R&D expenses.
Further, due to increased competitive activity in the two-wheeler segment, HMCL’s
market share will remain under pressure, leaving limited room for earnings
upgrade. At `1,985, HMCL is trading at 15.3x FY2013E earnings, in-line with its
historical multiple of 15x. We maintain our Neutral view on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero MotoCorp’s (HMCL) 2QFY2012 results surprised positively on the
bottom-line front on account of better-than-expected operating margin. Strong
top-line growth of 28.1% yoy (2.6% qoq) was on expected lines, driven by 20.1%
(1% qoq) and 6.8% yoy (1.6% qoq) growth in total volumes and net average
realization, respectively. We maintain our volume estimates at 6.1mn/6.8mn for
FY2012E/FY2013E; however, our earnings estimates are marginally revised as
we expect slight improvement in operating margins going ahead. We maintain
our Neutral view on the stock.
Above-expectation operating performance: HMCL reported in-line net sales
growth of 28.1% yoy to `5,829cr, aided by strong 20.2% and 15% yoy growth in
domestic and exports volumes, respectively. Scooter volumes sustained their
robust performance, posting 32% yoy growth; and motorcycle sales grew by
19.3% yoy. Adjusted EBITDA margin (adjusted for royalty payments) stood at
12.2% (up 93bp qoq), above our estimates, led by improved product mix, price
increases and lower raw-material expenses. Other expenses, however, increased
by 70bp qoq due to rebranding-related costs. Led by better-than-expected
operating performance and lower tax rate, net profit registered strong growth of
19.4% yoy (8.2% qoq) to `604cr. Royalty outgo was higher during 2QFY2012 as
Yen exposure was unhedged and Yen appreciated against the INR.
Outlook and valuation: While we maintain our volume estimates for HMCL,
we expect volume growth to taper off in 2HFY2012 on account of high base
effect. We believe the benefits of lower raw-material cost will be limited as the
company intends to incur higher advertising, rebranding and R&D expenses.
Further, due to increased competitive activity in the two-wheeler segment, HMCL’s
market share will remain under pressure, leaving limited room for earnings
upgrade. At `1,985, HMCL is trading at 15.3x FY2013E earnings, in-line with its
historical multiple of 15x. We maintain our Neutral view on the stock.
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