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UBS Investment Research
Hero MotoCorp
Q 2FY12: Good results expect a bounce
Event: Q2FY12 EBITDA and PAT ahead of expectations
Sales increased 3%qoq driven by 2%qoq increase in realization. EBITDA margin
increased 140bps qoq to 15.8% (UBS-e: 14.7%) due to a sharp 230bps qoq decline
in raw material cost (as % of sales) to 73%. PAT was up 19%YoY at Rs.6.04bn
(UBS-e: Rs 5.53bn). Other income was higher than expected but was offset by
higher depreciation (includes royalty payment) we believe due to sharp
appreciation of the yen in Q2FY12.
Impact: Maintain estimates, remain 5% ahead of consensus for FY12
We maintain our estimates for the co. as higher than expected EBITDA margin get
offset by increased depreciation. We however remain 5%/8% ahead of consensus
EPS for FY12/13 respectively. We await more commentary from mgmt. tomorrow
on the outlook going forward. Conf. call at 1PM India time, Oct 19th, dial in +91
22 6629 0282/ +91 22 3065 2496.
Action: Maintain Neutral, but expect a bounce post the results
The stock has corrected 10% in the last 1 month. We believe this strong result reaffirms
the strong margin recovery for the co. We believe Hero Moto remains a
key beneficiary of strong rural demand and expect the stock to bounce back post
these results.
Valuation: Trading at 14x FY13E, PT Rs 2,320
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.5%.
Hero MotoCorp
Hero Honda, which sold 4.6m motorcycles in FY10, is the world's largest twowheeler
manufacturer, even though it is present primarily only in the motorcycle
segment of the Indian two-wheeler market. Hero Honda is a joint venture
between Honda (Japan) and Hero group (owned by the Munjal family) of India.
The joint venture agreement was renewed in June 2004 for 10 years (2014).
Statement of Risk
Key risks to our earnings estimates for auto companies are fluctuations in sales
volumes and raw material prices. Demand is linked to various factors including
the economic growth rate and interest rates in the economy. Given, the high
level of consolidation within the industry, two wheeler industry is more prone to
price wars among players.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Hero MotoCorp
Q 2FY12: Good results expect a bounce
Event: Q2FY12 EBITDA and PAT ahead of expectations
Sales increased 3%qoq driven by 2%qoq increase in realization. EBITDA margin
increased 140bps qoq to 15.8% (UBS-e: 14.7%) due to a sharp 230bps qoq decline
in raw material cost (as % of sales) to 73%. PAT was up 19%YoY at Rs.6.04bn
(UBS-e: Rs 5.53bn). Other income was higher than expected but was offset by
higher depreciation (includes royalty payment) we believe due to sharp
appreciation of the yen in Q2FY12.
Impact: Maintain estimates, remain 5% ahead of consensus for FY12
We maintain our estimates for the co. as higher than expected EBITDA margin get
offset by increased depreciation. We however remain 5%/8% ahead of consensus
EPS for FY12/13 respectively. We await more commentary from mgmt. tomorrow
on the outlook going forward. Conf. call at 1PM India time, Oct 19th, dial in +91
22 6629 0282/ +91 22 3065 2496.
Action: Maintain Neutral, but expect a bounce post the results
The stock has corrected 10% in the last 1 month. We believe this strong result reaffirms
the strong margin recovery for the co. We believe Hero Moto remains a
key beneficiary of strong rural demand and expect the stock to bounce back post
these results.
Valuation: Trading at 14x FY13E, PT Rs 2,320
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.5%.
Hero MotoCorp
Hero Honda, which sold 4.6m motorcycles in FY10, is the world's largest twowheeler
manufacturer, even though it is present primarily only in the motorcycle
segment of the Indian two-wheeler market. Hero Honda is a joint venture
between Honda (Japan) and Hero group (owned by the Munjal family) of India.
The joint venture agreement was renewed in June 2004 for 10 years (2014).
Statement of Risk
Key risks to our earnings estimates for auto companies are fluctuations in sales
volumes and raw material prices. Demand is linked to various factors including
the economic growth rate and interest rates in the economy. Given, the high
level of consolidation within the industry, two wheeler industry is more prone to
price wars among players.
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