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Hero Motocorp reported 2Q PAT at Rs.6B (+19% yoy), which was above
street estimates. The variance was driven by improved profitability given a -
220bp decline in the raw material cost ratio (due to price hikes taken in the
month of June as well as moderation in commodity prices) and a -270bp
yoy decline in the tax payout ratio. However, this was partially offset by
increase in the other expenses (ex of royalty charges), which have risen to
8.7% (+70bp qoq) due to higher branding / advertising expenses - post the
change in corporate identity. Further, the OEM incurred higher royalty
expenses (Rs.270m) due to the depreciation of the INR vs. the JPY.
Conference call takeaways: Volume guidance: Management has guided
for growth of 15% yoy (vs.19% YTD) in two wheelers over FY12, driven
by rural demand. Hero Motocorp has launched ‘Impulse’ an off road bike
under the new brand name in this quarter. The OEM is de-bottlenecking
capacities from its existing plants by c.10%. Margin guidance:
Management has guided for margins to stabilise/improve from hereon,
given that commodity prices are moderating. While the company is
unhedged for its yen exposure, they do not expect any further deterioration
of the INR going forward. On Export markets: Management has identified
Latin America, Africa and South Asia as key markets and they are currently
identifying local distributors in these countries. Capex guidance: The
company has revised lower its capex guidance for FY12E to Rs6Bn due to
delays in commissioning of the fourth plant. They have incurred a capex
spend of Rs~3.25Bn YTD.
Our View: We believe that Hero Motocorp's growth over 2H will
moderate given a demanding base effect as well as easing industry
growth. Further, as Honda ramps up capacity, we expect competitive
intensity to increase over the year. We are raising our estimates for
FY12-13E by c.5.5% to factor in the 2Q results. We are rolling forward
our Price Target to Mar’12 and set a revised target price of Rs.1,810
based on a PE multiple of 13.5x (in line with our earlier valuation
methodology). Key Risks on the upside: Higher than expected industry
growth, lower than expected build up in competitive intensity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Motocorp reported 2Q PAT at Rs.6B (+19% yoy), which was above
street estimates. The variance was driven by improved profitability given a -
220bp decline in the raw material cost ratio (due to price hikes taken in the
month of June as well as moderation in commodity prices) and a -270bp
yoy decline in the tax payout ratio. However, this was partially offset by
increase in the other expenses (ex of royalty charges), which have risen to
8.7% (+70bp qoq) due to higher branding / advertising expenses - post the
change in corporate identity. Further, the OEM incurred higher royalty
expenses (Rs.270m) due to the depreciation of the INR vs. the JPY.
Conference call takeaways: Volume guidance: Management has guided
for growth of 15% yoy (vs.19% YTD) in two wheelers over FY12, driven
by rural demand. Hero Motocorp has launched ‘Impulse’ an off road bike
under the new brand name in this quarter. The OEM is de-bottlenecking
capacities from its existing plants by c.10%. Margin guidance:
Management has guided for margins to stabilise/improve from hereon,
given that commodity prices are moderating. While the company is
unhedged for its yen exposure, they do not expect any further deterioration
of the INR going forward. On Export markets: Management has identified
Latin America, Africa and South Asia as key markets and they are currently
identifying local distributors in these countries. Capex guidance: The
company has revised lower its capex guidance for FY12E to Rs6Bn due to
delays in commissioning of the fourth plant. They have incurred a capex
spend of Rs~3.25Bn YTD.
Our View: We believe that Hero Motocorp's growth over 2H will
moderate given a demanding base effect as well as easing industry
growth. Further, as Honda ramps up capacity, we expect competitive
intensity to increase over the year. We are raising our estimates for
FY12-13E by c.5.5% to factor in the 2Q results. We are rolling forward
our Price Target to Mar’12 and set a revised target price of Rs.1,810
based on a PE multiple of 13.5x (in line with our earlier valuation
methodology). Key Risks on the upside: Higher than expected industry
growth, lower than expected build up in competitive intensity.
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