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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our analysis shows healthy demand in
the next few years, as penetration
remains low with stable cost of
ownership
Margins should be stable with a positive
bias, driving strong earnings growth
Initiate coverage on HERO with OW
(TP INR2,400) and Bajaj with N
(TP INR1,745)
We initiate coverage on the Indian two-wheeler industry with
a positive view. Industry growth should moderate but still
remain healthy at a c13% CAGR for FY12-14e. Furthermore,
we believe the industry is attractive given stable margins with
a positive bias, robust cash flows, strong dividend yield and
reasonable valuations.
Structural growth drivers intact. Two-wheeler’s Indian
household penetration is only 30%. In other emerging
markets, the sector has shown strong growth until
penetration has hit 55-60%. Our analysis of other markets
suggests India’s two-wheeler sector will not reach these
levels for three years. Furthermore, the cost of ownership
has remained stable in India, despite a rise in fuel prices in
recent quarters. With the falling average age of vehicles,
replacement demand might recede in the near term, but it
should be well offset by continued strength in rural demand
and a strong scooter market.
Prefer HERO over Bajaj. Hero MotoCorp (HERO) seems
better placed in FY13/14, due to its higher rural market
presence, scooters exposure and stronger margin levers. In
addition, it offers an attractive dividend yield. While HERO
does face an uphill climb to develop in-house R&D, the results
should become visible only after FY13. Bajaj has a similar
defensive business, but it looks more vulnerable to moderating
sector growth. Its margin upside appears limited as well.
Valuation. On a DCF basis, we value HERO at INR2,400
(OW) and Bajaj at INR1,745 (N), implying a 16x and 15x
FY13e PE, respectively. Our FY13e earnings are nearly
10% higher than consensus for HERO and in line for Bajaj.
An increase in commodity prices and significant slowdown
in demand are the key risks to our investment thesis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our analysis shows healthy demand in
the next few years, as penetration
remains low with stable cost of
ownership
Margins should be stable with a positive
bias, driving strong earnings growth
Initiate coverage on HERO with OW
(TP INR2,400) and Bajaj with N
(TP INR1,745)
We initiate coverage on the Indian two-wheeler industry with
a positive view. Industry growth should moderate but still
remain healthy at a c13% CAGR for FY12-14e. Furthermore,
we believe the industry is attractive given stable margins with
a positive bias, robust cash flows, strong dividend yield and
reasonable valuations.
Structural growth drivers intact. Two-wheeler’s Indian
household penetration is only 30%. In other emerging
markets, the sector has shown strong growth until
penetration has hit 55-60%. Our analysis of other markets
suggests India’s two-wheeler sector will not reach these
levels for three years. Furthermore, the cost of ownership
has remained stable in India, despite a rise in fuel prices in
recent quarters. With the falling average age of vehicles,
replacement demand might recede in the near term, but it
should be well offset by continued strength in rural demand
and a strong scooter market.
Prefer HERO over Bajaj. Hero MotoCorp (HERO) seems
better placed in FY13/14, due to its higher rural market
presence, scooters exposure and stronger margin levers. In
addition, it offers an attractive dividend yield. While HERO
does face an uphill climb to develop in-house R&D, the results
should become visible only after FY13. Bajaj has a similar
defensive business, but it looks more vulnerable to moderating
sector growth. Its margin upside appears limited as well.
Valuation. On a DCF basis, we value HERO at INR2,400
(OW) and Bajaj at INR1,745 (N), implying a 16x and 15x
FY13e PE, respectively. Our FY13e earnings are nearly
10% higher than consensus for HERO and in line for Bajaj.
An increase in commodity prices and significant slowdown
in demand are the key risks to our investment thesis.
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