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Hero Motocorp (HMCL)
Automobiles
3QFY12 profitability impacted by adverse product mix. Hero Motocorp reported a
profit after tax of Rs6,130 mn (+26% yoy, +2% qoq), which was 4% below our
estimates. EBITDA of Rs7,230 mn was 4% below our estimates, impacted by higherthan-
expected deterioration in product mix. Raw material expenses declined during the
quarter but were offset by inferior product mix and higher royalty expenses due to
sharp appreciation of Yen versus Rupee. We maintain our SELL rating on the stock.
Adverse product mix and Yen appreciation impacted the quarter
EBITDA margins declined by 40 bps qoq in 3QFY12 due to adverse product mix and higher royalty
expenses.
Product mix deteriorated during the quarter as (1) premium motorcycle volumes as a percentage
of overall volumes declined to 4.6% in 3QFY12 versus 6.1% in 2QFY12, and (2) Passion model
volumes as a percentage of overall volumes declined to 22.7% in 3QFY12 versus 24% in 2QFY12.
8% qoq appreciation of Yen versus Rupee led to a Rs140 mn increase in royalty expenses, which
led to a 23 bps deterioration in EBITDA margins sequentially. The company benefited from lower
raw material expenses in this quarter, but raw material benefits were offset by an adverse product
mix. We expect EBITDA margins to increase slightly in 4QFY12E driven by lower rubber costs and
stable competitive intensity.
We estimate the domestic motorcycle industry to grow 10% yoy in FY2013E and expect Hero
Motocorp and Bajaj Auto to lose 100 bps market share in the domestic motorcycle industry to
Honda Motorcycles.
We revise our earnings downwards by 2-4% over FY2012-13E
We have revised our earnings downwards by 2-4% over FY2012-13E driven by (1) 1-4%
downward revision in our volume forecasts, and (2) 10-20 bps downward revision in our EBITDA
margin forecasts due to lower volume forecasts and a slight deterioration in product mix. We
maintain our SELL rating on the stock and revise our target price to Rs1,815 (from Rs1,900 earlier).
Our target price is based on 14X multiple (unchanged) on our FY2013E EPS.
3Y12 results were below expectations due to inferior product mix
Hero Motocorp reported a profit after tax of Rs6,130 mn (+26% yoy, +2% qoq), which was
4% below our estimates. Net sales of Rs60,315 mn (+17% yoy, 4% qoq) were slightly lower
than our estimates due to an inferior product mix. Gross margins also deteriorated by 40 bps
qoq due to the inferior product mix. Staff costs increased sharply due to an increase in
production at the Pantnagar plant. Other expenses to net sales declined by 50 bps qoq due
to lower advertisement expenses and no incremental rebranding expenses which had
impacted 2QFY12. We have included Rs2,200 mn of fixed royalty expenses in other
expenses. Royalty expenses increased to Rs2,200 mn in 3QFY12 from Rs2,060 mn in
2QFY12.
Other income was slightly lower than our estimates while depreciation expenses rose due to
an increase in production at the Pantnagar plant. Tax rate was 15.3%, much lower than our
estimate of 17% which also boosted the net profit.
Product mix deteriorated during the quarter as (1) premium motorcycle volumes as a
percentage of overall volumes declined to 4.6% in 3QFY12 versus 6.1% in 2QFY12, and
(2) Passion model volumes as a percentage of overall volumes declined to 22.7% in 3QFY12
versus 24% in 2QFY12.
8% qoq appreciation of Yen versus Rupee led to a Rs140 mn increase in royalty expenses,
which led to a 23 bps deterioration in EBITDA margins sequentially. The company benefited
from lower raw material expenses in this quarter, but raw material benefits were offset by
an adverse product mix. We expect EBITDA margins to increase slightly in 4QFY12E driven
by lower rubber costs and stable competitive intensity.
We have revised our earnings estimates downwards by 2-4% yoy in FY2012-13E driven by
(1) 1-4% downward revision in our volume forecasts, and (2) 10-20 bps downward revision
in our EBITDA margin forecasts due to lower volume forecasts and a slight deterioration in
product mix.
We estimate the domestic motorcycle industry to grow 10% yoy in FY2013E and expect
Hero Motocorp and Bajaj Auto to lose 100 bps market share in the domestic motorcycle
industry to Honda Motorcycles.
We maintain our SELL rating on the stock and revise our target price to Rs1,815 (from
Rs1,900 earlier). Our target price is based on 14X multiple on our FY2013E EPS
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Motocorp (HMCL)
Automobiles
3QFY12 profitability impacted by adverse product mix. Hero Motocorp reported a
profit after tax of Rs6,130 mn (+26% yoy, +2% qoq), which was 4% below our
estimates. EBITDA of Rs7,230 mn was 4% below our estimates, impacted by higherthan-
expected deterioration in product mix. Raw material expenses declined during the
quarter but were offset by inferior product mix and higher royalty expenses due to
sharp appreciation of Yen versus Rupee. We maintain our SELL rating on the stock.
Adverse product mix and Yen appreciation impacted the quarter
EBITDA margins declined by 40 bps qoq in 3QFY12 due to adverse product mix and higher royalty
expenses.
Product mix deteriorated during the quarter as (1) premium motorcycle volumes as a percentage
of overall volumes declined to 4.6% in 3QFY12 versus 6.1% in 2QFY12, and (2) Passion model
volumes as a percentage of overall volumes declined to 22.7% in 3QFY12 versus 24% in 2QFY12.
8% qoq appreciation of Yen versus Rupee led to a Rs140 mn increase in royalty expenses, which
led to a 23 bps deterioration in EBITDA margins sequentially. The company benefited from lower
raw material expenses in this quarter, but raw material benefits were offset by an adverse product
mix. We expect EBITDA margins to increase slightly in 4QFY12E driven by lower rubber costs and
stable competitive intensity.
We estimate the domestic motorcycle industry to grow 10% yoy in FY2013E and expect Hero
Motocorp and Bajaj Auto to lose 100 bps market share in the domestic motorcycle industry to
Honda Motorcycles.
We revise our earnings downwards by 2-4% over FY2012-13E
We have revised our earnings downwards by 2-4% over FY2012-13E driven by (1) 1-4%
downward revision in our volume forecasts, and (2) 10-20 bps downward revision in our EBITDA
margin forecasts due to lower volume forecasts and a slight deterioration in product mix. We
maintain our SELL rating on the stock and revise our target price to Rs1,815 (from Rs1,900 earlier).
Our target price is based on 14X multiple (unchanged) on our FY2013E EPS.
3Y12 results were below expectations due to inferior product mix
Hero Motocorp reported a profit after tax of Rs6,130 mn (+26% yoy, +2% qoq), which was
4% below our estimates. Net sales of Rs60,315 mn (+17% yoy, 4% qoq) were slightly lower
than our estimates due to an inferior product mix. Gross margins also deteriorated by 40 bps
qoq due to the inferior product mix. Staff costs increased sharply due to an increase in
production at the Pantnagar plant. Other expenses to net sales declined by 50 bps qoq due
to lower advertisement expenses and no incremental rebranding expenses which had
impacted 2QFY12. We have included Rs2,200 mn of fixed royalty expenses in other
expenses. Royalty expenses increased to Rs2,200 mn in 3QFY12 from Rs2,060 mn in
2QFY12.
Other income was slightly lower than our estimates while depreciation expenses rose due to
an increase in production at the Pantnagar plant. Tax rate was 15.3%, much lower than our
estimate of 17% which also boosted the net profit.
Product mix deteriorated during the quarter as (1) premium motorcycle volumes as a
percentage of overall volumes declined to 4.6% in 3QFY12 versus 6.1% in 2QFY12, and
(2) Passion model volumes as a percentage of overall volumes declined to 22.7% in 3QFY12
versus 24% in 2QFY12.
8% qoq appreciation of Yen versus Rupee led to a Rs140 mn increase in royalty expenses,
which led to a 23 bps deterioration in EBITDA margins sequentially. The company benefited
from lower raw material expenses in this quarter, but raw material benefits were offset by
an adverse product mix. We expect EBITDA margins to increase slightly in 4QFY12E driven
by lower rubber costs and stable competitive intensity.
We have revised our earnings estimates downwards by 2-4% yoy in FY2012-13E driven by
(1) 1-4% downward revision in our volume forecasts, and (2) 10-20 bps downward revision
in our EBITDA margin forecasts due to lower volume forecasts and a slight deterioration in
product mix.
We estimate the domestic motorcycle industry to grow 10% yoy in FY2013E and expect
Hero Motocorp and Bajaj Auto to lose 100 bps market share in the domestic motorcycle
industry to Honda Motorcycles.
We maintain our SELL rating on the stock and revise our target price to Rs1,815 (from
Rs1,900 earlier). Our target price is based on 14X multiple on our FY2013E EPS
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