Hero MotoCorp Ltd (HMCL) – Q3FY15 Result Update :: HDFC Securities

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Hero Motocorp: A disappointing quarter ::Kotak Sec, report

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A disappointing quarter. Hero Motocorp reported 3QFY15 EBITDA of `8.2 bn, which was 6% lower than our estimate, impacted by higher staff costs and other expenses. The company attributed higher-than-expected expenses to higher spends on sponsorships, Diwali bonus and capacity addition at the Neemrana plant. We retain our BUY rating, despite a miss in the quarter, as we believe volume growth is likely to stay strong. We retain our target price of `3,650 rolling forward to December 2016

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Tiger pushes margins in the woods! • Hero MotoCorp ::ICICI Securities

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Targets LEAP into higher margin orbit… • Hero MotoCorp :: ICICI Securities, PDF link

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HERO MOTOCORP: BUY TARGET PRICE: RS.3268 :: Kotak Sec, PDF link

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Hero MotoCorp Ltd.|Q2FY15 Concall Update | In line expectation: Cut FY15E/16E EPS by 1.4%/2.3%, reduce target price to Rs.3157 from Rs. 3240 earlier :: IndiaNivesh

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Hero MotoCorp Ltd. | Q2FY15 First Cut Analysis | In line expectation, pressure was seen in EBITDA margin:: IndiaNivesh

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Hero Moto Corp - Q4FY14 Result Update - Stays on course; retain Buy :: Centrum

Rating: Buy; Target Price: Rs2,850; CMP: Rs2,348; Upside: 21%



Stays on course; retain Buy



We retain Buy with a TP of Rs2,850. While the company continues to
hold strong franchise in the rural market, we believe that improved
consumer sentiments on the urban side should help it register better
than expected growth. Also, unlike Bajaj Auto, it has a strong
presence in the scooter segment and continues to hold on to its market
share in this fast growing segment. Dealer interaction reveals that
brand franchise of Splendor and Passion models was still strong and
Maestro in the scooter segment was doing well. Further, HMCL indicated
that its ongoing margin transformation program can improve margins by
250-300bps by FY17-18E. Though this may seem a tall claim, it at least
gives us confidence on the sustainability of current margins.

$ Results above expectations: HMCL’s results were largely in line on
the revenue front and above estimates on EBITDA and PAT fronts.
Contrary to our expectation, the management indicated that there was
no impact on account of dealer compensation due to excise cut. As a
result, EBITDA margins for the quarter stood at 13.7% compared to our
est. of 12.8%. Better than expected operating performance, marginally
lower tax rate and higher other income led to 17% beat at PAT level
which stood at Rs5.5bn during the quarter. The company indicated that
it raised prices by Rs300/vehicle effective March 2014.

$ HMCL’s cost saving plans playing out:  In 2QFY14, HMCL had announced
that it was looking at annualized savings of Rs15bn by FY17-18E. The
plan seems to be on track with the company achieving savings of
Rs600mn in 4QFY14. Further, it indicated that for April’14, it
achieved savings of Rs250mn through its cost saving program. Cost
saving initiatives covered logistics, raw material consolidation and
e-bidding. Management is targeting to improve margins by 250-300bps by
FY17-FY18E. Though this seems a tall claim, it at least gives us
confidence on the sustainability of current margins.

$ Strong brand franchise helps maintain market share: Dealer
interaction revealed that brand franchise of Splendor and Passion
models continued to be strong (driven by low maintenance and
relatively better re-sale value vs. peers) and Maestro in the scooter
segment was also doing well. This was reflected in the company’s
ability to maintain market share in the domestic motorcycle and
scooter segments at 52% and 19% respectively in FY14.

$ Valuation & Risks: We continue to like HMCL given reasonable
valuations (P/E of 13.2x FY16E), ability to retain its market share
and strong presence in the fast growing scooter segment and rural
markets. We retain Buy with TP of Rs2,850 (based on 16x FY16E EPS).
Key downside risks are 1) Failure of new indigenous products launched
by HMCL and 2) Higher than expected success of Discover models of
Bajaj Auto.



Thanks & Regards

--

Hero MotoCorp. Decent quarter, but valuations fair; Sell :: Anand Rathi

Hero MotoCorp.
Decent quarter, but valuations fair; Sell
Key takeaways
Demand scenario was decent. Hero MotoCorp.’s 3QFY14 numbers were
decent, and on a lower base the company reported yoy growth for a second
successive quarter (after a yoy decline for the preceding four quarters). Twowheeler sales were up 6.9% yoy and 18.7% qoq. Consequent on the weak
demand environment in the auto industry and keener competition, we expect
this challenging industry scenario to continue into 4QFY14.
3Q likely to be good. We expect 11.1% yoy income growth, to `68.7bn, and
29.7% yoy EBITDA growth, to `10.1bn. Our expected EBITDA margin is
14.7% (21bps higher yoy, and 20bps higher qoq). We expect the 2Q tax rate
to have come at 26%. We expect 22.7% yoy profit growth, to `6bn.
Laying groundwork for future. The company has started work on building
a new R&D centre at Kukas, Rajasthan. This would be a `4.5bn project,
slated to commence operations in 1QCY15. The existing R&D centres at
Gurgaon and Dharuhera would also be shifted to Kukas once it is complete.
Kukas would be the hub for developing models for domestic and export
markets. Besides, the company is setting up a manufacturing plant and a
global parts centre at Neemrana, both of which would start operations in
2014. Overall investment in the three projects in Rajasthan would be to the
tune of `13bn.
Our take. In FY13 and 1QFY14, the company reported yoy decline in
profitability. A lower base and yoy margin improvement from 2QFY14 could
arrest this movement for now. However, the prevailing weak demand
environment is likely to continue. The new R&D centre could, though, be a
long-term positive. We maintain a Sell with a target of `1,897 (based on the
value of core earnings at 13.5x Mar’15 to `1,693 and the value of cash and
investments at `204. Risks. Above expected volumes and recovery in rural
growth, lower royalty expense

Hero Motocorp - 1QFY14 Review: Higher tax rates offset operating margin gains; re-iterate UW :: JPMorgan

 HMCL’s reported 1Q PAT at Rs.5.5B (-11% y/y) was below our
estimates. While the EBITDA margin (+100bp q/q) surprised, as the
other expenditure cost ratio declined -100bp q/q, tax rate increased
sharply to 26.9% (as the exemptions from the Uttarakhand plant have
partially expired). Our view: We re-iterate our UW stance on Hero
Motocorp given that: i) industry growth outlook remains weak, ii)
scooters are gradually expanding in the product mix, and iii) competition
is intensifying across segments.
 Conference call takeaways: Demand outlook: Management continues
to guide for an uncertain demand environment and expects single digit
growth over FY14E (while they had initially guided to 7-8% growth in
the year, the sharp decline in sales over 1Q has surprised negatively).
During the quarter, realizations declined by -2% q/q due to lower sales
of premium bikes, given the ongoing slowdown. The OEM will launch
new variants during the festive season, which will likely drive sales over
2H. On exports, while the management is targeting sales of 300,000
units in FY14E, given the decline in industry exports over 1Q, they
highlighted that the demand environment is uncertain. Margins: The
OEM took a price hike of Rs.1,000 in April, which aided margins.
However, as the OEM imports components from overseas, the impact of
the weaker INR will impact over 2Q. Tax Rates: The benefits from the
Uttarakhand plant have partially expired and management expects tax
rates to sustain at current rates of ~27%.
 Price Target: While our estimates are largely unchanged, we are rolling
forward our PT timeframe to Dec'13 and set a revised PT of Rs.1,620,
based on 12.5x PE multiple (in line with our earlier methodology). Key
upside risks: a recovery in industry sales, robust growth in exports at
Hero Motocorp.

Hero Motocorp - 1QFY14 Review: Higher tax rates offset operating margin gains; re-iterate UW :: JPMorgan

 HMCL’s reported 1Q PAT at Rs.5.5B (-11% y/y) was below our
estimates. While the EBITDA margin (+100bp q/q) surprised, as the
other expenditure cost ratio declined -100bp q/q, tax rate increased
sharply to 26.9% (as the exemptions from the Uttarakhand plant have
partially expired). Our view: We re-iterate our UW stance on Hero
Motocorp given that: i) industry growth outlook remains weak, ii)
scooters are gradually expanding in the product mix, and iii) competition
is intensifying across segments.

Hero MotoCorp - Margin expansion continues, volumes to grow on rural demand:: LKP

Operationally above expectations, high tax rate dampens the PAT

Hero Motocorp (Hero) reported a good set of numbers in Q1 mainly on the improvement in margin performance, which led to a better than expected performance till the PBT level. Hero’s 1Q volumes were down by 5% yoy, while were up by 2%qoq. Net revenues were up by 1% yoy and down 1% qoq. The net realizations improved by 3.7% yoy, while were down 1% qoq as product mix became adverse sequentially as the demand for premium segment bikes reduced, while executive segment and mass segment bike demand was high. The company took an average price hike of Rs 1000 price hike in May, which somewhat offset the qoq decline in realizations. The company benefited from softening of the commodities which brought down the RM/sales ratio to 72.3% from 74.1% yoy, while remaining stable qoq. However, staff costs and other expenses grew by 8% yoy (3.6% of sales, stable sequentially) and 13% yoy (9.2% of sales, down from 10.3% qoq) yoy respectively. Reduction in other expenses was the result of the cost cutting initiatives taken by the company on the admin and marketing side. In line with this, the overall impact on EBITDA margins was positive, which came at 14.9%, above 110 bps qoq and 40 bps yoy . Depreciation and interest costs came in more or less in line with our expectation, while there was a surprise element in tax terms of 10% additional surcharge, thus taking tax rate at 27%. This dampened the PAT below our expectations at Rs 5.49 bn, which was a 11% yoy and 4% qoq drop.

Outlook and valuation

Though demand scenario has not been very encouraging , with good monsoons, demand pick up in rural markets, 7-8 new launches (including variants and refreshes), expansion of dealership network will help the company to post good volume performance from Q2 onwards. High festive demand will enable the company to put up good growth number on a low base of last year when festive demand was not that high. Reduction in inventory levels is a good sign and expansion of scooters as well as overall capacities will take care of Honda’s growing capacities. The innovative measures taken by the company like the 5 year warranty scheme is playing a good role in helping Hero to post monthly run-rate of volumes in excess of 5 lakhs consistently. Margin uptrend will continue on the back of commodities softening, cost reduction initiatives, higher pie of scooters sales and price hike taken. In line with this we have increased our FY14as well as FY 15 margin estimates to 14.4% and 14.6% respectively. But at the bottomline, with the surprise coming in the form of 10% surcharge on existing tax rate, our FY 14E EPS stands slightly revised downwards at Rs109 from Rs 113. However, in FY 15, with the royalty outflow going out from Q2 FY15, volume growth expectations becoming higher and margins continuing to outperform, we believe the impact of higher tax rate of c.27% coming from Haridwar benefit going out and surcharge of 10% will not be able to hamper the earnings. Factoring these pros and cons, we have increased the FY 15E earnings estimates and thus target price to Rs2,090, thus continuing with our BUY rating on the stock

Hero MotoCorp - "Robust margin expansion” :LKP

Better than expected results

Hero Motocorp (Hero) reported a good set of numbers in Q4 mainly on the improvement in margin performance, which led to a better than expected show. Hero’s 4Q volumes were down by 3% yoy as well as qoq. Net revenues were up by 2% yoy and 1% qoq. The net realizations improved by 2% yoy and 1.5% qoq on improved product mix coming from a good performance from the scooters segment and a slight price hike of Rs300 taken in the previous quarter. The company benefited from softening of the commodities which brought down the RM/sales ratio to 72.2% from 74.1% qoq as well as yoy. However, staff costs and other expenses grew by 17% (3.7% of sales) and 26% (10.3% of sales) yoy respectively. Staff costs increased due to slight wage hike taken in the quarter and higher number of recruits during the same period, while other expenses were due to higher power and transportation costs and launch of new products. However, the overall impact on EBITDA margins was positive as margins expanded meaningfully to 13.8%, 120 bps qoq. This was due to the benefit of Yen depreciation, RM costs decline and effective cost control initiatives taken by the management.  Depreciation and interest costs came in more or less in line with our expectation, while tax rate came in at 16.3% in line with the last quarter’s tax rate thus indicating higher number of production from the tax haven Haridwar plant.

Outlook and valuation

Revival seen in demand off late though in a small way is expected to continue, mainly in the scooters and entry level bikes. Reduction in inventory levels is a good sign and expansion of scooters as well as overall capacities will take care of Honda’s growing capacities. Expansion of dealer network mainly in the northern region, the stronghold of Hero will benefit the company well to pull back the lost market share. The innovative measures taken by the company like the 5 year warranty scheme is playing a good role in volume revival. Margin uptrend will continue on the back of yen depreciation, commodities softening, cost reduction initiatives, higher pie of scooters sales and price hike taken. We have maintained our FY 14 earnings estimate at Rs113, while we have introduced FY 15E estimates which will be free from royalty payment from Honda from the second quarter of FY 15 as the royalty term ends then. This will provide a solid boost to the bottomline thus adding approximately Rs25 to the EPS in FY 15. We are rolling over our estimates from FY 14E to FY 15E thus upgrading the stock from Underperformer to Outperformer (post achieving our previous target of Rs 1579) with a target price of Rs 1,855.

Consider selling Hero MotoCorp futures:: Business Line

Outlook-Amara Raja Batteries, Nelco, Neyveli Lignite, DCB, Hero Honda, Strides Arcolab ::Business Line

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Please share your technical view on Amara Raja Batteries bought at Rs 207.

Kaushalendra Pratap Singh

Amara Raja Batteries (Rs 284.3): Amara Raja Batteries ceased its upward charge in January this year when it reversed lower from the peak at Rs 327. This decline ended after the stock lost 23 per cent from this peak with the bottom at Rs 249.

The significant point to note here is that the stock retraced around 30 per cent of the rally from the February 2011 low, during this correction. The stock has significant long-term support in the zone between Rs 230 and Rs 250. Long-term investors can hold the stock as long as it trades above Rs 230.

Sideways movement in the zone between Rs 230 and Rs 330 is possible for a few more months but this is conducive for the stock’s long-term prospects. It will imply that the stock could move beyond Rs 350 over the long-term.

Long-term supports below Rs 230 are at Rs 200 and Rs 170.

Please advise on the medium- and long-term outlook of Nelco. Can these be bought at current levels?

Anil

Nelco (Rs 42.1): The medium as well as the long-term trend in Nelco are currently down. The stock is, however, halting above key long-term support around Rs 40. Investors with a greater penchant for risk can buy the stock at these levels with stop-loss at Rs 36. Fresh purchases should, however, be avoided on a breach of this level since the target on a breach of this support is quite some way off, at Rs 21.

Key medium-term resistance is placed at Rs 65. Investors can offload part of their holding if the stock is unable to move beyond this level. Medium-term view will turn positive only on a close above Rs 80.

Kindly give your view on Neyveli Lignite Corporation bought at Rs 108 and Development Credit Bank at Rs 52. I can hold the stocks for six months.

P.S.R. Murthy

Neyveli Lignite Corporation (Rs 74.8): The trends along all time-frames are down for Neyveli Lignite Corporation. Investors can, however, draw solace from the fact that the stock is now close to its key support zone around Rs 70. This level has cushioned the stock twice already since November 2011.

Investors can, therefore, hold the stock only as long as it trades above Rs 60.

If the stock breaches this level emphatically and closes below it on a weekly basis, it will imply that the stock is heading lower to the October 2008 trough at Rs 44.

Medium-term resistances are at Rs 90 and Rs 110. The trend along this time-frame will turn positive only on a close above Rs 110.

Failure to do so will imply that the stock will continue to be under pressure. Targets on move above Rs 110 are Rs 124 and Rs 136.

Technicals-Amara Raja Batteries, Nelco, Neyveli Lignite, DCB, Hero Honda, Strides Arcolab ::Business Line

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Please share your technical view on Amara Raja Batteries bought at Rs 207.

Kaushalendra Pratap Singh

Amara Raja Batteries (Rs 284.3): Amara Raja Batteries ceased its upward charge in January this year when it reversed lower from the peak at Rs 327. This decline ended after the stock lost 23 per cent from this peak with the bottom at Rs 249.

The significant point to note here is that the stock retraced around 30 per cent of the rally from the February 2011 low, during this correction. The stock has significant long-term support in the zone between Rs 230 and Rs 250. Long-term investors can hold the stock as long as it trades above Rs 230.

Sideways movement in the zone between Rs 230 and Rs 330 is possible for a few more months but this is conducive for the stock’s long-term prospects. It will imply that the stock could move beyond Rs 350 over the long-term.

Long-term supports below Rs 230 are at Rs 200 and Rs 170.

Please advise on the medium- and long-term outlook of Nelco. Can these be bought at current levels?

Anil

Nelco (Rs 42.1): The medium as well as the long-term trend in Nelco are currently down. The stock is, however, halting above key long-term support around Rs 40. Investors with a greater penchant for risk can buy the stock at these levels with stop-loss at Rs 36. Fresh purchases should, however, be avoided on a breach of this level since the target on a breach of this support is quite some way off, at Rs 21.

Key medium-term resistance is placed at Rs 65. Investors can offload part of their holding if the stock is unable to move beyond this level. Medium-term view will turn positive only on a close above Rs 80.

Kindly give your view on Neyveli Lignite Corporation bought at Rs 108 and Development Credit Bank at Rs 52. I can hold the stocks for six months.

P.S.R. Murthy

Neyveli Lignite Corporation (Rs 74.8): The trends along all time-frames are down for Neyveli Lignite Corporation. Investors can, however, draw solace from the fact that the stock is now close to its key support zone around Rs 70. This level has cushioned the stock twice already since November 2011.

Investors can, therefore, hold the stock only as long as it trades above Rs 60.

If the stock breaches this level emphatically and closes below it on a weekly basis, it will imply that the stock is heading lower to the October 2008 trough at Rs 44.

Medium-term resistances are at Rs 90 and Rs 110. The trend along this time-frame will turn positive only on a close above Rs 110.

Failure to do so will imply that the stock will continue to be under pressure. Targets on move above Rs 110 are Rs 124 and Rs 136.

Hero MotoCorp - "Disappointing results, competition intensifies" LKP

Dismal show in the current quarter

Hero Motocorp (Hero)’s 3Q volumes were down by 1.1% yoy and up by18% qoq. Net revenues were up by 3% yoy and 20% qoq. The company increased the dealer margins by Rs100/bike in the wake of rising competition thus increasing the ad spend as well, which led to a sharp increase in other expenses (10.1% of sales v/s 9.8% qoq). Rising competition from Honda led to a decline in margins of Hero for straight fifth quarter. Less profitable shift in product mix and new launches led to higher RMC to sales (at 74.1% v/s 73.2% qoq) despite commodities softening a bit. EBITDA margins skid down to 12.6% v/s 15% yoy and 13.3% qoq. EBITDA de-grew by 13% yoy to Rs 7.7bn. The company mentioned that the depreciation of Japanese Yen will benefit them in the fourth quarter, however, we believe the rising competition will negate the impact of favorable yen movement. Lower other income coupled with operational underperformance led to a 20% yoy fall in PAT at Rs4.87bn. Tax rate came in at 16.3% as this is the second last quarter of full benefit from Haridwar plant.

Outlook and valuation

Disappointing Q3 FY13 results, with bleak expectation in the ensuing quarters has led us to turn negative on the stock. Concerns surrounding competition from Honda are becoming sharper and stronger. Honda’s new launches in the sub 125 cc segment and commissioning of capacities well ahead of Hero’s new capacities get lined up is the biggest concern from market share erosion point of view. We believe both Hero and Bajaj will feel the heat, though Hero will feel it more with its focus on the executive segment. Although Bajaj with its focus on 3 wheelers and exports is still slightly better placed than Hero, we believe that margins of Bajaj will also start weakening in due course of time. We are turning negative on the entire two wheeler sector by downgrading Hero to Underperformer (Bajaj already has an Underperformer rating and TVS a SELL) with structural shift favoring Honda alone. We have cut Hero’s estimates for FY 13E-FY14E by 15-20%, while have brought down the target price to Rs 1,579, which is a downside of 15% from current levels.

Hero MotoCorp - Q3FY13 Result Update - Centrum

Hero MotoCorp

Neutral

Target Price: Rs1,780

CMP: Rs1,823       

Downside: 2.4%

Operating performance disappoints

Hero MotoCorp Limited’s (HMCL) 3QFY13 operating results were disappointing with EBITDA margins at 12.6% compared to our estimate of 15.0% largely on account of higher than expected RMC to sales and higher other expenditure. While new product launches led to higher RMC QoQ (higher by 140bps), higher marketing and brand building exercise related to new product launches coupled with increase in dealers’ commission from Oct’12 onwards led to higher other expenditure. Consequently, EBITDA margins contracted 128bp QoQ. Lower than expected operating performance led to PAT at Rs4.9bn vs. our estimate of Rs5.9bn. New product launches helped HMCL to increase its overall market share in the domestic motorcycle industry to 52% vs. 49.9% in 2QFY13, while its share in the scooter segment has inched up to 21% vs. 17% in 2QFY13 driven by the success of Maestro.  We continue to maintain our Neutral rating on the stock with a target price of Rs.1,780.

Hero MotoCorp - Sell :: Business Line

Hero Motocorp: In-line quarter : Kotak Sec, PDF link

Hero Motocorp (HMCL)
Automobiles
In-line quarter. Hero Motocorp’s results were operationally in line with our estimates,
but average selling prices were flat qoq despite a price increase taken during the
quarter indicating downtrading by customers. We expect EBITDA margins to remain
under pressure as volume growth stays sluggish. We maintain our SELL rating on the
stock due to expensive valuations and rising competitive pressure which limit ability of
the company to take pricing actions to offset rising input costs.