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Hero Honda
M a r g i n g r o w t h n o w h e r e i n s i g h t …
Hero Honda’s (HHL) Q1FY12 numbers were slightly above our estimates
with net sales at | 5683.3 crore (I-direct estimate: | 5660.6 crore), a 32.3%
YoY and 5.4% QoQ jump. This was driven by volume growth (~24%
YoY, 5.2% QoQ increase) at 1.5 million units due to the robust marriage
season in northern India during the period. The realisations on a per unit
basis remained flat (| 39,436) QoQ, reflective of the decreasing pricing
power even with huge demand strength. EBITDA margins reported were
at 14.4% (20 bps below our estimates, lower ~40 bps) due to higher
RM/unit increases (2.8% QoQ). On the PAT front, HHL’s profits were
higher than our estimates at | 557.9 crore mainly due to lower tax outgo
with higher than estimated MAT credit owing from the Pantnagar plant.
Highlights of the quarter
HHL has seen 24% YoY volume growth at 1.5 million units and
maintained its overall motorcycle market share of ~56% in the domestic
market. It has undergone de-bottlenecking exercises in the Hardwar plant
to increase its capacity by 0.15 million units to 2.258 million units. It plans
to increase capacity to 6.4-6.5 million units in FY12E. It is also in the
process of finalising the fourth plant of ~0.75 million capacity at ~| 800
crore of capex. HHL continues to pay ~| 177 crore towards royalty. The
management has guided at major costs post JV break-up with Honda
such as re-branding and R&D related that are expected to kick in with
more severity in the coming quarters. The management believes
commodity prices have peaked in Q2FY12E and expects to see lower
pressure in the coming quarters.
V a l u a t i o n
We are cautiously positive on the demand scene. However, there are
pressures on HHL’s margins emanating from re-branding and R&D related
expenses along with omnipresent competitive concerns. At the CMP of |
1785, the stock is trading at 17.3x FY12E EPS of | 104.1 and 14.9x FY13E
EPS 120.5. We have valued HHL at 13x FY13E EPS of | 120.5 to arrive at a
value of | 1566 per share. We maintain our SELL rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Honda
M a r g i n g r o w t h n o w h e r e i n s i g h t …
Hero Honda’s (HHL) Q1FY12 numbers were slightly above our estimates
with net sales at | 5683.3 crore (I-direct estimate: | 5660.6 crore), a 32.3%
YoY and 5.4% QoQ jump. This was driven by volume growth (~24%
YoY, 5.2% QoQ increase) at 1.5 million units due to the robust marriage
season in northern India during the period. The realisations on a per unit
basis remained flat (| 39,436) QoQ, reflective of the decreasing pricing
power even with huge demand strength. EBITDA margins reported were
at 14.4% (20 bps below our estimates, lower ~40 bps) due to higher
RM/unit increases (2.8% QoQ). On the PAT front, HHL’s profits were
higher than our estimates at | 557.9 crore mainly due to lower tax outgo
with higher than estimated MAT credit owing from the Pantnagar plant.
Highlights of the quarter
HHL has seen 24% YoY volume growth at 1.5 million units and
maintained its overall motorcycle market share of ~56% in the domestic
market. It has undergone de-bottlenecking exercises in the Hardwar plant
to increase its capacity by 0.15 million units to 2.258 million units. It plans
to increase capacity to 6.4-6.5 million units in FY12E. It is also in the
process of finalising the fourth plant of ~0.75 million capacity at ~| 800
crore of capex. HHL continues to pay ~| 177 crore towards royalty. The
management has guided at major costs post JV break-up with Honda
such as re-branding and R&D related that are expected to kick in with
more severity in the coming quarters. The management believes
commodity prices have peaked in Q2FY12E and expects to see lower
pressure in the coming quarters.
V a l u a t i o n
We are cautiously positive on the demand scene. However, there are
pressures on HHL’s margins emanating from re-branding and R&D related
expenses along with omnipresent competitive concerns. At the CMP of |
1785, the stock is trading at 17.3x FY12E EPS of | 104.1 and 14.9x FY13E
EPS 120.5. We have valued HHL at 13x FY13E EPS of | 120.5 to arrive at a
value of | 1566 per share. We maintain our SELL rating on the stock.
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