Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We assume coverage of Hero Motocorp with OUTPERFROM,
valuing at DCF target price of Rs2,492 (17x FY13 earnings).
● Given the increasing share of rural India in the overall industry
volumes (up from 35% in 2005 to ~45% currently), Hero Motocorp
– with its Splendor and Passion brands – is best placed to capture
this boom in rural consumption. In our view, fears over HMSI
taking share are overdone. It will not be very easy for HMSI to
establish its brand in India.
● We reckon gross margins can expand by ~300 bp over the next
three years because of (1) flexibility in raw material sourcing post
Honda separation; (2) peaking of commodity prices; and (3) better
price hikes. EBITDA margins will expand from FY13 as there will
be one-off costs post the split.
● We note that in six of the last ten years, the company’s FCF has
been higher than 80% of its profits. Post its split with Honda, the
company’s dividend payout ratio improved from 40% to >100%. In
our view, the stock deserves to trade at a higher multiple.
Margins have bottomed; expect big improvement
We expect gross margins may expand by ~250 bp over the next two
years from the 1QFY12 levels because of flexibility in raw materials
sourcing, peaking of commodity prices and better price hikes. While
EBITDA margins would remain muted in FY12 on one-off costs post
the split, they should improve from FY13 onwards. We reckon
concerns over HMSI (Honda Motorcycles and Scooters India)
disturbing the market equilibrium are overdone. Though HMSI is
strong in scooters, it has not done anything noteworthy in premium
motorcycles despite being an aggressive player for the last seven
years. Hero Motocorp has maintained a high dividend payout ratio in
the last two years, given strong cash generation on the back of which
we expect ROEs to be maintained at ~70% levels in the coming years
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We assume coverage of Hero Motocorp with OUTPERFROM,
valuing at DCF target price of Rs2,492 (17x FY13 earnings).
● Given the increasing share of rural India in the overall industry
volumes (up from 35% in 2005 to ~45% currently), Hero Motocorp
– with its Splendor and Passion brands – is best placed to capture
this boom in rural consumption. In our view, fears over HMSI
taking share are overdone. It will not be very easy for HMSI to
establish its brand in India.
● We reckon gross margins can expand by ~300 bp over the next
three years because of (1) flexibility in raw material sourcing post
Honda separation; (2) peaking of commodity prices; and (3) better
price hikes. EBITDA margins will expand from FY13 as there will
be one-off costs post the split.
● We note that in six of the last ten years, the company’s FCF has
been higher than 80% of its profits. Post its split with Honda, the
company’s dividend payout ratio improved from 40% to >100%. In
our view, the stock deserves to trade at a higher multiple.
Margins have bottomed; expect big improvement
We expect gross margins may expand by ~250 bp over the next two
years from the 1QFY12 levels because of flexibility in raw materials
sourcing, peaking of commodity prices and better price hikes. While
EBITDA margins would remain muted in FY12 on one-off costs post
the split, they should improve from FY13 onwards. We reckon
concerns over HMSI (Honda Motorcycles and Scooters India)
disturbing the market equilibrium are overdone. Though HMSI is
strong in scooters, it has not done anything noteworthy in premium
motorcycles despite being an aggressive player for the last seven
years. Hero Motocorp has maintained a high dividend payout ratio in
the last two years, given strong cash generation on the back of which
we expect ROEs to be maintained at ~70% levels in the coming years
No comments:
Post a Comment