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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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Staff costs, other expenses weigh on EBITDA margins Hero Motocorp reported 3QFY15 EBITDA of `8.2 bn, which was 6% lower than our estimate. EBITDA margins were muted at 12% (-150 bps qoq) led by higher staff costs and other expenses. The company attributed the higher expenses to (1) sponsorship-related activities in the Hockey India League, I-league (football) and sponsorship of the Tiger Woods golf tournament, (2) higher staff costs due to Diwali bonus and addition of manpower at the Neemrana plant. Gross margins rose 20 bps qoq (+100 bps yoy) despite a poorer mix (higher scooter sales in the product mix) due to a ~1% price increase taken in the quarter. Net realizations were up 1.5% qoq as the company took price hikes across product lines. The company also passed on an increase in excise duty on motorcycles from January 1, 2015, which is likely to benefit it in 4QFY15 as 30% of production comes from excise-free plants. While it was paying 12% excise on raw material, it was not getting the full benefit of lower excise duties as the Haridwar plant was exempt from excise duty; with an increase in excise duty to 12%, the company will improve its EBITDA margin by 100 bps in 4QFY15. Volume growth to remain strong; new launches in scooter segment to boost market share We expect Hero’s volumes to grow in double digits over FY2016-17, led by strong demand for scooters and Splendor/Passion models. The company increased its market share by 100 bps qoq in 3QFY15 in the domestic motorcycle industry amid strong competition. Hero is also expected to gain market share in the scooter segment, led by the launch of new models in FY2016 and the augmenting of scooter capacity. We cut our earnings estimate, maintain BUY with a target price of `3,650 We cut our earnings estimates by 4-8% over FY2015-17, reflecting lower volumes and EBITDA margins. We maintain our BUY rating on the stock with a target price of `3,650. Our target price is based on 17X December 2016E EPS. We believe the company is well placed to improve its market share in the domestic two-wheeler industry and improve EBITDA margins, led by costcutting initiatives, currency tailwinds and muted raw material cost pressure.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Staff costs, other expenses weigh on EBITDA margins Hero Motocorp reported 3QFY15 EBITDA of `8.2 bn, which was 6% lower than our estimate. EBITDA margins were muted at 12% (-150 bps qoq) led by higher staff costs and other expenses. The company attributed the higher expenses to (1) sponsorship-related activities in the Hockey India League, I-league (football) and sponsorship of the Tiger Woods golf tournament, (2) higher staff costs due to Diwali bonus and addition of manpower at the Neemrana plant. Gross margins rose 20 bps qoq (+100 bps yoy) despite a poorer mix (higher scooter sales in the product mix) due to a ~1% price increase taken in the quarter. Net realizations were up 1.5% qoq as the company took price hikes across product lines. The company also passed on an increase in excise duty on motorcycles from January 1, 2015, which is likely to benefit it in 4QFY15 as 30% of production comes from excise-free plants. While it was paying 12% excise on raw material, it was not getting the full benefit of lower excise duties as the Haridwar plant was exempt from excise duty; with an increase in excise duty to 12%, the company will improve its EBITDA margin by 100 bps in 4QFY15. Volume growth to remain strong; new launches in scooter segment to boost market share We expect Hero’s volumes to grow in double digits over FY2016-17, led by strong demand for scooters and Splendor/Passion models. The company increased its market share by 100 bps qoq in 3QFY15 in the domestic motorcycle industry amid strong competition. Hero is also expected to gain market share in the scooter segment, led by the launch of new models in FY2016 and the augmenting of scooter capacity. We cut our earnings estimate, maintain BUY with a target price of `3,650 We cut our earnings estimates by 4-8% over FY2015-17, reflecting lower volumes and EBITDA margins. We maintain our BUY rating on the stock with a target price of `3,650. Our target price is based on 17X December 2016E EPS. We believe the company is well placed to improve its market share in the domestic two-wheeler industry and improve EBITDA margins, led by costcutting initiatives, currency tailwinds and muted raw material cost pressure.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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