HDFC Securities is bullish on Hero MotoCorp has recommended buy rating on the stock with a target price of Rs 4360 in its research report dated November 02, 2017.
HDFC Securities' research report on Hero MotoCorp
Hero Motocorp’s (HMCL) 2QFY18 EBITDA at Rs 14.55bn (+6.3% YoY, with 17.6% margin) was slightly above estimates, led by the benefit of operating leverage and lower other expenses. Net revenue stood at Rs 83.6bn (+7% YoY, +5% QoQ), on the back of 11% YoY rise in volumes. This was offset by +lower accounting of GST incentives against excise benefits (Rs. 500mn) for the Hardwar plant, and a fall in net ASP. PAT at Rs 10.1bn (+1% YoY, +11% QoQ) was in-line with estimates. Management expects strong demand momentum to continue, led by a ramp-up in rural demand and new launches in 2HFY18. We believe HMCL is the best pick, with a likely revival in the rural economy. Its market share is resilient in entry and commuter segment and will be a key beneficiary of 2W penetration increase in North and East India (especially in UP, the largest market for 2Ws, with a share of 14%) due to better product reliability and brand acceptability. In addition, rolling out new models (including 125 CC scooters) in FY18 will provide much-needed support to volume growth.
Outlook
We have trimmed our FY18E EPS by 4% and roll forward our TP on Sept-19. We value HMCL at Rs 4,360 (20x) vs Rs 4,250 earlier. Maintain BUY.
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