Emkay Global has given a hold rating to Hero MotoCorp with a target price of Rs 2,313 (Rs 2,670 earlier), applying target P/E multiple of 14 times (vs 15 times earlier) and the value of Hero Fincorp at Rs105/ share. The brokerage expects industry volumes to be subdued in the near-term, and market share to remain under pressure due to weak presence in scooters and premium motorcycles.
The share price of the company moved up by 3.09 per cent from its previous close of Rs 1827.55. The last traded price is Rs 1,884.05. Incorporated in 1984, Hero MotoCorp has a market cap of Rs 36505.37 crore.
Investment Rationale
Hero MotoCorp has been losing market share in the domestic two-wheeler segment. Its share declined from 40 per cent in FY15 to 36 per cent in FY20, and pressure on market share is expected to continue due to weak presence in scooters and premium motorcycles segments.
Near term revenue performance is likely to be impacted by price increases due to BS-VI transition, while margin will be hit by partial absorption of regulatory costs and operating deleverage. The brokerage expects revenue to increase by 5 per cent CAGR and earnings by 1 per cent CAGR over FY20-22E. The earnings estimates have been reduced by 11 per cent/8 per cent for FY21E/F22E to factor near-term volume and margin pressures.
Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 7074.53 crore, down -7.65 per cent from last quarter sales of Rs 7660.27 crore and down -10.87 per cent from last year same quarter sales of Rs 7936.88 crore. The company reported net profit after tax of Rs 880.13 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 34.6 per cent stake in the company as of December 31, 2019, FIIs held 35.3 per cent, DIIs 19.6 per cent and public & others 10.5 per cent.