What should investors do with Hero MotoCorp: Buy, Sell or Hold?

Hero MotoCorp share price gained 2 percent in the early trade on June 11. The company on June 9 has reported a standalone profit at Rs 621 crore the fourth quarter of FY20 as against Rs 730.32 crore in same period last year, a decline of 15 percent.

Revenue from operations for the quarter stood at Rs 6,238 crore, falling 21 percent year-on-year, impacted by lower sales volumes, which declined 25 percent year-on-year to 13.35 lakh units during the March quarter.

Earnings before interest, tax, depreciation and amortisation (EBITDA) plunged 38.3 percent to Rs 660 crore and margin dipped 300 bps to 10.6 percent.

Also Read - Hero MotoCorp slashes capex to Rs 600 crore, says demand uptick visible

CLSA | Rating: Buy | Target: Raises to Rs 2,700 from Rs 2,400

According to CLSA, there was a positive surprise on margin & FCF generation, while Q4 results were better than our & consensus expectations, reported CNBC-TV18.

Revenue/EBITDA 1%/20% above our forecast, while EBITDA margin was at 12.9%, which is 200 bps over our estimate.

The near-term demand uncertain but we are enthused by its share dominance

Broking house has increased FY21/22 EPS estimates by 9-10%.

Sharekhan | Rating: Buy | Target: Rs 2,525

The economic slowdown due to COVID-19 and steep cost increases due to BS6 transition would impact volumes in FY21, we expect a recovery in FY22 driven by an increase in farm incomes.

Prabhudas Lilladher | Rating: Accumulate| Target: Rs 2,444

The company's Q4FY20 performance was in-line with revenue/EBITDA/PBT while margins came in lower at 10.6% led by contraction in gross margins, negative operating leverage and higher dealer support to clear off BS4 inventory. Management hinted for better than expected pickup in retails on the back of improved rural sentiments, pent up demand, likely down trading and shift to personal mobility trend.

It has cut FY21 EPS by 3% as we cut volumes by 2.5% while maintaining FY22 EPS.

Arihant Capital | Rating: Hold | Target: 2,422

The company has performed exceptionally in a weak market scenario. However, it has delivered a disappointing performance in Q4FY20 primarily on margins front, mainly due to COVID-led nationwide lockdown towards the end of the quarter.

It believes that social distancing and the better placed rural economy would help the two-wheeler industry and Hero MotoCorp going forward. We value Hero MotoCorp at PE of 15x to FY22 EPS estimate of Rs 161.5, which yields a target price of Rs 2,422.

LKP Research | Rating: Buy | Target: Rs 2,649

With a lower level of inventory, ramping up of production, improving demand, and new launches LKP expect FY22 to post solid growth. Furthermore expectations of good monsoon, and GOI package for MSMEs and rural India, it expects a strong pick up in rural markets as well. Profitability would improve on cost-saving programs, capex reduction and operating leverage stemming from improving volumes.

Dolat Research | Rating: Reduce | Target: Rs 2,460

Given its high return ratios (ROCE of about 20%), consistent market leadership, and healthy dividend yield (about 4%), it continues to remain positive on the stock. However, the valuation 20/15x for FY21/22E EPS leaves little upside.