hero motocorp (herhon) - icici...
TRANSCRIPT
ICIC
I S
ecurit
ies –
Retail E
quit
y R
esearch
Result
Update
February 7, 2020
CMP: | 2,425 Target: | 2,800 (15%) Target Period: 12 months
Hero MotoCorp (HERHON)
BUY
Balance sheet strength trumps soft volume outlook…
Hero MotoCorp (HMCL) reported a solid operational performance in
Q3FY20. Total 2-W sales volumes at 15.4 lakh units were down 14.3% YoY
(scooters down 41.5% YoY, motorcycles down 11.3% YoY). Net sales were
at | 6,997 crore with decline lower than volume drop tracking improvement
in blended ASPs to | 45,408/unit as product mix shifted even more towards
motorcycles. EBITDA margins at 14.8% were up 30 bps QoQ with gross
margin improvement of 110 bps driving sequential performance. PAT at
| 880.4 crore was supported by shift to lower tax rate regime (effective tax
rate 13.0%). The company declared an interim dividend of | 65/share.
Not out of the woods on demand front
In the run up to the BS-VI changeover, pricing of products launched by 2-W
OEMs thus far including HMCL have surprised us negatively. As against our
expectation of ~10% price increase, actuals have tended to range between
13-15% on average. This, we believe, adds further pressure to a price
sensitive market segment which is already suffering from subdued buyer
sentiment given reduced propensity to spend and cost increase for safety
features and upfront insurance. The domestic 2-W industry has registered
15.8% YoY 9MFY20 volume drop. While retail performance has improved in
recent months (channel inventory down to ~35 days in December), we
expect demand scenario to remain soft over coming six months, with mild
positivity seen from H2FY21E backed by lower base and festive tailwinds.
We build 4.5% overall volume CAGR for HMCL over FY20E-22E.
Margin pressures to accumulate going forward
With the substantial price increases under BS-VI comes the trickiness around
extent of passing on costs to buyers. HMCL has indicated it has been thus
far able to pass on entire absolute costs to customers but we believe pricing
environment would take some time to settle. Lack of any meaningful
operating leverage and rise in commodity costs recently complicates margin
outlook over the medium term. HMCL’s material cost control programme
(LEAP), however, should mitigate these headwinds, to an extent.
Valuation & Outlook
We expect sales, PAT to grow at a CAGR of 12.9%, 8.4%, respectively, over
FY20E-22E. Muted outlook on demand and margins leads us to trim our
forward estimates. However, we retain our positive stance on HMCL given
its status as India’s largest motorcycle and 2-W player, relatively inexpensive
valuations and excellent B/S strength. HMCL remains a debt free, cash
surplus company with best-in-class return ratios (10 year average RoCE
~43%) and a generous dividend payer (present dividend yield at ~4.5%).
We value HMCL at | 2,800 (14x P/E on FY22E EPS of | 200) & maintain BUY.
Key Financials FY18 FY19 FY20E FY21E FY22E CAGR (FY20E-22E)
Net Sales 32,230.5 33,650.5 29,989.1 35,428.7 38,238.1 12.9%
EBITDA 5,280.2 4,929.8 4,389.0 4,769.5 5,266.3 9.5%
EBITDA Margins (%) 16.4 14.6 14.6 13.5 13.8
Net Profit 3,697.4 3,384.6 3,822.5 3,528.3 3,986.8 2.1%
Normalised Net Profit 3,697.4 3,384.6 3,391.9 3,528.3 3,986.8 8.4%
EPS (|) 185.1 169.5 191.4 176.7 199.6
P/E 13.1 14.3 12.7 13.7 12.1
RoNW (%) 31.4 26.3 23.7 22.3 22.6
RoCE (%) 42.4 37.1 29.1 28.8 29.3
Key Financial Summary
Source: ICICI Direct Research, Company
Particulars
Particular Amount
Market Capitalization | 48427.3 Crore
Total Debt (FY19) | 0 Crore
Cash & Investments (FY19) | 4533.4 Crore
EV | 43893.9 Crore
52 week H/L (|) 3021 / 2228
Equity capital (| crore) 39.9
Face value | 2
Key Highlights
Total 2-W sales volume in Q3FY20
came in at 15.4 lakh units, down
14.3% YoY
Sales fall less than volumes
courtesy mix improvement and
resulting ASP increase to |
45,408/unit
Demand scenario soft in short term,
however expected to improve from
H2FY21E once BS-VI pricing
stabilises
Maintain BUY with revised target
price of | 2,800 basis unchanged
B/S strength and relatively
inexpensive valuations
Research Analyst
Shashank Kanodia, CFA
Jaimin Desai
ICICI Securities | Retail Research 2
ICICI Direct Research
Result Update | Hero MotoCorp
Exhibit 1: Variance Analysis
Q3FY20 Q3FY20E Q3FY19 YoY (%) Q2FY20 QoQ (%) Comments
Total Operating Income 6,997 6,897 7,865 -11.0 7,571 -7.6 Topline was ahead of estimates primarily tracking beat on ASP's
Raw Material Expenses 4,660 4,634 5,415 -13.9 5,126 -9.1
RM costs was the real surprise for the quarter and came in lower
at 66.6% of sales, down 110 bps QoQ
Employee Expenses 470 469 436 7.8 469 0.2
Other expenses 828 828 910 -9.0 875 -5.3 Other expenses were steady at 11.8% of sales
Operating Profit (EBITDA) 1,039 966 1,105 -6.0 1,101 -5.6
EBITDA Margins (%) 14.8 14.0 14.0 80 bps 14.5 30 bpsEBITDA margins came in ahead of estimates primarily tracking
savings in raw material costs
Other Income 182 194 188 -2.9 208 -12.3
Interest 5.9 7.7 2.2 174.1 7.7 -22.8
Depreciation 203.7 208.8 151.8 34.2 203.4 0.1
PBT after Exceptional Items 1,011.5 943.1 1,138.4 -11.1 1,097.8 -7.9
Total Tax 131.1 218.8 369.3 -64.5 162.9 -19.5 Tax arte for the quarter came in muted at 13.0%
PAT 880.4 724.3 769.1 14.5 874.8 0.6
EPS (Adjusted) 44.1 36.3 38.5 14.5 45.9 -3.9PAT came in ahead of estimates tracking beat on margins and
lower effective tax rate
Key Metrics
Motorcycle volumes ('000s) 1,435.7 1,435.7 1,619.2 -11.3 1,547.3 -7.2
Scooter volumes ('000s) 105.1 105.1 179.7 -41.5 144.1 -27.0 Total volumes in Q3FY20 stood at 15.4 lakh units down 14.3% YoY
Net Blended ASP (|/unit) 45,408 44,759 43,720 3.9 44,759 1.4Blended ASP's for the quarter increased by | 650/unit QoQ to |
45,408/ unit vs. our estimates of | 44,759/unit
Source: Company, ICICI Direct Research
Exhibit 2: Change in estimates
FY22E
(| Crore) Old New % Change Old New % Change Introduced Comments
Revenue 31,646 29,989 -5.2 35,947 35,429 -1.4 38,238
Marginally tweaked our sales estimates for FY20E-21E. Introduced
FY22E estimates. We expect sales to grow at a CAGR of 12.9% over
FY20E-22E, albeit post 10.9% YoY decline in FY20E
EBITDA 4,609 4,389 -4.8 4,918 4,770 -3.0 5,266
EBITDA
Margin (%)14.6 14.6 7 bps 13.7 13.5 -22 bps 13.8
Margins are expected to be steady in the range of ~14-15%. The
company has realised sizeable benefits out of commodity price decline
with some quantum expected to reverse going forward
PAT 3,894 3,822 -1.8 3,653 3,528 -3.4 3,987
EPS (|) 195 191 -1.8 183 177 -3.4 200
Broadly maintained PAT estimates for FY20E-21E. Introduced FY22E
numbers. On normalized basis, we expect PAT to stage a CAGR of
8.4% over FY20-22E
FY20E FY21E
Source: Company, ICICI Direct Research
Exhibit 3: Assumptions
Comments
FY19 FY20E FY21E FY22E FY20E FY21E
Motorcycle volumes ('000s) 7,081 6,217 6,344 6,741 6,438 6,670
Scooter volumes ('000s) 740 423 476 512 587 615
Total volumes ('000s) 7,821 6,640 6,820 7,252 7,025 7,285
Growth (%, YoY) -15% 3% 6%
Gross Blended ASP (|/unit) 43,026 45,161 51,946 52,726 45,044 49,347We have increased blended ASP's estimates primarily tracking
more than anticipated price hike due to BS-6 transition
On a longer term perspective, we don’t expect domestic 2-W
sales volume to exceed ~7% (1x GDP growth) given healthy
penetration domestically. We have build in volume CAGR of 4.5%
over FY20-22E. It includes motorcycle sales volume CAGR of 4.1%
and scooter sales volume CAGR of 10.0% over FY20-22E
EarlierCurrent
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 3
ICICI Direct Research
Result Update | Hero MotoCorp
Conference Call Highlights
Management guidance/outlook and demand
HMCL registered double digit retail growth in rural parts of UP, Maharashtra and Gujarat. It was hopeful of
sentiment improvement in the rural economy six months down the line due to healthy Rabi sowing and drill down
impact of Budget and other government initiatives. Overall demand is seen turning better only from H2FY21E
onwards, supported by settling of BS-VI pricing
Rural forms >50% of overall HMCL volumes
HMCL confirmed availability of financing has not been a supply constraint for the last six to nine months
Poor scooter volume performance lately has been on account of run-down of BS-IV production and inventory
Market share loss in entry level segment was attributable in part to lack of major product refreshes e.g. Passion
Colombia volumes grew 18% YoY in Q3FY20 vs. 10% industry growth. Company has ~20% market share in
Bangladesh
BS-VI changeover
HMCL said it would stop BS-IV production by mid-February. All models are BS-VI ready on R&D and production
side and the company is preparing distribution channels as the final piece of the jigsaw
BS-VI products launched thus far (Splendor iSmart, HF Deluxe, Pleasure 110) have received positive feedback on
quality. Assessing impact of changeover on demand and pricing elasticity, however, would take time
HMCL has been able to pass on most of the absolute cost increase under BS-VI
The company stood by its decision to implement fuel injection (FI) technology in BS-VI models as against e-
carburettor variants preferred by some peers. It said the relatively modest price difference (~| 1,000-1,500/unit)
was compensated FI’s better fuel economy, better performance and compatibility with future On Board
Diagnostics (OBD) regulations. However, it did not close the door on e-carburettor for some SKUs in the event of
a business/demand case arising in the future
Management opined that BS-VI transition experience would be smoother than the one related to implementation
of mandatory upfront insurance given the time ecosystem and buyers have been provided to adjust to the change
Revenues, costs and margins
Healthy gross margin performance in Q3FY20 was driven by cost savings under LEAP program, increase in share
of spares within overall revenue pie and docile commodity prices
Some portion of gross margin gains made should reverse in coming months given rise in commodity costs
including steel and precious metals
Spare parts revenue were at | 800 crore (up 9.5% YoY). HMCL plans to deepen distribution network for spares in
order to better address the market potential. Currently it is tapping 35% of the market
Others
Channel inventory stood at 6 weeks as of December and 5 weeks (forward retails) as of January
Commissioning of Andhra Pradesh plant will take place in Q4FY20. The plant would initially serve the state or
South India. HMCL expects no material impact on revenues or profits during FY21E, however
Share of financing stood at 46% in Q3FY20 (largely unchanged YoY), with Hero Fincorp forming 50% of that
The company extends 30 days of credit to dealers for spares and 15 days (interest free) for 2-W
HMCL reiterated intent to remain among top quartile of dividend paying companies, going forward
ICICI Securities | Retail Research 4
ICICI Direct Research
Result Update | Hero MotoCorp
Financial story in charts
Exhibit 4: Growth in revenues
28,443
28,475
32,230
33,651
29,989
35,429
38,238
12.5
0.1
13.2
4.4
(10.9)
18.1
7.9
(15)
(10)
(5)
-
5
10
15
20
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(%
)
(| crore)
Net Sales Growth
Source: Company, ICICI Direct Research
Exhibit 5: Product mix
1,291
1,444
1,638
1,783
1,489
1,767
1,911
1,927
1,619
1,623
1,728
1,547
1,436
183
177
216
240
220
234
196 207
180158 115
144
105
-300
200
700
1,200
1,700
2,200
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
('0
00s)
Motorcycles Scooters
Source: Company, ICICI Direct Research
Exhibit 6: Margins trend
4,455
4,635
5,280
4,930
4,389
4,770
5,266
15.7 16.3 16.4
14.6 14.6
13.5
13.8
-
2
4
6
8
10
12
14
16
18
0
1000
2000
3000
4000
5000
6000
FY15 FY16 FY18 FY19 FY20E FY21E FY22E
(%
)
(| crore)
EBITDA EBITDA Margins (%)
Source: Company, ICICI Direct Research
HMCL’s volumes and revenue are expected to
register CAGR 4.5% and 12.9%, respectively, over
FY20E-22E. Pricing growth is seen as outpacing
volume growth largely on the back of introduction of
BS-VI product variants
Product mix continues to evolve in favour of
motorcycles. Run down of BS-IV scooter inventories
has contributed to shift in mix during recent months
EBITDA margins expected to remain under pressure
given steep price hikes under BS-VI and limited
operating leverage benefit. We see margins dip to
13.8% levels by FY22E
ICICI Securities | Retail Research 5
ICICI Direct Research
Result Update | Hero MotoCorp
Exhibit 7: Cost profile breakup
28014
29206
29099
28169
28799
28942
29265
29520
30099
30532
30342
30304
30241
5680
6372
5283
4547
4659
4706
4642
4260
4700
5179
4410
5192
5358
17.0
13.8
16.3
17.4
15.9
16.0
15.6
15.2
14.0
13.6
14.4
14.5
14.8
10
11
12
13
14
15
16
17
18
20000
24000
28000
32000
36000
40000
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
(%
)
(|)
Raw material costs /unit Other expenses /unit EBITDA Margins (%)
Source: Company, ICICI Direct Research
Exhibit 8: Trend in profitability
3,160
3,377
3,697
3,385
3,822
3,528
3,987
32.5
6.9
9.5
(8.5)
12.9
(7.7)
13.0
(15)
(10)
(5)
-
5
10
15
20
25
30
35
0
500
1000
1500
2000
2500
3000
3500
4000
4500
FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(%
)
(| crore)
PAT Growth
Source: Company, ICICI Direct Research
Exhibit 9: Return ratios trend
48.7
44.0
42.4
37.1
29.1 28.8 29.3
35.8
33.4
31.4
26.3
23.7 22.3 22.6
20
25
30
35
40
45
50
55
FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(%
)
RoCE RoE
Source: Company, ICICI Direct Research
RM costs came in lower than anticipated, resulting
in healthy margin beat for the quarter
We expect HMCL to clock 8.4% CAGR in normalised
PAT over FY20E-22E -21E to | 3,987 crore
Return ratios have come off their highs in recent
years. However, they are expected to remain north
of 20% levels, going forward
ICICI Securities | Retail Research 6
ICICI Direct Research
Result Update | Hero MotoCorp
Exhibit 10: Decent dividend payout
60 7
2
85 95
87 100
100
110
50.2
45.5
50.3 51.3 51.3 52.2
56.6 55.1
-
10
20
30
40
50
60
30
50
70
90
110
FY14 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(|)
(|)
DPS Dividend Payout
`
Source: Company, ICICI Direct Research
Exhibit 11: Segment, model wise volume break-up in Q3FY20
Q3FY19 Q3FY20 YoY % Q3FY19 Q3FY20 YoY % Q3FY19 Q3FY20 YoY % Domestic market share %
(YTD December 2019)
Scooters 174,418 102,211 (41.4) 5,250 2,926 (44.3) 179,668.0 105,137.0 (41.5) 7.9
<125cc 174,418 102,211 (41.4) 5,250 2,926 (44.3) 179,668.0 105,137.0 (41.5)
Destini 125 38,967 21,503 NA 78 382 389.7 39,045.0 21,885.0 (43.9)
Pleasure 35,149 46,212 31.5 1,204 984 (18.3) 36,353.0 47,196.0 29.8
Maestro 62,614 22,558 (64.0) 3,723 1,482 (60.2) 66,337.0 24,040.0 (63.8)
Hero Duet 37,688 11,938 (68.3) 245 78 (68.2) 37,933.0 12,016.0 (68.3)
Motorcycles 1,579,277 1,402,780 (11.2) 36,795 28,899 (21.5) 1,616,072.0 1,431,679.0 (11.4) 51.3
75-110cc 1,395,966 1,163,187 (16.7) 24,153 10,930 (54.7) 1,420,119.0 1,174,117.0 (17.3)
HF Deluxe 534,472 484,246 (9.4) 10,895 5,932 (45.6) 545,367.0 490,178.0 (10.1)
Passion 188,880 112,413 (40.5) 148 1,170 690.5 189,028.0 113,583.0 (39.9)
Splendor 672,324 566,528 (15.7) 12,070 2,664 (77.9) 684,394.0 569,192.0 (16.8)
HF Dawn 290 - (100.0) 1,040 1,164 11.9 1,330.0 1,164.0 (12.5)
110-125cc 169,420 227,496 34.3 8,526 11,062 29.7 177,946.0 238,558.0 34.1
Glamour 169,420 112,872 (33.4) 8,526 9,092 6.6 177,946.0 121,964.0 (31.5)
Splendor - 114,624 NA - 1,970 NA - 116,594.0 NA
125-150cc 3,403 1,844 (45.8) 3,876 2,956 (23.7) 7,279.0 4,800.0 (34.1)
Achiever 1,430 - (100.0) 934 1,542 65.1 2,364.0 1,542.0 (34.8)
Xtreme 1,973 1,844 (6.5) 2,942 1,414 (51.9) 4,915.0 3,258.0 (33.7)
Hunk - - NA 3,165 4,052 28.0 3,165.0 4,052.0 28.0
150-200cc 10,480 10,253 (2.2) 240 3,951 1,546.3 10,720.0 14,204.0 32.5
X Pulse 200T - 8,016 NA - 3,852 NA - 11,868.0 NA
Xtreme 200R 10,480 2,237 (78.7) 240 99 (58.8) 10,720.0 2,336.0 (78.2)
200-250cc 8 - (100.0) - - NA 8.0 - (100.0)
Karizma 8 - (100.0) - - NA 8.0 - (100.0)
Total domestic 1,753,695 1,504,991 (14.2)
Total exports 42,045 31,825 (24.3)
Total 2-W volumes 1,795,740 1,536,816 (14.4) 35.6
Domestic Exports Total
Source: SIAM, ICICI Direct Research
The company intends to remain within top quartile
of dividend payers in India. Present dividend yield is
at ~4.5%
ICICI Securities | Retail Research 7
ICICI Direct Research
Result Update | Hero MotoCorp
Exhibit 12: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (| cr) (%) (x) (x) (%) (%)
FY18 32,230.5 13.2 185.1 9.5 13.1 7.9 31.4 42.4
FY19 33,650.5 4.4 169.5 -8.5 14.3 8.9 26.3 37.1
FY20E 29,989.1 (10.9) 191.4 12.9 12.7 9.8 23.7 29.1
FY21E 35,428.7 18.1 176.7 -7.7 13.7 8.8 22.3 28.8
FY22E 38,238.1 7.9 199.6 13.0 12.1 7.7 22.6 29.3
Source: Company, ICICI Direct Research
Exhibit 13: HMCL currently trading at 12.1x FY22E EPS of ~ | 200/share
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Feb-10
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
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May-16
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Nov-16
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May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19
Feb-20
(|)
Price 22x 21x 19x 18x 17x 15x 14x
Source: Bloomberg, ICICI Direct Research
ICICI Securities | Retail Research 8
ICICI Direct Research
Result Update | Hero MotoCorp
Exhibit 14: Recommendation history vs. consensus
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Feb-20
Jan-20
Dec-19
Nov-19
Oct-19
Sep-1
9
Aug-19
Jul-19
Jun-19
May-19
Apr-19
Mar-19
Feb-19
Jan-19
Dec-18
Nov-18
Oct-18
Sep-1
8
Aug-18
Jul-18
Jun-18
May-18
Apr-18
Mar-18
Feb-18
Jan-18
Dec-17
Nov-17
Nov-17
Oct-17
Sep-1
7
Aug-17
Jul-17
Jun-17
May-17
Apr-17
Mar-17
Feb-17
(%)
(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, ICICI Direct Research
Exhibit 15: Top 10 shareholders
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 BAHADUR CHAND INVEST 30-06-2019 20.00 39.94M 0
2 MUNJAL PAWAN 30-06-2019 13.98 27.93M 0
3 LIFE INSURANCE CORP 30-06-2019 5.54 11.06M +0.59M
4 STANDARD LIFE ABERDE 02-07-2019 3.37 6.73M 0
5 SBI FUNDS MANAGEMENT 31-12-2019 3.14 6.27M +0.04M
6 NA 30-06-2019 2.99 5.97M +5.62M
7 BLACKROCK 05-02-2020 2.46 4.92M +0.02M
8 FRANKLIN RESOURCES 06-02-2020 1.97 3.94M -0.17M
9 VANGUARD GROUP 31-12-2019 1.78 3.55M -0.00M
10 LAZARD LTD 31-12-2019 1.59 3.17M -0.39M
Source: Bloomberg, ICICI Direct Research
Exhibit 16: Shareholding pattern
(in %) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Promoter 34.6 34.6 34.6 34.6 34.6
FII 40.0 38.2 35.2 36.5 35.3
DII 15.4 16.1 20.0 19.2 19.6
Others 10.1 11.1 10.1 9.7 10.5
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 9
ICICI Direct Research
Result Update | Hero MotoCorp
Financial Summary
Exhibit 17: Profit and loss statement | crore
(Year-end March) FY19 FY20E FY21E FY22E
Total operating Income 33,650.5 29,989.1 35,428.7 38,238.1
Growth (%) 4.4 -10.9 18.1 7.9
Raw Material Expenses 23,317.7 20,347.5 24,905.1 26,880.0
Employee Expenses 1,730.2 1,886.7 2,034.1 2,134.1
Other expenses 3,672.5 3,365.9 3,720.0 3,957.6
Total Operating Expenditure 28,720.5 25,600.1 30,659.2 32,971.7
EBITDA 4930.1 4389.0 4769.5 5266.3
Growth (%) -6.0 -11.0 8.7 10.4
Depreciation 602.0 854.7 938.9 994.2
Interest 8.6 20.3 21.3 22.3
Other Income 691.3 814.5 907.6 1,080.2
PBT 5010.4 4328.5 4717.0 5330.0
Total Tax 1,625.9 1,183.4 1,188.7 1,343.1
PAT 3384.6 3822.5 3528.3 3986.8
Growth (%) -8.5 12.9 -7.7 13.0
Normalised PAT (|) 3,384.6 3,391.9 3,528.3 3,986.8
EPS (|) 169.5 191.4 176.7 199.6
Normalised EPS (|) 169.5 169.8 176.7 199.6
Source: Company, ICICI Direct Research
Exhibit 18: Cash flow statement | crore
(Year-end March) FY19 FY20E FY21E FY22E
Profit after Tax 3,384.6 3,822.5 3,528.3 3,986.8
Add: Depreciation 602.0 854.7 938.9 994.2
(Inc)/dec in Current Assets -1,696.4 542.5 -774.4 -400.0
Inc/(dec) in CL and Provisions -213.0 -566.0 646.5 333.9
CF from operating activities 2077.2 4653.7 4339.3 4914.9
(Inc)/dec in Investments 2,107.5 -800.0 -1,100.0 -1,490.0
(Inc)/dec in Fixed Assets -789.5 -1,250.0 -1,000.0 -1,000.0
Others -1,103.7 -200.0 -200.0 -200.0
CF from investing activities 214.3 -2250.0 -2300.0 -2690.0
Inc/(dec) in loan funds 0.0 0.0 0.0 0.0
Dividend paid & dividend tax -2,084.9 -2,396.4 -1,997.0 -2,196.7
Inc/(dec) in Sec. premium & Others -8.6 -20.3 -21.3 -22.3
CF from financing activities -2304.9 -2416.7 -2018.3 -2219.0
Net Cash flow -4.8 7.3 42.3 28.2
Opening Cash 141.3 136.5 143.8 186.1
Closing Cash 136.5 143.8 186.1 214.3
CFO Yield 4.3% 9.6% 9.0% 10.1%
FCF Yield 2.7% 7.0% 6.9% 8.1%
Payout 51% 52% 57% 55%
Dividend Yield 3.6% 4.1% 4.1% 4.5%
Source: Company, ICICI Direct Research
Exhibit 19: Balance Sheet | crore
(Year-end March) FY19 FY20E FY21E FY22E
Liabilities
Equity Capital 39.9 39.9 39.9 39.9
Reserve and Surplus 12,817.2 14,243.3 15,774.6 17,564.7
Total Shareholders funds 12857.1 14283.2 15814.5 17604.6
Total Debt 0.0 0.0 0.0 0.0
Deferred Tax Liability 536.5 536.5 536.5 536.5
Others 117.2 117.2 117.2 117.2
Total Liabilities 13510.8 14936.9 16468.2 18258.4
Assets
Gross Block 7,998.8 8,498.8 10,248.8 11,098.8
Less: Acc Depreciation 3,521.3 4,376.0 5,314.8 6,309.0
Net Block 4477.5 4122.8 4933.9 4789.7
Capital WIP 360.7 1,110.7 360.7 510.7
Total Fixed Assets 4,838.2 5,233.5 5,294.6 5,300.4
Investments 5,968.6 6,968.6 8,268.6 9,958.6
Inventory 1,072.4 985.9 1,164.8 1,257.1
Debtors 2,821.6 2,464.9 2,912.0 3,142.9
Loans and Advances 25.0 22.9 27.0 29.2
Cash 136.5 143.8 186.1 214.3
Total Current Assets 4,948.6 4,413.4 5,230.2 5,658.4
Creditors 3,355.3 2,875.7 3,397.3 3,666.7
Provisions 59.0 50.6 59.8 64.5
Total Current Liabilities 4,130.4 3,564.4 4,210.9 4,544.8
Net Current Assets 818.3 849.0 1,019.2 1,113.5
Application of Funds 13510.8 14936.9 16468.2 18258.4
Source: Company, ICICI Direct Research
Exhibit 20: Key ratios
(Year-end March) FY19 FY20E FY21E FY22E
Per share data (|)
EPS 169.5 191.4 176.7 199.6
Cash EPS 199.6 234.2 223.7 249.4
BV 643.8 715.2 791.9 881.6
DPS 87.0 100.0 100.0 110.0
Cash Per Share 227.0 267.4 324.6 400.7
Operating Ratios (%)
EBITDA Margin 14.6 14.6 13.5 13.8
PBT / Net sales 12.9 11.8 10.8 11.2
PAT Margin 10.1 12.7 10.0 10.4
Inventory days 11.6 12.0 12.0 12.0
Debtor days 30.6 30.0 30.0 30.0
Creditor days 36.4 35.0 35.0 35.0
Return Ratios (%)
RoE 26.3 23.7 22.3 22.6
RoCE 37.1 29.1 28.8 29.3
RoIC 59.9 50.2 46.4 50.7
Valuation Ratios (x)
P/E 14.3 14.3 13.7 12.1
EV / EBITDA 8.9 9.8 8.8 7.7
Market Cap / Sales 1.4 1.6 1.4 1.3
Price to Book Value 3.8 3.4 3.1 2.8
Solvency Ratios
Current Ratio 1.3 1.4 1.4 1.4
Quick Ratio 1.0 1.1 1.1 1.1
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 10
ICICI Direct Research
Result Update | Hero MotoCorp
Exhibit 21: ICICI Direct coverage universe (Auto & Auto Ancillary)
Sector / Company CMP M Cap
(|) TP(|) Rating (| Cr) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
Apollo Tyre (APOTYR) 170 165 Hold 9725 11.9 8.0 10.2 14.3 21.3 16.7 8.1 8.1 6.6 8.0 4.7 6.4 8.3 4.4 5.5
Ashok Leyland (ASHLEY) 81 75 Hold 23778 6.8 3.9 4.1 12.0 20.5 20.0 7.1 10.9 10.2 26.9 14.5 14.2 24.3 13.9 13.1
Bajaj Auto (BAAUTO) 3163 3300 Hold 91528 161.6 171.3 175.0 19.5 18.4 18.0 14.9 13.8 12.8 21.0 19.7 24.4 19.9 20.3 18.7
Bharat Forge (BHAFOR) 509 450 Hold 23698 22.2 18.5 18.8 22.9 27.5 27.1 11.4 14.0 13.4 17.9 13.2 13.2 19.1 14.4 13.8
Eicher Motors (EICMOT) 20420 19750 Hold 55665 808.1 756.0 798.2 25.3 27.0 25.6 18.1 21.6 19.3 32.5 23.4 22.2 24.8 19.6 17.7
Escorts (ESCORT) 855 810 Hold 10481 39.6 39.5 43.3 21.6 21.7 19.8 12.6 12.8 11.5 21.7 18.1 17.4 15.6 14.2 13.4
Exide Industries (EXIIND) 185 220 Buy 15725 9.9 9.6 10.3 18.6 19.3 17.9 10.9 10.8 9.9 18.4 16.3 16.2 12.9 12.8 12.3
Hero Moto (HERHON) 2425 2800 Buy 48427 169.5 191.4 176.7 14.3 12.7 13.7 8.9 9.8 8.8 37.1 29.1 28.8 26.3 23.7 22.3
M&M (MAHMAH) 584 680 Buy 72603 38.6 46.2 34.5 15.1 12.7 16.9 10.2 10.1 10.1 17.3 14.7 13.2 14.1 12.1 10.3
Maruti Suzuki (MARUTI) 7038 5850 Sell 212604 248.3 201.4 227.7 28.3 34.9 30.9 16.0 21.8 19.0 16.3 8.7 9.7 16.3 12.3 12.9
Tata Motors (TATMOT) 184 200 Hold 65790 -84.6 4.0 21.3 -2.2 45.9 8.6 4.4 4.1 3.2 5.4 8.1 12.0 7.1 6.1 14.7
RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)
Source: Bloomberg, ICICI Direct Research
ICICI Securities | Retail Research 11
ICICI Direct Research
Result Update | Hero MotoCorp
RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities | Retail Research 12
ICICI Direct Research
Result Update | Hero MotoCorp
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