hero motocorp ltd - myirisbreport.myiris.com/firstcall/herhonmo_20120127.pdf · 3 break-up of...
TRANSCRIPT
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SYNOPSIS
Hero MotoCorp Ltd. (formerly Hero
Honda Motors Ltd.) is the world's
largest manufacturer of two-wheelers,
based in India.
During the quarter, the company has
registered its highest ever quarterly
sales of 1589286 two-wheelers.
Hero MotoCorp Ltd. plans to set up
two new plants- one in the South and
the other in the West and a parts
distribution in Rajasthan.
During the quarter ended, the robust
growth of Net Profit is increased by
42.90% to Rs. 6130.30 million.
Net Sales and PAT of the company are
expected to grow at a CAGR of 21% &
10% over 2010 to 2013E respectively.
Hero MotoCorp two-wheelers are
manufactured across three globally
benchmarked manufacturing units at
Gurgaon, Dharuhera and Haridwar.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 194011.50 28052.90 19279.00 96.54 19.47
FY 12E 237866.51 40213.90 24268.77 121.53 15.47
FY 13E 280682.48 47208.91 28970.20 145.07 12.96
Stock Data:
Sector: Automobile
Face Value Rs. 2.00
52 wk. High/Low (Rs.) 2248.00/1377.95
Volume (2 wk. Avg.) 68000.00
BSE Code 500182
Market Cap (Rs in mn) 375436.00
Share Holding Pattern
1 Year Comparative Graph
Hero MotoCorp BSE SENSEX
C.M.P: Rs. 1880.00 Target Price: Rs. 2124.00 Date: Jan. 27th 2012
BUY
HERO MOTOCORP LTD Result Update: Q3 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Hero Honda 1880.00 375436.00 96.54 19.47 12.70 5250.00
Bajaj Auto 1569.00 45401.69 121.10 12.96 9.25 400.00
TVS Motor 50.95 2420.57 4.90 10.40 2.42 120.00
Atlas Cycles 319.60 103.93 12.92 24.74 0.87 45.00
Investment Highlights
Q3 FY12 Results Update
During the quarter, the company disclosed a standalone profit of Rs. 6130.30
million as against of Rs. 4290.00 million for the quarter ended December 31, 2011.
Net sales are increased by 16.85% to Rs. 60314.50 million from Rs. 51616.60
million in the same quarter previous year. Total income grew by 16.92% to
Rs.61077.30 million from Rs.52236.90 million in the same quarter last year.
Company EPS is stood at Rs. 30.70 for the quarter ended December 2011.
Quarterly Results - Standalone (Rs in mn)
As At Dec-11 Dec-10 %change
Net sales 60314.50 51616.60 16.85%
Net profit 6130.30 4290.00 42.90%
Basic EPS 30.70 21.48 42.90%
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Break-up of Expenses
Hero MotoCorp outlined strategic plans
Hero MotoCorp outlined its strategic plans for the year, unveiling a range of its new
generation of two wheelers- an all-new 110cc Passion X Pro, a 110cc masculine
scooter, Maestro, and a thrilling new 125cc bike, Ignitor- to be launched in the
Indian market over the next few months.
Company Profile
Hero MotoCorp Ltd. (formerly Hero Honda Motors Ltd.) is the world's largest
manufacturer of two - wheelers, based in India. Hero MotoCorp Ltd, the new name
of Hero Honda Motors Ltd after the Hero group & Honda Motor Company called off
their 26-year-long association.
In 2001, the company achieved the coveted position of being the largest two-
wheeler manufacturing company in India and also, the 'World No.1' two-wheeler
company in terms of unit volume sales in a calendar year. Hero MotoCorp Ltd.
continues to maintain this position till date.
In the 1980's the Company pioneered the introduction of fuel-efficient,
environment friendly four-stroke motorcycles in the country. It became the first
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company to launch the Fuel Injection (FI) technology in Indian motorcycles, with
the launch of the Glamour FI in June 2006.
Its plants use world class equipment and processes and have become a
benchmark in leanness and productivity.
Manufacturing
Hero MotoCorp 2-wheelers are manufactured across three globally benchmarked
manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which
are located in the state of Haryana in northern India. The third and the latest
manufacturing plant are based at Haridwar, in the hill state of Uttrakhand.
Product range
Hero MotoCorp offers wide range of two wheeler products that include motorcycles
and scooters, and has set the industry standards across all the market segments.
� CD Dawn
� CD Deluxe
� Pleasure
� Splendor +
� Splendor NXG
� Passion PRO
� Passion Plus
� Super Splendor
� Splendor PRO
� Glamour
� Glamour PGM FI
� Achiever
� CBZ Xtreme
� Hunk
� Karizma
� Karizma ZMR
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Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 158605.10 194011.50 237866.51 280682.48
Other Income 2356.30 2681.40 3306.36 3703.13
Total Income 160961.40 196692.90 241172.87 284385.61
Expenditure -130935.60 -168640.00 -200958.98 -237176.69
Operating Profit 30025.80 28052.90 40213.90 47208.91
Interest 206.20 18.50 143.58 165.12
Gross profit 30232.00 28071.40 40357.48 47374.03
Depreciation -1914.70 -4023.80 -11394.72 -12762.09
Profit Before Tax 28317.30 24047.60 28962.76 34611.94
Tax -5999.00 -4768.60 -4693.98 -5641.75
Profit after Tax 22318.30 19279.00 24268.77 28970.20
Equity capital 399.40 399.40 399.40 399.40
Reserves 34250.80 29161.20 53429.97 82400.17
Face Value 2.00 2.00 2.00 2.00
EPS 111.76 96.54 121.53 145.07
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E
Description 3m 3m 3m 3m
Net sales 56833.30 58293.20 60314.50 62425.51
Other income 884.10 797.50 762.80 861.96
Total Income 57717.40 59090.70 61077.30 63287.47
Expenditure -48655.70 -49106.10 -50884.60 -52312.58
Operating profit 9061.70 9984.60 10192.70 10974.90
Interest 31.90 44.90 31.80 34.98
Gross profit 9093.60 10029.50 10224.50 11009.88
Depreciation -2397.90 -2784.90 -2986.50 -3225.42
Profit Before Tax 6695.70 7244.60 7238.00 7784.46
Tax -1116.80 -1208.40 -1107.70 -1261.08
Profit after Tax 5578.90 6036.20 6130.30 6523.37
Equity capital 399.40 399.40 399.40 399.40
Face Value 2.00 2.00 2.00 2.00
EPS 27.94 30.23 30.70 32.67
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Key Ratio
Particulars FY10 FY11 FY12E FY13E
No of Shares (in mn)
199.70 199.70 199.70 199.70
EBIDTA % 18.93% 14.46% 16.91% 16.82%
PBT % 17.85% 12.39% 12.18% 12.33%
PAT % 14.07% 9.94% 10.20% 10.32%
P/E ratio (x) 16.82 19.47 15.47 12.96
ROE - % 64.41% 65.22% 45.08% 34.99%
ROCE - % 90.46% 72.13% 74.27% 60.43%
Debt Equity Ratio 0.02 0.50 0.29 0.20
EV/EBIDTA (x) 12.50 13.38 9.34 7.95
Book Value (Rs.) 173.51 148.03 269.55 414.62
Price/Book Value 10.84 12.70 6.97 4.53
Charts:
• Net sales & PAT
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• P/E Ratio (x)
• Debt Equity Ratio
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• EV/EBITDA(X)
• P/BV (X)
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Outlook and Conclusion
At the current market price of Rs.1880.00, the stock is trading at 15.47 x
FY12E and 12.96 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.121.53 and Rs.145.07 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 21% and
10% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 9.34 x for FY12E and 7.95 x for
FY13E.
Price to Book Value of the stock is expected to be at 6.97 x and 4.53 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.2124.00 for Medium to Long term investment.
Industry Overview
India, the world's second-fastest growing auto market, is in top-gear growth. The
country is a hot destination for automobile manufacturers due to its robust economic
growth, favorable demographics, higher disposable income, changing lifestyle and
positive industrial eco-system. India is expected to become the third biggest
automaker in the world within next decade, according to Diane H Gulyas, President,
DuPont Performance Polymers. Owing to its vertical and horizontal integration with
other key segments of the economy, the industry is said to be a major growth driver.
Market Dynamics
For FY 2011, Maruti Suzuki held a reasonable market share of 48.74 per cent while
that of Hyundai was around 18.10 per cent. Tata Motors' market share stood at 12.92
per cent for the period. General Motors India (GMI) and Honda Siel cars India (HSCI)
had a market share of 4.40 per cent and 2.97 per cent respectively during FY2011.
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According to the data released by the Society of Indian Automobile Manufacturers
(SIAM), Maruti held 43 per cent of the total Indian passenger-car market in the six
months ended September 2011 as against Hyundai's 20 per cent pie.
Key Statistics
• SIAM expects India's car sales to grow 2-4 per cent in the fiscal year ending
March 2012 while a growth of 13-15 per cent is projected in commercial
vehicles' sales segment.
• Car sales in September 2011 stood at 165,925 cars.
• Sales of commercial vehicles (a key indicator of the country's economic activity),
increased by 18.05 percent to 70,634, while motorcycle sales rose 19.93
percent to 933,465 of them in September.
• Total sales of vehicles across categories witnessed a growth of 19.39 per cent to
1571,342 units in September 2011 from 1316,118 units in the corresponding
period last year.
• The sales of scooters increased by 50.74 per cent to 231,710 units (from
153,716 units in September 2010) while that of three-wheelers stood at 49,255
units (from 48,814 units in September 2010) in September 2011.
• Overall automobile exports registered a growth rate of 32.31 per cent during
April-December 2011. Passenger Vehicles registered growth at 21.01 percent in
this period while two-wheelers, commercial vehicles and three wheelers
segments recorded growth of 32.34 per cent, 35.91 per cent and 49.55 per cent
respectively.
Indian Automobile Industry: Major Developments & Investments
Seoul-based Hyundai Motor Company has launched its cheapest car model 'Eon' in
Indian markets to give in a face-off to Maruti Suzuki India Ltd and the company
expects to sell 140,000-150,000 Eon cars a year.
With a view to add a model that could vie for international markets, India's largest
utility vehicle maker Mahindra and Mahindra Ltd (M&M) has introduced a new sport
utility vehicle (SUV) XUV500; nine years after the launch of Scorpio.
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Marking its first motor export from India, Toyota Kirloskar Motor Pvt. Ltd (TKM) would
commence export of the 'Etios' series sedan and hatchback to South Africa in March
2012. The company is targeting emerging economies to increase its sales.
Swedish company Volvo's Indian bus-making unit has unveiled its plan to invest
around Rs 4 billion (US$ 80 million) over 2011-15 to increase its annual output to
5000 buses and revenue to Rs 490 billion (US$ 1 billion) by 2015 to cater to the
burgeoning Indian market.
German luxury car makers are on their toes to achieve top slot in the Indian markets
and they would enhance their sales network by 2012 to a great extent to accomplish
the same. While Mercedes Benz will add 8 dealerships in 2012, Audi plans to increase
the number of sales outlets from 13 to 25 in 2012. Also, BMW is working on a project
to triple its dealerships by 2015. The company plans to add 18 of them by October
2012 to take the total number to 40.
Formula One (F1) on the track
Taking a huge step in motor sports segment, India is conducting Grand Prix F1 race at
the end of October 2011 in Greater Noida where 12 international teams (all based out
of Europe) would participate.
The 5.14 km track was designed by the German track designer Hermann Tilke & built
by the Noida-based construction company Jaypee Group. The Jaypee Group, which
acquired the rights for the race in India, employed over 6,000 workers & 300 engineers
to build the track and arena, which is spread over 850 acres, and will accommodate
around 120,000 viewers. Jaypee Sports International Ltd (JPSI) has spent around Rs.
1,800 crore (US$ 365 million) on the project, which includes paying licensing fees to
Fédération Internationale de l'Automobile (FIA), the sport's governing body.
Government Initiatives
The Indian government is in the process of forming a National Automotive Board (NAB)
which would become a formal set-up to look into the issue of recall of vehicles and
hence improve manufacturing standards. The prospective body, to oversee technical
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and safety aspects of vehicles, will have representatives from all the nodal ministries
and automotive bodies such as the Automotive Research Association of India (ARAI).
In a first-of-its-kind public-private partnership, automotive components manufacturer
Tata AutoComp Systems Ltd has signed a memorandum of understanding (MoU) with
the government of Gujarat for imparting vocational training to rural youth to widen
employment opportunities for them. The agreement, focused to fill-in the skilled
manpower shortage faced by the auto industry, would facilitate revamp of the State's
Industrial Training Institutes (ITIs), launch of skill development programmes and
introduction of modular employable skills (MES) courses. Tata AutoComp will train
nearly 1,500 youth in Gujarat annually through this MoU.
Also, the government of Gujarat has provided 600 acre plot in Sanand to the European
car-maker PSA Peugeot Citroen to set up its manufacturing facility.
In order to bring-in new and efficient vehicles on the Indian roads, SIAM has endorsed
a regular, concrete scrappage policy to the government which says that all vehicles
(cars, commercial vehicles and two-wheelers) made before 1996 should be scrapped.
According to SIAM, such a policy would also help control pollution and harmful
emissions.
Meanwhile, following the discussions between the visiting Myanmar Minister of
Industry Soe Thein and Mr Praful Patel, Minister of Heavy Industries and Public
Enterprises Tata Motors has proposed to set-up a bus-assembly facility in the
neighbouring country along with supply of passenger vehicles to them. The
discussions entailed mutual industrial collaboration between the two nations.
Road Ahead
Luxury car makers are keen on Indian markets as the sales for the same are expected
to touch 150,000 units by 2020. Indian luxury car market is growing at an annual
rate of 70 per cent and is expected to cross 20,000 units by the end of 2011 in terms
of sales. Hence, the concerned majors are looking at Tier-II cities for new dealerships
along with opening second or third outlet in top 10 metros.
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According to industry experts, India is poised to become the third largest car market
by 2020 after the US and China.
________________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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