HERO MOTOCORP LTD - Break-up of Expenses Hero MotoCorp outlined strategic plans Hero MotoCorp outlined its strategic plans for the year, unveiling a range of its new

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  • 1

    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

  • 2

    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%

  • 3

    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

  • 4

    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

  • 5

    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

  • 6

    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

  • 7

    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

  • 8

    P/E Ratio (x)

    Debt Equity Ratio

  • 9

    EV/EBITDA(X)

    P/BV (X)

  • 10

    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.

  • 11

    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 i