Views on Hero MotoCorp 3QFY2014 results - Angel Broking

Mr. Yaresh Kothari (Research Analyst – Auto & Auto Ancillary, Angel Broking) on Hero MotoCorp 3QFY2014 results:

Hero MotoCorp results lower-than-estimates

"Hero MotoCorp (HMCL) reported lower-than-expected results on the bottom-line front led by EBITDA margin pressures due to the lagged impact of unfavorable currency movement on vendor imports and also due to increase in advertising and promotional expenses.

The top-line recorded a growth of 11.1% yoy to Rs. 6,877cr, in-line with our estimates of Rs. 6,869cr, led by 6.9% yoy growth in volumes and 4.2% yoy growth in net average realization. On a sequential basis, top-line surged strongly by 20.1% led by the festival demand which witnessed a 18.7% growth in volumes. While motorcycle sales grew 6.1% yoy; scooters sales maintained its strong momentum and witnessed a growth of 13.2% yoy during the quarter. Exports growth remained weak due to weakness in the global markets and posted a decline of 26.5% yoy. Led by a strong volume growth in the domestic motorcycle segment, the company recovered some lost market share which stood at 52.8% in 3QFY2014 as against 48.7% in 2QFY2014 and 51.9% in 3QFY2013. EBITDA margins during the quarter declined sharply by ~150bp qoq to 13.1%, which was lower than our estimates of 13.9%, due to adverse impact of the unfavorable currency movement and also due to significant increase in other expenditure. While unfavorable currency movement impacted the raw-material cost, which as a percentage of sales increased 120bp qoq; other expenditure increased 29.4% qoq due to increase in royalty payment on newer models (following increase in volumes) and also on account of the increase in advertising and promotional expenses due to the festival season and increase in competition. On a yoy basis though EBITDA margins improved 47bp primarily led by the favorable exchange rate impact. Due to lower-than-expected operating performance, net profit came in lower than expected at Rs. 525cr; however, it registered a healthy growth of 7.5% yoy (9% qoq). At the CMP, the stock is trading at 13.4x FY2015E earnings. We maintain our Accumulate rating on the stock; our target price though is under review."

Hero MotoCorp 3QFY2014 Result Review (CMP: Rs. 2,000/ TP: Under review/ Recommendation: Accumulate)

Source : Equity Bulls

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