Report
Jinesh Gandhi
EUR 120.00 For Business Accounts Only

MOSL: HERO MOTOCORP (Buy)- In-line results; reasonable performance in a tough environment

HERO MOTOCORP: In-line results; reasonable performance in a tough environment

(HMCL IN, Mkt Cap USD7.5b, CMP INR2772, TP INR3400, 23% Upside, Buy)

 

Positive outlook with upcoming festive season

  • Hero MotoCorp (HMCL)’s performance was driven by efficient cost management despite high cost inflation and op. deleverage. While cost inflation is being managed reasonably well, demand recovery is the missing link in the story.
  • We cut our FY22E/FY23E EPS by 5%/1%, factoring in delayed volume recovery. We maintain our Buy rating, with TP of INR3,400 (~15x Mar’23 S/A EPS + INR154/share for Hero FinCorp).

 

Cost inflation, op. deleverage hurt performance

  • HMCL’s 1QFY22 revenue/EBITDA/PAT declined 37%/58%/58% QoQ to 9b/INR5.1b/INR3.7b.
  • Volumes declined 35% QoQ. Realizations declined 3.4% QoQ (+2% YoY) to INR53.6k (v/s est. INR55.7k) due to a poor mix (lower non-vehicle sales).
  • Gross margins contracted 210bp QoQ (390bp YoY) to 27.5% (v/s est 28.5%) due to commodity cost inflation (~370bp); this was diluted by leap program savings of 150bp and a price hike (~110bp) from Apr’21.
  • Furthermore, op. deleverage led to EBITDA margin contraction of 460bp QoQ (+570bp YoY) to 9.4% (v/s est 9.1%). EBITDA declined 57.5% QoQ to INR5.15b (in-line). PAT declined 58% QoQ to INR3.65b (v/s est INR3.7b).
Underlying
Hero Motocorp Limited

Hero MotoCorp is engaged in the production and sale of motorized two wheelers up to 350cc engine capacity for both domestic and international markets.

Provider
Motilal Oswal
Motilal Oswal

​Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance. 

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

Analysts
Jinesh Gandhi

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