MOSL: HERO MOTOCORP (Neutral)-In-line results-Guides for double-digit volume growth in FY19

Hero MotoCorp: In-line results; Guides for double-digit volume growth in FY19

(HMCL IN, Mkt Cap USD11.1b, CMP INR3543, TP INR3986, 13% Upside, Neutral)

• Higher other expenses offset lower RM cost: Revenue rose 14.8% YoY to INR73.1b (est. of INR71b). Realizations improved 3.4% QoQ (-1.1% YoY) to INR42.7k (est. of INR41.5k), led by a recovery in spares and a higher scooter share. Gross margin of 32.6% (+80bp QoQ,-250bp YoY) was above our estimate of 31.8%. However, higher other expenses (on higher marketing spends) negated the impact of gross margin beat. EBITDA margin was in line at 15.9% (-110bp YoY, -160bp QoQ). EBITDA grew 7% YoY (-21% QoQ) to ~INR11.6b (in-line). PAT was also in line at INR8.1b (+4.3% YoY, -20% QoQ).
• Declared interim dividend of INR55/sh (same as FY17’s interim dividend).
• Earning call highlights: a) HMCL indicated double-digit growth across scooters and motorcycles in FY19. b) It is focused on improving its weak positioning in the premium motorcycle and scooter segments, with plans to launch several models to gain share. c) Revenue from spare parts bounced back strongly (+35% YoY, +20% QoQ) after being hit by GST woes. d) Price hike of INR400/motorcycle taken from Jan-18, but no increase in price of scooters. e) No clarification on state’s share (42%) toward GST incentive, which is yet to be accrued.