Company Update Institutional Research

India I Auto & Auto Ancillaries

10 March, 2021 Hero MotoCorp ltd BUY Price: Rs3,449 Target Price: Rs4,295

Scooters and Premium: Finally getting it right Forecast return: 25%

We expect Hero MotoCorp to post strong volume growth in FY22 over a low base, and Market Data on the back of continued positive rural sentiments. Strong rural demand is good for its Bloomberg: HMCL IN motorcycle segment which is ~94% of is volumes. The effect of new launches in the 52 week H/L: 3,629/1,473 scooter and premium is visible from the market share improvement in FY21 and we Market cap: Rs689.0bn expect these segments to start contributing in a material way from FY23 onwards. This Shares Outstanding: 199.8mn drives our expectation of FY21-23E CARG of 16% for Motorcycles, 24% for Scooters, Free float: 78.5% and 16.5% overall. We expect revenue to grow by 18.3% CAGR and PAT growth of 27% Avg. daily vol. 3mth: 1,264,205 CAGR for FY21-23E. We value the stock at 19x FY23 Earnings which is about 10% Source: Bloomberg premium to its long term average considering the higher growth we expect in FY21- Changes in the report 23E. It is currently trading at 15.3x FY23E EPS. Our target price comes to Rs4,295 and Rating: NA we assume coverage with a BUY rating. Slower economic recovery and rising fuel prices Target price: NA could act as a dampener to its Splendor and HF Deluxe sales. EPS: NA Investments in Scooter and premium motorcycle segment just started to show results Source: Centrum Broking Over the last 2.5 years, company has launched new models in these segments which are HMCL relative to Nifty 50 the outcome of investments made on R&D at the Jaipur Tech Centre. The Centre was inaugurated on March 2016 with an investment of Rs8.5bn. As per our channel checks, these new models addresses the shortcomings of the older models and are getting noticed by customers gradually. The effect is visible in the market share trend as Hero has gained 380bps in 125-250cc motorcycles segment and 290bps in the scooter segment. We expect these segments to contribute materially from FY23 onwards

Higher growth to come over low base as economy improves On the back of an expected positive rural sentiments and on a low base, we expect Source: Bloomberg motorcycles to post strong growth in FY22. This augurs well for Hero as more than 90% Shareholding pattern of its sales are motorcycles. From FY23 onwards we expect Hero’s new launches in the Dec-20 Sep-20 Jun-20 Mar-20 scooter and premium motorcycles to start contributing in a visible manner. This drives Promoter 34.8 34.8 34.8 34.6 our expectation of FY21-23E CARG of 16% for Motorcycles, 24% for Scooters and 16.5% FIIs 35.9 33.3 32.7 34.3 growth in overall volumes. DIIs 14.6 17.3 19.5 18.3 Valuation Public/other 14.8 14.7 13.0 12.9 In December 2010, Hero and Honda parted ways and since then the average one year Source: BSE forward PER for Hero MotoCorp has been 17.7x. Before the 18% YoY decline in FY20, Hero’s volume grew 6.1% CAGR between FY10-19. During the same period its revenue and PAT grew by 9% and 4.7% CAGR respectively. Over this period, the company’s margins reached a high of 16.4% in FY18 and the average has been 14.7%. Going forward, we expect revenue and PAT to grow by 18.3% and 27% CAGR respectively over FY21- 23E. We expect margins to improve with operating leverage, Leap II program and ramping up of the Chittoor capacity. We expect margins to be at 12.4% in FY21E and improve to 14.1% in FY23. We value the stock at 19x FY23 Earnings which is about 10% premium to its long term average considering the higher growth we expect in FY21-23E.

Financial and valuation summary YE Mar (Rs mn) FY19A FY20A FY21E FY22E FY23E

Revenues 336,505 288,361 300,528 372,994 420,741 EBITDA 49,301 39,580 37,265 50,354 59,324 EBITDA margin (%) 14.7 13.7 12.4 13.5 14.1 Auto& Auto Adj. Net profit 33,849 29,559 28,106 38,467 45,158 Adj. EPS (Rs) 169.5 148.0 140.7 192.6 226.1 EPS growth (%) (8.5) (12.7) (4.9) 36.9 17.4

PE (x) 20.4 23.3 24.5 17.9 15.3 Ancillaries EV/EBITDA (x) 13.3 16.2 17.1 12.4 10.3 PBV (x) 5.4 4.9 4.4 3.9 3.4 Anish Rankawat

RoE (%) 27.5 21.9 18.8 22.9 23.6 Research Analyst, Auto & Auto Ancillaries RoCE (%) 27.5 21.9 18.7 22.8 23.5 +91-022-42159100 [email protected] Source: Bloomberg, Centrum Broking

Please see Disclaimer for analyst certifications and all other important disclosures. Hero MotoCorp ltd 10 March, 2021 Thesis Snapshot

Centrum vs consensus Valuations Centrum Consensus Variance Centrum Consensus Variance YE Mar (Rs bn) In December 2010, Hero and Honda parted ways and since then the average FY22E FY22E (%) FY23E FY23E (%) one year forward price to earnings for Hero MotoCorp has been 17.7x. Before Revenue 372,994 361,996 3.0 420,741 406,816 3.4 the 18% YoY decline in FY20, Hero’s volume grew 6.1% CAGR between FY10- EBITDA 50,354 49,445 1.8 59,324 57,147 3.8 FY19. During the same period its revenue and PAT grew by 9% and 4.7% CAGR EBITDA margin 13.5 13.7 -16 bps 14.1 14.0 5 bps respectively. We value the stock at 19x FY23 Earnings which is about 10% premium to its long term average considering the higher growth of 9% and Adj. PAT 38,467 37,629 2.2 45,158 42,778 5.6 4.7% CAGR we expect in revenue and PAT respectively over FY21-23E. Source: Bloomberg, Centrum Broking Valuations Rs/share Hero MotoCorp versus Nifty 50 FY23E EPS 226 1m 6m 1 year Multiple (x) 19 HMCL IN (1.3) 18.9 76.6 Target Price (Rs) 4,295 Nifty 50 (0.1) 33.9 44.5 P/E mean and standard deviation Source: Bloomberg, NSE Key assumptions Y/E Mar FY22E FY23E Volume (Units) 7,030,637 7,790,236 YoY (%) 22.5 10.8 Revenue (Rs Mn) 372,994 420,741 YoY (%) 24.1 12.8 EBITDA Margin (%) 13.5 14.1 PAT (Rs Mn) 38,467 45,158 YoY (%) 36.9 17.4 Source: Centrum Broking

EV/EBITDA mean and standard deviation

Peer comparison Mkt Cap CAGR (FY21E-23E) P/E (x) EV/EBITDA (x) FY20 Company (Rs mn) Sales EBITDA EPS FY21E FY22E FY23E FY21E FY22E FY23E RoE (%) ROCE (%) Div. Yield

Hero MotoCorp 689,012 18.3 26.2 26.8 24.5 17.9 15.3 17.1 12.4 10.3 26.9 21.9 2.6

TVS Motors 284,007 21.8 32.6 50.6 52.6 30.3 23.2 21.7 15.9 12.8 17.9 13.5 0.7

Bajaj Auto 1,099,233 22.6 24.1 21.5 24.1 19.1 16.3 21.9 16.8 14.2 25.6 32.5 3.0

Eicher Motors* 708,678 25.2 36.2 44.0 36.8 29.5 23.7 28.1 23.4 19.5 19.3 NA 0.5 Source: Company, Centrum Broking, *Bloomberg

Centrum Institutional Research 2 Hero MotoCorp ltd 10 March, 2021

Investment argument Sub 125cc segment preferred in a rising cost scenario We plotted the trend of 125cc and below motorcycle segment sales in total motorcycles and found that it has gained 320bps of share over last 4 years. The gain has been steeper in last 18 months since the Pulsar 125 was launched. Exhibit 1: Motorcycles have gained in last 3 years Exhibit 2: 125cc and below has gained in last 4 years

Motorcycles Scooters Mopeds 125cc and below 125 to 250cc 250cc+

100 4.9 4.7 4.4 4.3 4.2 3.7 4.3 100 1.2 1.9 5.7 5.1 3.1 4.7 6.0 6.1 6.1 5.7 95 6.6 90 14.5 90 14.4 15.4 21.2 16.1 15.6 24.3 28.1 28.8 85 18.4 17.0 17.7 15.9 80 30.6 31.9 33.3 31.6 32.0 80

70 75 Mix(%) Mix (%) 70 60 84.3 83.6 65 81.6 79.1 73.1 70.8 75.5 76.4 76.2 78.0 78.7 67.1 65.0 64.4 66.9 60 50 63.1 62.5 64.2 55 40 50 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Source: Company Data, Centrum Broking, *YTD data for FY21 Source: Company Data, Centrum Broking, *YTD data for FY21

In our view there are two possible reasons for this development. . Rural sales contribute about 55% of total 2W sales in India and this segment has been stronger in last couple of years owing to better agricultural output. Positive rural income sentiments on account of increased sowing, early onset of south-west monsoon, better rabi and kharif crop output and extended government support provided to farmers supported increased motorcycle demand. Within motorcycles, the Commuter segment is preferred in rural for its lower cost of acquisition and operation. Rural sentiments are expected to be buoyant with the expectation of normal monsoons in FY22. . With implementation of various regulatory interventions, cost of two wheelers have increased significantly in last 2.5 years, starting from change in insurance cost as its became mandatory to insure a new vehicle for 5 years on purchase starting September 2018. This increased the cost by 8-12% in our view. This was followed by safety regulation which added a further price increase of 3-5% for up to 125cc 2Ws and 8-10% for more than 125cc 2Ws. The next big jump of 12-15% came when BS-VI was implemented from April 2020 onwards. In between these regulations, price increases have happened to pass on inflationary cost increases. We believe that in a rising cost scenario and while the economy is recovering, customers will look to downgrade to commuter segment as purchases will largely be on need basis in the short term.

Centrum Institutional Research 3

Hero MotoCorp ltd 10 March, 2021

Exhibit 3: Major events led to significant price increases Date Event Price increase Sub125cc 125cc above 150cc above Sep-18 Insurance 8-10% 8-10% 10-12% Apr-19 ABS/CBS 3-5% 8-10% 8-10% Apr-20 BS6 12-15% 12-15% 12-15%

Source: Company Data, Centrum Broking

Hero should be the prime beneficiary in this scenario in short term Hero’s forte has been its commuter segment portfolio – Splendor, HF Deluxe, Passion and Glamour. These contribute 87% of its overall volumes. This also the reason why Hero has gained market share in the Motorcycle segment in last two years Exhibit 4: Hero has gained market share in last 2 years

Hero MotoCorp Bajaj Auto Honda India TVS Motor Royal Enfield India Yamaha Suzuki India

100

5.5 90 5.5 6.2 6.4 6.7 7.0 7.3 7.4 6.7 11.8 80 15.8 16.4 14.0 13.9 14.4 13.8 15.5 13.5 70 24.4 20.0 18.3 60 16.5 17.7 18.0 15.7 18.7 18.5

50

Motorcycle market share (%) Motorcycleshare market 40 53.2 51.8 52.9 52.4 51.3 51.5 50.7 52.0 52.6

30 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Source: Company Data, Centrum Broking, *YTD data for FY21

Effect of new launches in Scooters and Premium segments Over FY13-FY18, Hero has been losing share in the faster growing scooter and premium motorcycle segments due to lack of compelling models at the same time when competition launches got intensified. Our channel checks suggests that the models had service and performance issues. Over the last 2.5 years, company has launched new models in these segments which are the outcome of investments made on R&D at the Jaipur tech centre. The centre was inaugurated on March 2016 with an investment of Rs8.5bn. So far following key models have been launched by Hero as a product of this tech centre. Exhibit 5: New launches in the Premium and Scooter segments Model Date Scooter Destiny 125 Nov-18 Pleasure Plus May-19 Maestro edge 125 May-19

Premium Motorcycle Xtreme 200 Nov-18 Xpulse 200 May-19 Xtreme 160 Jul-20

Source: Company Data, Centrum Broking

As per our channel checks, these new models addresses the shortcomings of the older models and are getting noticed by customers gradually. The recently launched Xtreme 160 has been received well and is competitive in price and performance with the peers. Its price is lower than the competition and its power/torque to weight ratios are second best in the lot.

Centrum Institutional Research 4 Hero MotoCorp ltd 10 March, 2021

Exhibit 6: Hero Xtreme 160 vs competition Hero Xtreme 160 TVS Apache 160 4V Bajaj Pulsar 160 Honda Xblade 160 Weight (Kg) 139.5 149.0 151.0 144.0 Power (KW) 11.2 11.8 12.7 10.2 Power (KW/tonne) 80.3 79.1 84.1 70.8 Torque (NM) 14.0 14.1 14.6 14.7 Torque (NM/tonne) 100.4 94.6 96.7 102.1 Delhi Price Rs 106,950 110,320 110,086 112,241

Source: Company Data, Centrum Broking

In last 2 years scooter segment share in the overall 2W pie has stagnated and have come off a little. In FY20 scooter segment degrew by 17% YoY. However, the 125cc scooter segment has done better and grew by 6% YoY in the same year. This segment is almost 23% of total scooters now. For Hero, Destini 125 have made a decent start and in combination with Maestro Edge 125, the company has been gaining share. Exhibit 7: Destini 125 monthly sales trend since launch

Destiny 125 sales (units) 30000

25000

20000

15000

10000

5000

0

Jul-19 Jul-20

Jan-19 Jan-20 Jan-21

Jun-19 Jun-20

Oct-18 Oct-19 Oct-20

Apr-19

Feb-19 Sep-19 Feb-20 Sep-20

Dec-18 Dec-19 Dec-20

Aug-19 Aug-20

Nov-18 Nov-19 Nov-20

Mar-19 Mar-20 May-20 May-19 Source: Industry Data, Centrum Broking

The results of these efforts have started to show now as we see a ‘U’ shaped recovery in Hero’s market share in the two segments albeit on a low base. Exhibit 8: Market share in 125-250cc is back to FY16 levels Exhibit 9: Double digit market share seen in scooters Hero's Market share in 125cc-250cc Motorcycles (%) Hero's market share in Scooters (%) 16 13.5 21 18.8 19.2 14 19 16.7 12 16.3 9.7 17 10 14.1 7.6 15 13.1 8 6.1 5.6 13 10.7 4.8 10.2 6 11 3.3 4 1.8 2.3 9 7.3 2 7 0 5 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Source: Company Data, Centrum Broking, *YTD data for FY21 Source: Company Data, Centrum Broking, *YTD data for FY21

Centrum Institutional Research 5 Hero MotoCorp ltd 10 March, 2021

Market share gains in overall 2Ws

Exhibit 10: 2W markets share trend. Hero has gained back 170bps of share in YTD FY21

Hero MotoCorp Honda India TVS Motor Bajaj Auto Royal Enfield Others

100 6.7 7.3 6.9 6.9 7.0 6.9 7.4 7.7 7.1 0.9 90 1.4 2.0 3.0 3.7 4.0 3.8 3.8 3.7 11.1 17.9 14.2 11.5 11.4 9.8 12.0 11.9 12.1 80 13.1 11.8 13.4 14.2 14.2 70 12.8 14.8 13.8 14.5 60 18.9 24.0 26.7 26.0 50 26.9 28.6 26.1 27.0 25.1

40 Market Market share (%) 30

20 42.9 41.3 40.2 39.0 36.9 36.6 35.9 35.8 37.5 10

0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Source: Company Data, Centrum Broking, *YTD data for FY21

View: going forward We expect 2W industry to grow in FY22 over a low base and as the economy recovers. Rural sentiments remain positive with good crop yield and governments support. This is expected to drive motorcycle sales mainly in the 125cc and below models. India’s promising vaccination drive should improve urban sentiments and in turn compel school, colleges and offices to start soon. This improves the prospects of scooter segment. For Hero, we expects strong rural demand to drive its Splendor and HF Deluxe sales whereas improving urban sentiments augurs well for its scooter and premium motorcycle segments as the company has a decent portfolio of products to cater to the demand. However, lower volumes in these segments could continue to be a drag on the margins until they reach to a decent scale. Also, competitive intensity is expected to increase in 125cc and below motorcycles and 125cc scooters as new launches would be coming from Honda Motorcycles and scooter India, TVS, Aprilia, etc.

Centrum Institutional Research 6 Hero MotoCorp ltd 10 March, 2021 Financials On the back of an expected positive rural sentiments and on a low base, we expect motorcycles to post strong growth in FY22. This augurs well for Hero as more than 90% of its sales are in this segment. With urban sentiments expected to improve owing to vaccination drive, opening up of schools, colleges and offices should bring back scooter demand. From FY23 onwards we expect Hero’s new launches in the scooter and premium to start contributing in a visible manner. This drives our expectation of FY21-23E CARG of 16% for Motorcycles, 24% for Scooters and 16.5% growth overall.

Exhibit 11: We expect 16% CAGR volume growth for FY21-23E Volumes (units) FY19 FY20 FY21E FY22E FY23E Domestic volumes 7,612,775 6,231,458 5,564,218 6,823,137 7,561,987 % of total 97.3 97.2 97.0 97.0 97.1 YoY growth (%) 3.1 -18.1 -10.7 22.6 10.8 Motorcycle 6,893,688 5,828,782 5,129,328 6,257,780 6,883,558 YoY growth (%) 6.1 -15.4 -12.0 22.0 10.0 Scooter 719,087 402,676 434,890 565,357 678,429 YoY growth (%) -18.6 -44.0 8.0 30.0 20.0

Export volumes 208,056 178,261 174,168 207,499 228,249 % of total 2.7 2.8 3.0 3.0 2.9 YoY growth (%) 1.8 -14.3 -2.3 19.1 10.0 Motorcycle 187,185 161,567 159,143 190,972 210,069 YoY growth (%) 5.1 -13.7 -1.5 20.0 10.0 Scooter 20,871 16,694 15,025 16,527 18,180 YoY growth (%) -20.7 -20.0 -10.0 10.0 10.0

Total sales 7,820,831 6,409,719 5,738,386 7,030,637 7,790,236 YoY growth (%) 3.1 -18.0 -10.5 22.5 10.8

Source: Company Data, Centrum Broking

We expect revenue to grow by 18.3% CAGR over FY21-23E after taking marginal ASP growth. With improving volumes we expect operating leverage to support margins along with the Leap 2 program. We expect PAT growth of 27% CAGR for FY21-23E.

Exhibit 12: Revenue trend and estimates Exhibit 13: EBITDA margins trend and estimates Net sales (Mn Rs) YoY Change (%) (RHS) 15.0 14.7 EBITDA Margin (%) 450,000 30.0 14.5 14.1 400,000 20.0 14.0 13.7 13.5 350,000 10.0 13.5 300,000 0.0 13.0 12.4 250,000 -10.0 12.5

200,000 -20.0 12.0 FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

Source: Company Data, Centrum Broking Source: Company Data, Centrum Broking

Centrum Institutional Research 7 Hero MotoCorp ltd 10 March, 2021

Exhibit 14: PAT trend and estimates Exhibit 15: ROCE to get back in 20’s going forward

PAT (Mn Rs) YoY Change (%) (RHS) ROCE (%)

50,000 40.0 29 27.5 30.0 27 40,000 23.5 20.0 25 22.8 21.9 30,000 10.0 23

20,000 0.0 21 18.7 -10.0 19 10,000 -20.0 17 0 -30.0 15 FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

Source: Company Data, Centrum Broking Source: Company Data, Centrum Broking

Centrum Institutional Research 8 Hero MotoCorp ltd 10 March, 2021 Valuation In December 2010, Hero and Honda parted ways and since then the average one year forward price to earnings for Hero MotoCorp has been 17.7x. Before the 18% YoY decline in FY20, Hero’s volume grew 6.1% CAGR between FY10-FY19. During the same period its revenue and PAT grew by 9% and 4.7% CAGR respectively. Over this period the company’s margins reached a high of 16.4% in FY18. Going forward, we expect revenue and PAT to grow by 18.3% and 27% CAGR respectively over FY21-23E. We expect margins to improve with operating leverage, Leap II program and ramping up of the Chittoor capacity. We expect margins to be at 12.4% in FY21E and improve to 14.1% in FY23. We value the stock at 19x FY23 Earnings which is about 10% premium to its long term average considering the higher growth we expect in FY21-23E. It is currently trading at 15.3x FY23E EPS. Our target price comes to Rs4,295 and we assume coverage with a BUY rating. Slower economic recovery and rising fuel prices could act as a dampener to its Splendor and HF Deluxe sales.

Exhibit 16: Hero MotoCorp historical one year forward PER trend

24 PE Average PE 1 SD -1 SD 22

20

18 (x) 16

14

12

10

Feb-15 Feb-18 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-16 Feb-17 Feb-19 Feb-20

Aug-15 Aug-18 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-16 Aug-17 Aug-19 Aug-20

Source: Company Data, Centrum Broking, Bloomberg

Exhibit 17: Two Wheelers: FY23E PER to FY21-23E EPS CAGR

20 Eicher Motors* 18

16

14 Bajaj Auto TVS Motors

FY23 PER (X) PER FY23 12

10 Hero Motocorp

8 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 FY21-23E EPS CAGR (%)

Source: Company Data, Centrum Broking, *Bloomberg

Centrum Institutional Research 9 Hero MotoCorp ltd 10 March, 2021

P&L Balance sheet YE Mar (Rs mn) FY19A FY20A FY21E FY22E FY23E YE Mar (Rs mn) FY19A FY20A FY21E FY22E FY23E Revenues 336,505 288,361 300,528 372,994 420,741 Equity share capital 400 400 400 400 400 Operating Expense 233,177 196,974 213,375 261,096 292,415 Reserves & surplus 128,172 140,965 157,086 177,575 204,756 Employee cost 17,302 18,417 18,933 22,380 24,403 Shareholders fund 128,571 141,364 157,485 177,975 205,156 Others 36,725 33,390 30,954 39,164 44,598 Minority Interest 0 0 0 0 0 EBITDA 49,301 39,580 37,265 50,354 59,324 Total debt 0 1,217 1,217 1,217 1,217 Depreciation & Amortisation 6,020 8,180 6,773 7,743 9,234 Non Current Liabilities 0 0 0 0 0 EBIT 43,281 31,400 30,493 42,611 50,091 Def tax liab. (net) 5,365 3,928 3,928 3,928 3,928 Interest expenses 86 220 75 100 100 Total liabilities 176,412 187,493 201,621 229,937 261,708 Other income 6,913 7,783 7,142 8,895 10,357 Gross block 78,538 99,619 105,619 115,619 130,619 PBT 50,107 38,963 37,560 51,406 60,348 Less: acc. Depreciation (33,763) (39,849) (46,622) (54,365) (63,599) Taxes 16,259 9,404 9,454 12,939 15,189 Net block 44,775 59,770 58,997 61,254 67,020 Effective tax rate (%) 32.4 24.1 25.2 25.2 25.2 Capital WIP 3,607 1,603 1,603 1,603 1,603 PAT 33,849 29,559 28,106 38,467 45,158 Net fixed assets 51,604 64,584 64,311 67,067 73,333 Minority/Associates 0 0 0 0 0 Non Current Assets 0 0 0 0 0 Recurring PAT 33,849 29,559 28,106 38,467 45,158 Investments 28,015 35,282 40,282 45,282 50,282 Extraordinary items 0 6,774 0 0 0 Inventories 10,724 10,920 9,880 14,307 16,138 Reported PAT 33,849 36,333 28,106 38,467 45,158 Sundry debtors 28,216 16,031 20,584 25,548 28,818 Cash & Cash Equivalents 33,036 49,363 54,692 64,761 79,071 Ratios Loans & advances 850 896 934 1,159 1,308 YE Mar FY19A FY20A FY21E FY22E FY23E Other current assets 23,968 10,417 10,938 11,813 12,758 Growth (%) Trade payables 33,553 30,305 29,641 37,810 42,650 Revenue 4.4 (14.3) 4.2 24.1 12.8 Other current liab. 7,161 7,990 6,392 5,753 5,177 EBITDA (6.6) (19.7) (5.8) 35.1 17.8 Provisions 1,762 2,689 2,958 3,254 3,579 Adj. EPS (8.5) (12.7) (4.9) 36.9 17.4 Net current assets 54,317 46,644 58,038 70,771 86,685 Margins (%) Total assets 176,412 187,493 201,621 229,937 261,708 Gross 30.7 31.7 29.0 30.0 30.5 EBITDA 14.7 13.7 12.4 13.5 14.1 Cashflow EBIT 12.9 10.9 10.1 11.4 11.9 YE Mar (Rs mn) FY19A FY20A FY21E FY22E FY23E Adjusted PAT 10.1 10.3 9.4 10.3 10.7 Profit Before Tax 50,107 38,963 37,560 51,406 60,348 Returns (%) Depreciation & Amortisation 6,020 8,180 6,773 7,743 9,234 ROE 27.5 21.9 18.8 22.9 23.6 Net Interest 86 220 75 100 100 ROCE 27.5 21.9 18.7 22.8 23.5 Net Change – WC (24,871) 24,001 (6,065) (2,664) (1,605) ROIC 23.1 16.9 16.0 19.3 20.5 Direct taxes (16,010) (10,841) (9,454) (12,939) (15,189) Turnover (days) Net cash from operations 15,333 67,296 28,389 43,146 52,387 Gross block turnover ratio (x) 4.3 2.9 2.8 3.2 3.2 Capital expenditure (7,895) (21,159) (6,500) (10,500) (15,500) Debtors 24 28 22 23 24 Acquisitions, net 0 0 0 0 0 Inventory 15 20 18 17 19 Investments 15,566 (22,540) (7,500) (10,500) (21,500) Creditors 52 59 51 47 50 Others 0 0 0 0 0 Net working capital 59 59 70 69 75 Net cash from investing 7,671 (43,699) (14,000) (21,000) (37,000) Solvency (x) FCF 23,004 23,597 14,389 22,146 15,387 Net debt-equity (0.3) (0.3) (0.3) (0.4) (0.4) Issue of share capital (5,588) (5,562) 0 0 0 Interest coverage ratio 573.3 179.7 496.9 503.5 593.2 Increase/(decrease) in debt 0 1,217 0 0 0 Net debt/EBITDA (0.7) (1.2) (1.4) (1.3) (1.3) Dividend paid (17,378) (17,978) (11,985) (17,978) (17,978) Per share (Rs) Interest paid (86) (220) (75) (100) (100) Adjusted EPS 169.5 148.0 140.7 192.6 226.1 Others 0 0 0 0 0 BVPS 643.7 707.7 788.4 891.0 1,027.1 Net cash from financing (23,052) (22,543) (12,060) (18,078) (18,078) CEPS 199.6 188.9 174.6 231.3 272.3 Net change in Cash (49) 1,054 2,329 4,069 (2,690) DPS 87.0 90.0 60.0 90.0 90.0 Source: Company, Centrum Broking Dividend payout (%) 51.3 49.5 42.6 46.7 39.8 Valuation (x) P/E 20.4 23.3 24.5 17.9 15.3 P/BV 5.4 4.9 4.4 3.9 3.4 EV/EBITDA 13.3 16.2 17.1 12.4 10.3 Dividend yield (%) 2.5 2.6 1.7 2.6 2.6 Source: Company, Centrum Broking

Centrum Institutional Research 10 Hero MotoCorp ltd 10 March, 2021

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Centrum Institutional Research 11 Hero MotoCorp ltd 10 March, 2021

The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Broking and are given as of this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance that future results or events will be consistent with any such opinions, estimate or projection. This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement wit h the company or any of its directors or any other person. Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any other person. Any opinions and projections contained herein are entirely those of the authors. None of the company or its directors or any other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connection ther ewith. Centrum and its affiliates have not managed or co-managed a public offering for the subject company in the preceding twelve months. Centrum and affiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for service in respect of public offerings, corporate finance, debt restructuring, investment banking or other advisory services in a merger/acquisition or some other sort of specific transaction. As per the declarations given by him, Mr. Anish Rankawat, research analyst and and/or any of their family members do not serve as an officer, director or any way connected to the company/companies mentioned in this report. Further, as declared by them, they are not received any compensation from the above companies in the preceding twelve months. They do not hold any shares by them or through their relatives or in case if holds the shares then will not to do any transactions in the said scrip for 30 days from the date of release such report. Our entire research professionals are our employees and are paid a salary. They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason to know at the time of publication of the research report or at the time of the public appearance. While we would endeavour to update the information herein on a reasonable basis, Centrum, its associated companies, their directors and employees are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent Centrum from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or Centrum policies, in circumstances where Centrum is acting in an advisory capacity to this company, or any certain other circumstances. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Centrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market.

Ratings definitions Our ratings denote the following 12-month forecast returns: Buy – The stock is expected to return above 15%.

Add – The stock is expected to return 5-15%. Reduce – The stock is expected to deliver -5-+5% returns. Sell – The stock is expected to deliver <-5% returns. Hero MotoCorp ltd

3720

3030

2340

1650 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Hero MotoCorp ltd Source: Bloomberg

Centrum Institutional Research 12 Hero MotoCorp ltd 10 March, 2021

Disclosure of Interest Statement

1 Business activities of Centrum Broking Centrum Broking Limited (hereinafter referred to as “CBL”) is a registered member of NSE (Cash, F&O and Currency Derivatives Limited (CBL) Segments), MCX-SX (Currency Derivatives Segment) and BSE (Cash segment), Depository Participant of CDSL and a SEBI registered Portfolio Manager. 2 Details of Disciplinary History of CBL CBL has not been debarred/ suspended by SEBI or any other regulatory authority from accessing /dealing in securities market.

3 Registration status of CBL: CBL is registered with SEBI as a Research Analyst (SEBI Registration No. INH000001469)

Hero MotoCorp ltd

4 Whether Research analyst’s or relatives’ have any financial interest in the subject company and nature of such financial interest No

5 Whether Research analyst or relatives have actual / beneficial ownership of 1% or more in securities of the subject company at the end of the month No immediately preceding the date of publication of the document.

6 Whether the research analyst or his relatives has any other material conflict of interest No

7 Whether research analyst has received any compensation from the subject company in the past 12 months and nature of products / services for which No such compensation is received 8 Whether the Research Analyst has received any compensation or any other benefits from the subject company or third party in connection with the No research report

9 Whether Research Analysts has served as an officer, director or employee of the subject company No

10 Whether the Research Analyst has been engaged in market making activity of the subject company. No

11 Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past twelve months; No

Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company 12 No in the past twelve months; Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage 13 No services from the subject company in the past twelve months;

Member (NSE and BSE). Member MSEI (Inactive)

Single SEBI Regn No.: INZ000205331

Depository Participant (DP) CDSL DP ID: 120 – 12200 SEBI REGD NO.: CDSL: IN-DP-CDSL-661-2012

PORTFOLIO MANAGER

SEBI REGN NO.: INP000004383

Research Analyst SEBI Registration No. INH000001469

Mutual Fund Distributor AMFI REGN No. ARN- 147569

Website: www.centrum.co.in Investor Grievance Email ID: [email protected]

Compliance Officer Details: Ashok D Kadambi (022) 4215 9937; Email ID: [email protected]

Centrum Broking Ltd. (CIN :U67120MH1994PLC078125)

Corporate Office & Correspondence Address Registered Office Address Centrum House Bombay Mutual Building, 6th Floor, CST Road, Near Vidya Nagari Marg, Kalina, Santacruz (E), Mumbai 2nd Floor, Dr. D. N. Road, 400 098. Fort, Mumbai - 400 001 Tel: (022) 4215 9000 Fax: +91 22 4215 9344

Centrum Institutional Research 13 Hero MotoCorp ltd 10 March, 2021

Centrum Broking Institutional Equities Team Details

Nischal Maheshwari CEO [email protected] +91-22-4215 9841 Research Analyst Sector E-mail Phone number Anish Rankawat Auto & Auto Ancillary [email protected] +91-22-4215 9053

Gaurav Jani BFSI [email protected] +91-22-4215 9110 Milind S Raginwar Cement & Metals [email protected] +91-22-4215 9201 Shirish Pardeshi FMCG [email protected] +91-22-4215 9634 Ashish Shah Infra & Aviation [email protected] +91-22-4215 9021

Probal Sen Oil & Gas [email protected] +91-22-4215 9001

Cyndrella Carvalho Pharma [email protected] +91-22-4215 9643

Subhankar Sanyal Economist [email protected] +91-22-4215 9035 Joaquim Fernandes Quant [email protected] +91-22-4215 9363 Equity Sales Designation Email Phone number

Rajesh Makharia Director [email protected] +91-22-4215 9854 Paresh Shah MD [email protected] +91-22-4215 9617

Anil Chaurasia Sr. VP [email protected] +91-22-4215 9631 Amit Kapoor Sr. VP [email protected] +91-22-4215 9980

Himani Sanghavi AVP [email protected] +91-22-4215 9082

Saahil Harwani Associate [email protected] +91-22-4215 9623

Centrum Institutional Research 14