Hero MotoCorp (HERHON)
CMP: | 2,300 Target: | 2,500 (9%) Target Period: 12 months HOLD
June 10, 2020 Weak margins, B/S positives remain, limited upside…
Hero MotoCorp (HMCL) reported mixed Q4FY20 results. Total 2-W volumes at 13.3 lakh units were down 25.1% YoY. Net sales were at | 6,238 crore Particulars (down 21% YoY), with blended ASPs up 5.6% YoY to | 46,747/unit. EBITDA margins came in at 10.6%, a multi-year low (down 420 bps QoQ) on the back Particular Amount Market Capitalization ₹ 45931 Crore of 260 bps QoQ gross margin deterioration. Consequent PAT was at | 621 Total Debt (FY20P) ₹ 0 Crore crore, supported by lower tax outgo (tax rate a mere 4.6%). HMCL declared Cash & Investments (FY20P) ₹ 5936.4 Crore a final dividend of | 25/share for FY20 (total dividend | 90/share). EV (FY20P) ₹ 39994.6 Crore 52 week H/L (₹) 3021 / 1475
Result Update Result High rural slate to help consolidate market share Equity capital (₹ crore) 39.9 Face value ₹ 2 HMCL is the market leader in the domestic motorcycle space, commanding
~52% market share, as of FY20. We expect the motorcycle sub segment to Key Highlights be among the frontrunners of post Covid recovery on account of (1) higher share of sub segment sales in rural economy, which has been less exposed Total 2-W sales volume in Q4FY20 came in at 13.3 lakh units, down to the pandemic outbreak and currently holds more stable income prospects 25.1% YoY. A 5.6% rise in blended courtesy remunerative Rabi crop prices and expectations of a normal ASPs helps prevent equivalent slide monsoon and (2) increasing preference for private transport amid in net sales heightened awareness around social distancing. The motorcycle space can Q4FY20 margins at 10.6% form a also witness some downtrading impact from generally reduced spending multi-year low, impacted by 260 bps power, bringing entry level products into focus. Here also, HMCL is the gross margin deterioration and negative operating leverage
market leader through models like Splendor, HF Deluxe, Passion in 75-110 cc range and Glamour, Splendor 125 in 110-125 cc range. HMCL’s dominant HMCL is well placed to further strengthen market share in entry presence in likely beneficiary pockets (rural slate forms >50% of HMCL level and overall motorcycle space volumes) leave it well placed to further consolidate market share. Sharp price appreciation leads us to downgrade HMCL from BUY to Modest margin recovery over FY20P-22E HOLD with revised target price of | 2,500 i.e. 17x P/E on FY22E EPS The 10.6% EBITDA margin recorded in Q4FY20 represented a multi-year low. However, management commentary stated margins ex-Covid impact Research Analyst and other one offs would have been at 13.5% levels. With overall auto Shashank Kanodia, CFA industry retail registrations at ~40% of pre-Covid levels currently, demand [email protected]
Retail Equity Research Equity Retail
ramp up is expected to be gradual. This limited operating leverage would – Jaimin Desai keep margins under pressure at the OEM level in FY21E. Moreover, [email protected] expected downtrading trend could negate some pricing gains achieved on account of BS-VI. We build in 12.5% margins for HMCL by FY22E.
Valuation & Outlook
We continue to like HMCL for its market leadership in pockets that are expected to recover quicker once Covid-19 effect subsides and for its robust Securities ICICI financials [debt free B/S, healthy return ratios, strong cash generation (present FCF yield ~8%)]. However, a sharp stock price run up in the recent past places HMCL near its long period average valuation parameters. We value HMCL at | 2,500 (17x P/E on FY22E EPS of | 147.6) and assign HOLD.
Key Financial Summary
Key Financials FY18 FY19 FY20P FY21E FY22E CAGR (FY20P-22E) Net Sales 32,230.5 33,650.5 28,836.1 27,692.0 32,103.6 5.5% EBITDA 5,280.2 4,929.8 3,958.0 2,963.0 4,007.7 0.6% EBITDA Margins (%) 16.4 14.6 13.7 10.7 12.5 Net Profit 3,697.4 3,384.6 3,633.3 2,193.2 2,947.6 -9.9% Normalised Net Profit 3,697.4 3,384.6 3,202.6 2,193.2 2,947.6 -4.1% EPS (₹) 185.1 169.5 181.9 109.8 147.6 P/E 12.4 13.6 12.6 20.9 15.6 RoNW (%) 31.4 26.3 22.7 14.5 17.9
RoCE (%) 42.4 37.1 26.5 18.7 23.2 Source: ICICI Direct Research, Company Result Update | Hero MotoCorp ICICI Direct Research
Exhibit 1: Variance Analysis Q4FY20 Q4FY20E Q4FY19 YoY (%) Q3FY20 QoQ (%) Comments Topline came in ahead of our estimates primarily Total Operating Income 6,238 6,060 7,885 -20.9 6,997 -10.8 tracking beat on ASPs RM costs came in substantially higher at 69.2% of Raw Material Expenses 4,320 4,096 5,439 -20.6 4,660 -7.3 sales, up 260 bps QoQ Employee Expenses 435 473 447 -2.7 470 -7.3 Other expenses at 13.2% of sales came in higher, Other expenses 823 742 930 -11.5 828 -0.6 tracking negative operating leverage Operating Profit (EBITDA) 660 748 1,069 -38.3 1,039 -36.5 EBITDA margins came in at a multi-year low, tracking higher raw material costs and perils of negative EBITDA Margins (%) 10.6 12.4 13.6 (300) bps 14.8 (420) bps operating leverage. Management opined ex-Covid and one-offs, EBITDA margins could have been 13.5% for the Other Income 169 172 164 3.2 182 -7.0 Interest 4.1 2.3 2.2 85.4 5.9 -31.4 Depreciation 174.7 202.1 150.2 16.3 203.7 -14.2
PBT after Exceptional Items 650.6 716.4 1,080.8 -39.8 1,011.5 -35.7
Tax rate came in lower at 5% of PBT vs. our estimate of Total Tax 29.9 180.5 350.8 -91.5 131.1 -77.2 ~25% PAT 620.7 535.9 730.0 -15.0 880.4 -29.5 PAT came in ahead of estimates despite lower margin EPS (Adjusted) 31.1 26.8 36.6 -15.0 44.1 -29.5 profile primarily on the back of lower effective tax rate Key Metrics Motorcycle volumes ('000s) 1,279.6 1,279.6 1,623.4 -21.2 1,435.7 -10.9
Total volumes for the quarter were at 13.34 lakh units, Scooter volumes ('000s) 54.9 54.9 157.8 -65.2 105.1 -47.8 down 25% YoY and 13% QoQ Blended ASPs came in higher at | 46,747 tracking better Net Blended ASP (₹/unit) 46,747 45,408 44,265 5.6 45,408 2.9 product mix as well as increasing dispatch of BS-VI variants
Source: Company, ICICI Direct Research
Exhibit 2: Change in estimates FY21E FY22E (₹ Crore) Old New % Change Old New % Change Comments Marginally tweak estimates. We expect revenues to grow at a CAGR of 5.5% over FY20-22E primarily led by increase in ASPs due Revenue 29,370 27,692 -5.7 33,435 32,104 -4.0 to BS-VI transition with overall volume trajectory remaining muted (CAGR basis) over the aforesaid period EBITDA 3,393 2,963 -12.7 4,385 4,008 -8.6 Lower-than-anticipated margins in Q4FY20 coupled with limited EBITDA Margin 11.6 10.7 -85 bps 13.1 12.5 -63 bps operating leverage benefits lead us to downward revise our margin (%) estimates, going forward PAT 2,362 2,193 -7.1 3,124 2,948 -5.6 Downward revision in sales and margin estimates leads us to EPS (₹) 118.3 109.8 -7.1 156.4 147.6 -5.6 downward revise our PAT estimates, going forward. We expect PAT to de-grow at a CAGR of 4.1% over FY20-22E
Source: Company, ICICI Direct Research Exhibit 3: Assumptions Current Earlier Comments FY19 FY20P FY21E FY22E FY21E FY22E
Motorcycle volumes (lakh units) 71 60 51 58 53 59 Going forward, post 14% YoY volume decline in FY21E on account of Covid-19 led demand destruction, we expect volumes to stage a recovery growing at 15% Scooter volumes (lakh units) 7 4 4 5 5 5 YoY in FY22E. Consequently, volume CAGR over FY20- 22E is pegged at -0.7%. Scooter segment, due to its Total volumes (lakh units) 78 64 55 63 58 64 low base, is expected to grow at a CAGR of 9.5% while motorcycle volumes are seen growing at -1.5% CAGR in the aforesaid period Growth (%, YoY) -18% -14% 15%
Gross Blended ASP (₹/unit) 43,026 44,988 50,253 50,827 51,084 51,922 Marginally tweak ASP estimates for FY21E & FY22E
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 2 Result Update | Hero MotoCorp ICICI Direct Research
Conference Call Highlights Management guidance/outlook and demand The management refrained from giving any volume, margin guidance for FY21E. However, they said rural, semi-urban markets (~50% of HMCL sales) are expected to outperform the urban segment in FY21E On the scooter segment, the management opined FY20 was a year of inventory adjustments for them and now it is geared for healthy growth trajectory, going forward. Its Pleasure Plus model in 110 cc segment is being well received by the market. With 125 cc segment, it expects to further consolidate its presence through Destni, Maestro Edge The company expects its share in the premium motorcycle segment to increase with the help of new launches. It is expected to launch Xtreme 160R model soon and is targeting higher single digit market share within the 150-200 cc segment Q4FY20 dispatches mix in terms of BS-IV: BS-VI was at 50:50 Dealership inventory was reduced by 5.5 lakh units (BS-VI variants) at the end of March 2020. All BS-IV inventory has been sold out as on date
Covid-19 update The company lost 2.3 lakh units of sales in Q4FY20 owing to Covid-19 led lockdown. If not for this, total operating income would have been | 7,400 crore with EBITDA margins at 13.5% The company has successfully re-started all its manufacturing plants. HMCL’s supply chain in terms of vendors supplying key raw materials is also fully functional Total ~90% of the company’s dealership network is open and is seeing encouraging demand prospects. Enquiries are high as are conversion rates. Gujarat and Maharashtra, however, are the key pain geographies. Nevertheless, majority of dealerships (that have been operating for more than two weeks) are close to pre-Covid era retail sales Servicing of existing 2-W are at pre-Covid era scale of operations With focus on digital medium/contactless delivery, the company does not intend to increase the dealership count and is instead focusing on increasing the throughput as well as strengthening the existing dealership network
Revenues, costs and margins One-offs for the quarter included ~ | 110 crore on account of dealer support for selling BS-IV inventory, ~ | 57 crore on account of fiscal provision for Neemrana plant among others Spare parts revenue for Q4FY20, FY20 was at | 715 crore, | 2986 crore, respectively (up 2% YoY) On cost savings front, it has launched a programme to reduce overhead costs while also targeting 2x savings from its Leap-2 programme Raw material basket expected to be soft with general commodity prices muted amid elevated prices of precious metals and rupee depreciation
Others Capex spend is under tight control with capex guidance for FY21E reduced from | 1000 crore to | 600 crore Share of financing for HMCL retail sales was at 43% as of FY20 end. Within its retail financing channel, Hero Fincorp share constituted ~46% Hero Fincorp is running profitable operations and is well capitalised as on date
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Financial story in charts
Exhibit 4: Growth in revenues
40000 20
35000 15.9 15 HMCL’s volumes and revenue are expected to 13.2 12.5 register CAGR of -0.7% and 5.5%, respectively, over 30000 10 FY20P-22E. Higher pricing post implementation of 25000 4.4 5 BS-VI is seen driving ASP growth over this time 20000 0.1 - frame (4.0) (%)
(₹ crore)(₹ 15000 (5)
10000 (10)
5000 (14.3) (15)
28,443 28,475 33,651 27,692 32,104 32,230 28,836 0 (20) FY16 FY17 FY18 FY19 FY20P FY21E FY22E
Net Sales Growth
Source: Company, ICICI Direct Research
Exhibit 5: Product mix 2,200 196 207 234 115 180 158 144 1,700 105 55 Product mix continued to evolve in favour of 1,200 motorcycles during Q4FY20. Run down of BS-IV
scooter inventories has contributed to shift in mix 1,927
1,911 during recent months. Going forward, we build 9.5%
1,767
1,728
('000s) 1,623
700 1,619 1,547
1,436 scooter volume CAGR over FY20P-22E due to small 1,280 base while motorcycle volumes are seen declining 200 by 1.5% CAGR.
-300
Q4FY18 Q1FY19 Q2FY19 Q1FY20 Q2FY20 Q3FY20 Q3FY19 Q4FY19 Q4FY20
Motorcycles Scooters
Source: Company, ICICI Direct Research
Exhibit 6: Margins trend
6000 16.3 16.4 18 15.7 14.6 16 5000 13.7 12.5 14 4000 10.7 12 EBITDA margins expected to remain under pressure 10 amid limited operating leverage benefits. We build 3000 substantial dip in FY21E margins to 10.7% before
8 (%)
5,280 factoring in recovery towards 12.5% levels by FY22E
(₹ crore)(₹ 4,930
2000 4,635 6
4,455
4,008 3,958 4 1000 2,963 2 0 - FY15 FY16 FY18 FY19 FY20P FY21E FY22E
EBITDA EBITDA Margins (%)
Source: Company, ICICI Direct Research
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Exhibit 7: Cost profile breakup
40000 17 16.0
15.6 16
36000 15.2 14.5
6171 6171 15
14.8
14.0
14.4
5179 5179 5358 5358
32000 5192
13.6 4410 4410
4700 4700 14
4260 4260
4642 4642
4706 4706 (₹) 28000 13 (%) RM costs came in far higher than anticipated, 12
32371 32371 resulting in substantial margin drop for the quarter
30532 30532 30342 30342
24000 30304
30241 30241
30099 30099
29520 29520 29265 29265
28942 28942 11 10.6
20000 10
Q4FY18 Q1FY19 Q3FY19 Q4FY19 Q1FY20 Q3FY20 Q4FY20 Q2FY19 Q2FY20
Raw material costs /unit Other expenses /unit EBITDA Margins (%) Source: Company, ICICI Direct Research
Exhibit 8: Trend in profitability
4000 40 32.5 34.4 3500 30
3000 20 9.5 10 2500 6.9 7.3 - 2000 (8.5) (%)
(10) We expect HMCL to clock -4.1% CAGR in normalised
3,697
(₹ crore)(₹
3,633 3,385 1500 3,377
3,160 (20) PAT over FY20P-22E -21E to | 2,948 crore 2,948 1000
2,193 (30) 500 (39.6) (40) 0 (50) FY16 FY17 FY18 FY19 FY20P FY21E FY22E PAT Growth
Source: Company, ICICI Direct Research
Exhibit 9: Return ratios trend 60 48.7 50 44.0 42.4 37.1 40
35.8 26.5 30 23.2 (%) 33.4 31.4 Return ratios have come off their highs in recent 18.7 20 26.3 years. However, they are expected to return to 22.7 20%+ levels in FY22E 17.9 10 14.5
0 FY16 FY17 FY18 FY19 FY20P FY21E FY22E
RoCE RoE
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 5 Result Update | Hero MotoCorp ICICI Direct Research
Exhibit 10: Segment, model wise volume break-up in Q4FY20 Do m e s tic Exp o rts T o tal Do m e s tic m ark e t Q 4FY19 Q 4FY20 Yo Y (%) Q 4FY19 Q 4FY20 Yo Y (%) Q 4FY19 Q 4FY20 Yo Y (%) s h are (%) I. Scooters 1,53,650 51,100 -66.7% 4,188.0 3,828.0 -8.6% 1,57,838 54,928 -65.2% 7.2 90-125 cc 1,53,650 51,100 -66.7% 4,188 3,828 -8.6% 1,57,838 54,928 -65.2% Duet 19,853 1,011 -94.9% 92 468 408.7% 19,945 1,479 -92.6% Destni 125 67,934 17,221 -74.7% 240 320 33.3% 68,174 17,541 -74.3% Maestro 27,489 6,296 -77.1% 2,750 1,810 -34.2% 30,239 8,106 -73.2% Pleasure 38,374 26,572 -30.8% 1,106.0 1,230.0 11.2% 39,480 27,802 -29.6%
II. Motorcycles 15,70,230 12,33,850 -21.4% 53,182 45,733 -14.0% 16,23,412 12,79,583 -21.2% 52.0 75-110cc 14,14,561 10,37,152 -26.7% 27,663 23,842 -13.8% 14,42,224 10,60,994 -26.4% HF Daw n 62 - -100.0% 593 1,800 203.5% 655 1,800 174.8% HF Deluxe 5,26,264 4,82,841 -8.3% 8,179 8,942 9.3% 5,34,443 4,91,783 -8.0% Splendor 7,14,806 4,74,672 -33.6% 16,893 10,904 -35.5% 7,31,699 4,85,576 -33.6% Passion 1,73,429 79,639 -54.1% 1,998 2,196 9.9% 1,75,427 81,835 -53.4% 110-125cc 1,48,674 1,95,621 31.6% 13,014 10,634 -18.3% 1,61,688 2,06,255 27.6% G lamour 1,48,674 88,783 -40.3% 13,014 9,098 -30.1% 1,61,688 97,881 -39.5% Splendor - 1,06,838 NA - 1,536 NA - 1,08,374 NA 125-150cc 591 - -100.0% 11,147 7,582 -32.0% 11,738 7,582 -35.4% Hunk - - NA 7,436 5,217 -29.8% 7,436 5,217 -29.8% A cheiver 419 - -100.0% 1,176 1,266 7.7% 1,595 1,266 -20.6% Xtreme 172 - -100.0% 2,535 1,099 -56.6% 2,707 1,099 -59.4% 150-200cc 6,400 1,077 -85.7% 1,358 3,675 -100.0% 7,758 4,752 -88.2% Xtreme 200R 6,400 913 -85.7% 1,358 - -100.0% 7,758 913 -88.2% X Pulse 200T - 164 NA - 3,675 NA - 3,839 NA 200-250cc 4 - -100.0% - - NA 4 - -100.0% K ariz ma 4 - -100.0% - - NA 4 - -100.0%
Total 2-W (I + II) 17,23,880 12,84,950 -25.5% 57,370 49,561 -13.6% 17,81,250 13,34,511 -25.1% 35.8
Total domestic 17,23,880 12,84,950 -25.5%
Total exports 57,370 49,561 -13.6%
Grand total 17,81,250 13,34,511 -25.1% Source: SIAM, ICICI Direct Research
ICICI Securities | Retail Research 6 Result Update | Hero MotoCorp ICICI Direct Research
Exhibit 11: Segment, model wise volume break-up in FY20 Do m e s tic Exp o rts T o tal Do m e s tic FY19 FY20 Yo Y (%) FY19 FY20 Yo Y (%) FY19 FY20 Yo Y (%) m arket share (%) I. Scooters 7,19,087 4,02,676 -44.0% 20,871.0 16,694.0 -20.0% 7,39,958 4,19,370 -43.3% 7.2 90-125 cc 7,19,087 4,02,676 -44.0% 20,871 16,694 -20.0% 7,39,958 4,19,370 -43.3% Duet 1,75,239 38,870 -77.8% 1,643 1,594 -3.0% 1,76,882 40,464 -77.1% Destni 125 1,06,901 1,13,944 6.6% 318 3,316 942.8% 1,07,219 1,17,260 9.4% Maestro 2,72,432 94,533 -65.3% 12,854 6,340 -50.7% 2,85,286 1,00,873 -64.6% Pleasure 1,64,515 1,55,329 -5.6% 6,056.0 5,444.0 -10.1% 1,70,571 1,60,773 -5.7%
II. Motorcycles 68,93,688 58,28,782 -15.4% 1,87,185 1,61,567 -13.7% 70,80,873 59,90,349 -15.4% 52.0 75-110cc 60,94,808 46,16,386 -24.3% 1,08,974 75,811 -30.4% 62,03,782 46,92,197 -24.4% HF Daw n 2,111 - -100.0% 3,855 4,443 15.3% 5,966 4,443 -25.5% HF Deluxe 21,68,740 20,50,974 -5.4% 42,284 34,372 -18.7% 22,11,024 20,85,346 -5.7% Splendor 30,05,618 20,63,148 -31.4% 60,126 28,236 -53.0% 30,65,744 20,91,384 -31.8% Passion 9,18,339 5,02,264 -45.3% 2,709 8,760 223.4% 9,21,048 5,11,024 -44.5% 110-125cc 7,55,027 11,72,275 55.3% 44,740 49,367 10.3% 7,99,767 12,21,642 52.7% G lamour 7,55,027 6,02,623 -20.2% 44,740 32,416 -27.5% 7,99,767 6,35,039 -20.6% Splendor - 5,69,652 NA - 16,951 NA - 5,86,603 NA 125-150cc 20,935 9,946 -52.5% 31,591 27,377 -13.3% 52,526 37,323 -28.9% Hunk - - NA 16,616 18,475 11.2% 16,616 18,475 11.2% A cheiver 10,111 - -100.0% 5,178 4,986 -3.7% 15,289 4,986 -67.4% Xtreme 10,824 9,946 -8.1% 9,797 3,916 -60.0% 20,621 13,862 -32.8% 150-200cc 22,842 30,175 -62.6% 1,800 9,012 -89.1% 24,642 39,187 -64.5% Xtreme 200R 22,842 8,541 -62.6% 1,800 197 -89.1% 24,642 8,738 -64.5% X Pulse 200T - 21,634 NA - 8,815 NA - 30,449 NA 200-250cc 76 - -100.0% 80 - -100.0% 156 - -100.0% K ariz ma 76 - -100.0% 80 - -100.0% 156 - -100.0%
Total 2-W (I + II) 76,12,775 62,31,458 -18.1% 2,08,056 1,78,261 -14.3% 78,20,831 64,09,719 -18.0% 35.8
Total domestic 76,12,775 62,31,458 -18.1%
Total exports 2,08,056 1,78,261 -14.3%
Grand total 78,20,831 64,09,719 -18.0% Source: SIAM, ICICI Direct Research
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Exhibit 12: Valuation Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (₹ cr) (%) (₹ cr) (%) (x) (x) (%) (%) FY18 32,230.5 13.2 185.1 9.5 12.4 7.4 31.4 42.4 FY19 33,650.5 4.4 169.5 -8.5 13.6 8.4 26.3 37.1 FY20P 28,836.1 (14.3) 181.9 7.3 12.6 10.1 22.7 26.5 FY21E 27,692.0 -4.0 109.8 -39.6 20.9 13.3 14.5 18.7 FY22E 32,103.6 15.9 147.6 34.4 15.6 9.7 17.9 23.2 Source: Company, ICICI Direct Research
Exhibit 13: HMCL currently trading at 15.6x FY22E EPS of | 147.6/share, close to long term average two year forward multiples 5000 4500 4000 3500
3000 (₹) 2500 2000 1500
1000
Jun-13 Jun-14 Jun-15 Jun-16 Jun-10 Jun-11 Jun-12 Jun-17 Jun-18 Jun-19 Jun-20
Sep-13 Sep-14 Sep-15 Sep-16 Sep-10 Sep-11 Sep-12 Sep-17 Sep-18 Sep-19
Dec-13 Dec-14 Dec-15 Dec-16 Dec-10 Dec-11 Dec-12 Dec-17 Dec-18 Dec-19
Mar-13 Mar-14 Mar-15 Mar-16 Mar-11 Mar-12 Mar-17 Mar-18 Mar-19 Mar-20
Price 24x 23x 21x 19x 18x 16x 14x
Source: Bloomberg, ICICI Direct Research
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Exhibit 14: Recommendation history vs. consensus
5,000 80.0
4,500 70.0 4,000 60.0 3,500 3,000 50.0 (₹) 2,500 40.0 (%)
2,000 30.0 1,500 20.0 1,000 500 10.0
0 0.0
Jul-17 Jul-18 Jul-19 Jul-19
Jan-20 Jan-18 Jan-19
Jun-17 Jun-18 Jun-19
Oct-17 Oct-18 Oct-19
Apr-18 Apr-19 Apr-20
Sep-17 Feb-18 Sep-18 Feb-19 Sep-19 Feb-20
Dec-18 Dec-19 Dec-17
Aug-18 Aug-19 Aug-17
Nov-17 Nov-18 Nov-19
Mar-18 Mar-19 Mar-20
May-19 May-20 May-17 May-18 Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, ICICI Direct Research
Exhibit 15: Top 10 shareholders Ran k Nam e Latest Filing Date % O /S Position (m ) C h an g e (m ) 1 BAHADUR CHAND INVEST 31-03-2020 20.04 40.03M +0.09M 2 Munjal Pawan Kant 31-03-2020 14.02 28.00M 0 3 LIFE INSURANCE CORP 19-05-2020 7.15 14.27M 0 4 STANDARD LIFE ABERDE 02-07-2019 3.37 6.73M 0 5 NA 30-06-2019 2.99 5.97M +5.62M 6 SBI FUNDS MANAGEMENT 30-04-2020 2.29 4.57M -0.70M 7 BLACKROCK 26-05-2020 2.05 4.10M -0.44M 8 FRANKLIN RESOURCES 27-05-2020 1.76 3.52M -0.50M 9 NORGES BANK 31-12-2019 1.47 2.94M 0 10 LA Z A RD LTD 31-03-2020 1.45 2.90M -0.26M Source: Bloomberg, ICICI Direct Research
Exhibit 16: Shareholding pattern (in %) Mar-19 Ju n -19 Se p -19 De c-19 Mar-20 Promoter 34.6 34.6 34.6 34.6 34.6 FII 38.2 35.2 36.5 35.3 34.3 DII 16.1 20.0 19.2 19.6 19.9 O thers 11.1 10.1 9.7 10.5 11.2 Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 9 Result Update | Hero MotoCorp ICICI Direct Research
Financial Summary
Exhibit 17: Profit and loss statement | crore Exhibit 18: Cash flow statement | crore (Year-end March) FY19 FY20P FY21E FY22E (Year-end March) FY19 FY20P FY21E FY22E Total operating Incom e 33,650.5 28,836.1 27,692.0 32,103.6 Profit after Tax 3,384.6 3,633.3 2,193.2 2,947.6 G row th (% ) 4.4 -14.3 -4.0 15.9 Add: Depreciation 602.0 818.0 775.4 834.7 Raw Material Expenses 23,317.7 19,697.4 19,800.4 22,898.0 (Inc)/dec in Current Assets -1,696.4 1,459.9 -85.6 -547.7 Employee Expenses 1,730.2 1,841.7 1,807.2 1,862.4 Inc/(dec) in CL and Provisions -213.0 -154.3 -424.9 565.7 Other expenses 3,672.5 3,339.0 3,121.4 3,335.4 CF from operating activities 2077.2 5756.8 2458.0 3800.4 Total Operating Expenditure 28,720.5 24,878.1 24,729.0 28,095.8 (Inc)/dec in Investments 2,107.5 -1,297.6 -450.0 -750.0 EBIT DA 4930.1 3958.0 2963.0 4007.7 (Inc)/dec in Fixed Assets -789.5 -2,115.9 -600.0 -1,200.0 G row th (% ) -6.0 -19.7 -25.1 35.3 O thers -1,103.7 116.0 -200.0 -200.0 Depreciation 602.0 818.0 775.4 834.7 CF from investing activities 214.3 -3297.5 -1250.0 -2150.0 Interest 8.6 22.0 23.1 24.3 Inc/(dec) in loan funds 0.0 0.0 0.0 0.0 O ther Income 691.3 778.3 767.5 791.9 Dividend paid & dividend tax -2,084.9 -2,156.8 -1,198.2 -1,597.6 PBT 5010.4 3896.3 2932.0 3940.7 Inc/(dec) in Sec. premium & Others -8.6 -22.0 -23.1 -24.3 Total Tax 1,625.9 940.4 738.9 993.0 CF from financing activities -2304.9 -2376.0 -1221.3 -1621.9 PAT 3384.6 3633.3 2193.2 2947.6 Net Cash flow -4.8 105.4 9.8 52.8 G row th (% ) -8.5 7.3 -39.6 34.4 Opening Cash 141.3 136.5 241.9 251.7 Normalised PA T (₹) 3,384.6 3,202.6 2,193.2 2,947.6 Closing Cash 136.5 241.9 251.7 304.4 EPS (₹) 169.5 181.9 109.8 147.6 Source: Company, ICICI Direct Research Normalised EPS (₹) 169.5 160.4 109.8 147.6 Source: Company, ICICI Direct Research
Exhibit 19: Balance Sheet | crore Exhibit 20: Key ratios (Year-end March) FY19 FY20P FY21E FY22E (Year-end March) FY19 FY20P FY21E FY22E Liabilities Per share data (₹) Equity Capital 39.9 39.9 39.9 39.9 EPS 169.5 181.9 109.8 147.6 Reserve and Surplus 12,817.2 14,096.5 15,091.4 16,441.5 Cash EPS 199.6 222.9 148.6 189.4 Total Shareholders funds 12857.1 14136.4 15131.4 16481.4 BV 643.8 707.9 757.7 825.3 Total Debt 0.0 0.0 0.0 0.0 DPS 87.0 90.0 60.0 80.0 Deferred Tax Liability 536.5 392.8 392.8 392.8 Cash Per Share 227.0 297.3 320.3 360.5 O thers 117.2 244.0 244.0 244.0 Operating Ratios (%) Total Liabilities 13510.8 14773.3 15768.3 17118.3 EBITDA Margin 14.6 13.7 10.7 12.5 As s e ts PBT / Net sales 12.9 10.9 7.9 9.9 Gross Block 7,998.8 10,316.2 10,896.2 11,946.2 PAT Margin 10.1 12.6 7.9 9.2 Less: Acc Depreciation 3,521.3 4,339.2 5,114.6 5,949.3 Inventory days 11.6 13.8 12.0 12.0 Ne t Blo ck 4477.5 5977.0 5781.6 5996.9 Debtor days 30.6 20.3 25.0 25.0 Capital WIP 360.7 160.3 180.3 330.3 Creditor days 36.4 38.4 35.0 35.0 Total Fixed Assets 4,838.2 6,137.2 5,961.8 6,327.1 Return Ratios (%) Investments 5,968.6 8,222.7 8,872.7 9,822.7 RoE 26.3 22.7 14.5 17.9 Inventory 1,072.4 1,092.0 910.4 1,055.5 RoCE 37.1 26.5 18.7 23.2 Debtors 2,821.6 1,603.1 1,896.7 2,198.9 RoIC 59.9 37.3 24.5 33.7 Loans and Advances 25.0 22.4 21.1 24.5 Valuation Ratios (x) C as h 136.5 241.9 251.7 304.4 P/E 13.6 14.3 20.9 15.6 Total Current Assets 4,948.6 3,594.1 3,689.5 4,289.9 EV / EBITDA 8.4 10.1 13.3 9.7 Creditors 3,355.3 3,030.5 2,655.4 3,078.4 Market Cap / Sales 1.4 1.6 1.7 1.4 Provisions 59.0 146.6 128.4 148.9 Price to Book Value 3.6 3.2 3.0 2.8 Total Current Liabilities 4,130.4 3,976.0 3,551.1 4,116.8 Solvency Ratios Net Current Assets 818.3 -382.0 138.4 173.1 Current Ratio 1.3 1.0 1.1 1.1 Application of Funds 13510.8 14773.3 15768.3 17118.3 Quick Ratio 1.0 0.7 0.8 0.8
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 10 Result Update | Hero MotoCorp ICICI Direct Research
Exhibit 21: ICICI Direct coverage universe (Auto & Auto Ancillary) Sector / Company CMP TP M Cap EPS (₹) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) (₹) (₹) Rating (₹ Cr) FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E Apollo Tyre (APOTYR) 105 100 Hold 6,006 8.3 2.4 7.6 12.6 44.2 13.8 6.2 5.8 4.5 4.8 3.5 6.1 4.8 1.2 4.3 Ashok Leyland (ASHLEY) 52 55 Buy 15,221 1.2 1.7 3.2 44.7 30.6 16.2 13.2 11.5 7.8 6.0 7.0 11.9 4.7 5.7 10.4 Bajaj Auto (BAAUTO) 2,780 2,840 Hold 80,445 176.3 134.9 162.1 15.8 20.6 17.2 12.7 15.8 12.1 23.8 23.2 25.1 25.6 17.7 19.1 Bharat Forge (BHAFOR) 350 320 Hold 16,295 10.8 7.0 12.7 32.3 49.8 27.6 16.3 18.9 14.0 8.4 6.3 9.4 9.4 5.7 9.8 Eicher Motors (EICMOT) 17,250 17,150 Buy 47,024 709.6 533.3 722.2 24.3 32.3 23.9 19.0 23.6 16.7 22.2 16.0 19.0 18.5 12.5 14.9 Escorts (ESCORT) 950 1,020 Buy 11,645 39.6 40.8 50.3 24.0 23.3 18.9 15.8 15.2 12.2 18.9 13.3 14.2 14.2 10.1 11.1 Exide Industries (EXIIND) 160 170 Hold 13,600 9.7 8.1 9.7 16.5 19.7 16.6 9.8 10.4 8.8 16.7 13.8 15.2 13.4 10.3 11.4 Hero Moto (HERHON) 2,300 2,500 Hold 45,931 181.9 109.8 147.6 12.6 20.9 15.6 10.1 13.3 9.7 26.5 18.7 23.2 22.7 14.5 17.9 M&M (MAHMAH) 485 415 Buy 60,295 33.8 15.8 23.5 14.4 30.8 20.6 10.2 15.6 11.4 11.7 6.3 8.9 9.6 5.0 7.1 Maruti Suzuki (MARUTI) 5,750 4,650 Reduce 173,696 187.1 138.4 194.4 30.7 41.6 29.6 19.0 22.5 16.1 7.4 4.8 7.9 11.7 8.2 10.6 Minda Industries (MININD) 287 300 Buy 7,525 7.0 7.6 11.8 40.9 37.6 24.3 13.1 11.7 9.4 11.3 11.8 15.0 11.5 11.6 15.4 Tata Motors (TATMOT) 110 85 Hold 40,205 -9.1 -2.4 9.1 NM NM 12.1 4.5 4.4 3.6 4.6 5.7 8.5 0.0 2.6 9.3
Source: Bloomberg, ICICI Direct Research
ICICI Securities | Retail Research 11 Result Update | Hero MotoCorp ICICI Direct Research
RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock
Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
ICICI Securities | Retail Research 12 Result Update | Hero MotoCorp ICICI Direct Research
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I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Jaimin Desai, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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ICICI Securities | Retail Research 13