Hero Motocorp (Cmp - Rs. 3788 Tgt - Rs. 3990)
Hero MotoCorp is the World's single largest two-wheeler motorcycle company. Hero became the first company in the country to introduce four-stroke motorcycles and set the standards for fuel efficiency, pollution control and quality. They have an excellent distribution and service network spread throughout the country.
Hero Motocorp is poised for high single-digit volume growth in FY18.Pick-up in rural demand and new product launches are expected to support sales ahead. Further, the company has taken price hikes in the range of Rs 500-2,200/ vehicle which will offset the increase in input costs due to commodity price escalation. The company will launch six new products and has envisaged a capex of Rs25 bn for the next two years. Both urban and rural segments witnessed positive growth in 1QFY18. There was no inventory destocking by dealers in 1QFY18.
We estimate Hero MotoCorp's revenue growth of 12.5% in FY18E and 13% in FY19E, expect EBITDA margins to be around 16% for FY18E and FY19E, expect PAT growth of 9.1% in FY18E and 13.7% in FY19E . The stock at Rs 3,788 trades at 18 x our estimated FY19E EPS of Rs 210 per share. We assign a price target of Rs 3990 at 19x FY19 EPS, and have "HOLD" rating on the stock.
Ultratech Cement (Cmp - Rs.3915, Tgt - Rs.4453)
Ultratech Cement Ltd is engaged in the manufacture and marketing of Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. They also manufacture ready mix concrete (RMC). The company is also the country's largest exporter of cement clinker. Company has a total of 12 grey cement manufacturing plants spread across Rajasthan , Andhra Pradesh, Maharashtra, Gujarat, Chhattisgarh, Karnataka, Tamil Nadu & Madhya Pradesh. White Cement is manufactured at Rajasthan plant.
UltraTech Cement's recently-acquired 17.2 MT of Jaiprakash Associates' (JPA's) cement assets. JP Associates current capacity utilisation is 40% and company expects it to rise till 75% within 24 months of acquisition. This acquisition will help in consumption and pricing control over PET Coke. Synergies expected from the acquisition would stem from logistics rationalisation, brand leveraging, management bandwidth and efficiencies in process management. Company expects the acquisition to cash breakeven in one year and be EPS accretive by 2 years Out of 21.1 MTPA assets, 17.1 MTPA are operating at 42% CU and 4 MTPA capacity is under construction; the management estimates CU at 60%/75% for FY18/19E.
We stay Positive on the stock as this acquisition will give company major market share with production capacity of 91 MT from existing 70MT. We have valued the stock using EV/EBITDA(x) and have ascribed EV/EBITDA multiple of 19(x) to its FY19E estimates & arrived at fair value of Rs. 4,453 per share.