Maintain 'buy' on Hero Motocorp – TP Rs.2275 - Geojit BNP Paribas Financial Services

- Buy rating on Hero Motocorp is maintained with a target price of Rs.2275 over one year.

- 1QFY13 revenue at Rs.6200 crore increased 10% yoy and 4% qoq. Revenue growth has been in line with market expectations.

- EBITDA increased 15% yoy and EBITDA margin improved by 60 bps yoy, driven mainly by a 100 bps improvement in gross margins.

- PAT at 620 crore increased 10% yoy and in line with analysts' estimates.

- Although the commodity cost outlook remains stable, continued rupee weakness could marginally impact margins in coming quarters.

- However, model refreshes in the premium category could improve the company's product mix and partially offset raw material concerns.

- Management expects domestic two-wheeler industry to grow at 8-9% in FY13 and the company is expected to gain market share despite increasing competitive pressures.

- A significant push of products under the Hero brand could help the company to maintain growth momentum and moderate dealer inventory.

- Key risk to the 'buy' rating and target price is the sharp decline in consumer spent, that may impact demand for vehicles.

- Lower than normal monsoon so far also poses a risk to the investment hypothesis.

Source : Equity Bulls

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