Maintain 'hold' on Hero MotoCorp – TP lowered to Rs.1950 - Geojit BNP Paribas

- Hold rating on Hero has been retained with a lower target price of Rs.1950 from the previous target price of Rs.2000.

- Reported 3QFY13 sales of Rs.6150 crore, which is up 3% yoyand in line with street estimates.

- However, higher raw material costs due to high metal costs and high marketing and brand building costs hit EBITDA margin which is down 310bps yoy and 130 bps qoq.

- PAT at Rs.490 crore was lower than market estimates.

- Overall performance trend remains weak in line with expectations. Company's margins will remain under pressure with a lack of new product launches before FY15 requiring high advertisement and promotional spends to support its existing product portfolio.

- A weak 2wheeler industry growth outlook and intensifying competition will mean challenges to market share and margins in FY14.

- Though the higher advertisement spends is in line with expectations, the significant decline in gross margin was a negative surprise.

- Therefore, earnings estimates for FY14 were cut by 8% and earnings estimate for FY15 was cut by 3%. Subsequently, target price is cut to Rs.1950 from Rs.2000.

- Bajaj Auto continues to be our top pick from the 2 wheeler industry.

Source : Equity Bulls

Keywords