Hero Motocorp - Wholesale falls as expected; retails resilient - ElaraCapital

- Hero reported slightly higher than expected fall of 9% in total volumes (against expectations of 4.5%), but the trend in April was in-line, with a strong pickup both on MoM basis and at retail level

- Hero retailed over half a million bikes in April, as key harvest related festivals shifted entirely in March, and turnout during Navaratras was very strong

- Dealers in North and West mentioned sales growth of 15%-25% YoY on these two reasons, especially in rural areas as farmers received cash for their crops late this time (which impacted March sales)

- Dealers also reported stock levels falling below four weeks on strong MoM pick-up in demand, a healthy trend for coming months' wholesale growth

- Further, dealers expected May to again to be a good month, as marriage season which started from April 28th will continue for the major part of the month

- We continue to hold on to our thesis that continues cycle of petrol price cuts, which started 11 month back, will revive retail sales in 2W space in FY14E

- Further, while retail sales have been strong, high base is hiding the real trend, which will change from June onwards, when the base corrects sharply

- Exports volumes too, are likely to improve multifold around June-July, as Hero commences full fledged exports to African and LATAM countries, and adds more destinations to its targeted international expansion plan

Our view: We continue to hold on to our thesis of frequent petrol price cuts leading to demand revival in 2W space, especially from the sharply low base starting June onwards. Hero, being the leader in the industry, is likely to benefit the most from this trend, and remains our top pick in the 2W space.

Source : Equity Bulls

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