Hero Motocorp - Weak growth along expected lines - ElaraCapital

- Hero Motocorp recorded flat growth for February, slightly ahead of our estimates as we were anticipating a decline as per our readings from dealer surveys

- Dealers say sales had been flat to down on poor demand sentiments. However, flat growth for the month implies a slight push to inventory, which remains above 1.5 months across most dealerships

- As per management, steady sales was largely due to sustained demand for Hero products, particularly scooters, which have seen a sharp and sustained pickup in demand in YTD FY14

- It further announced the launch of new versions of Pleasure in the scooter segment and Xtreme, Karizma and ZMR in the bike segment in March, which should support volume growth into the low single digits in the coming months

- YTD growth for Hero Motocorp stands at 2.1% YoY, in line with our full-year growth assumption for FY14

- We note with Bajaj Auto's sales struggling in recent months, Hero has seen a steady market share recovery led by a sharp improvement in scooter market share, which is likely to continue in FY15 as well, given the recent hike in capacity and planned launches in the segment

- On the export front, Hero announced its entry in Turkey in partnership with Asya Makina, which has 50 outlets in the country

Our view: While overall market demand remains weak, Hero has been successful in maintaining its market share with successful launches in the scooter segment and continued strength in the commuter bike space. Although volume growth is likely to recover slowly, given the start of high potential exports business, a hike in scooter capacity to 75k, royalty expiry from Q2FY15 and likely margin expansion from the costs saving drive, we expect earnings to remain buoyant in FY15 and beyond. We maintain Hero as our top pick in the 2W space.

Source : Equity Bulls

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