Hero MotoCorp - 1QFY2018 Result Update - Angel Broking

Result meeting consensus estimates: Hero Motocorp's (HMCL) Q1FY18 number to a great extent, meet the consensus estimates. Net sales were at Rs. 7,972cr, up 7.7% yoy. EBITDA was at Rs. 1,296cr up 5.4% yoy and PAT was at Rs. 914cr, up 3.5% yoy. Consensus estimates of revenue, EBITDA and PAT were Rs. 8,053cr, Rs. 1,280cr and Rs. 912cr. HMCL's performance looks better than quarterly performance of Bajaj Auto's with margins maintained and growth in revenue and PAT.

Margins decline: Though Gross margins were maintained above 32%, on yoy basis there was a decline of 56bps. Sequentially gross margins increased by 82bps. The price hike taken by the company in May-2017, helped it to maintain the gross margins above 32%. EBITDA margins were at 16.3% in 1QFY18 vs. 16.6% in 1QFY17 and 13.8% in 4QFY17. The margin declined due to 11% yoy increase in the staff costs.

Realization improves slightly, contribution declines: Net realizations improved 1.4% to Rs. 43,005 per vehicle form Rs. 42,391 in 1QFY17. Contribution per vehicle however has declined by 0.3% yoy to Rs. 13,905 in 1QFY18 vs. Rs. 13,942 in 4QFY17 due to the higher RM and Employee costs.

Outlook and valuation: Company expects to aggressively gain market share to consolidate its position. We expect CAGR of ~14%/11% in the sales/PAT over next two years. The company expects ~100bps decline in margins due to the expiry of excise benefits at Haridwar plant. The stock, at CMP, trades at 18x of FY19E earnings. We value the stock at 20x of FY19E earrings due to slightly better growth outlook. We derive price target of Rs. 4,130 with accumulate rating.

Shares of HERO MOTOCORP LTD. was last trading in BSE at Rs.3828 as compared to the previous close of Rs. 3800.35. The total number of shares traded during the day was 13956 in over 1454 trades.

The stock hit an intraday high of Rs. 3843.9 and intraday low of 3775. The net turnover during the day was Rs. 53299536.

Source : Equity Bulls

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