Maintain Buy on Hero Honda with target price of Rs.1799 - Motilal Oswal

Hero Honda (HH IN; Mkt Cap USD6.7b, CMP Rs1,523, Buy)

EBITDA margin for the quarter was 10.4%, EBITDA was Rs5.3b and PAT was Rs4.94b, impacted by higher cost push on raw material (RM) and fixed costs.

Volumes grew 28.5% YoY (~11% QoQ) to 1.43m units and realization increased 4.4% YoY (2.2% QoQ) to Rs35,841/unit (v/s our estimate of Rs35,243/unit).

EBITDA margin declined 220bp QoQ (660bp YoY), impacted by 110bp QoQ (~600bp YoY) RM cost inflation and 130bp QoQ increase in other expenses.

We believe that the short term focus would be on to ensure smooth transition and preparing for exit of Honda, which could result in subdued performance.

We have downgraded our EPS estimates by 5.9% to Rs113.7 for FY12 and by 6.3% to Rs128.5 for FY13 to factor in higher RM cost push and expenses related to business transition (higher marketing and R&D spend). The stock trades at 13.4x FY12E EPS and 11.9x FY13E EPS. Maintain Buy with target price of Rs1,799 (~14x FY13E EPS).

Source : Equity Bulls

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