Post on 16-Aug-2020
ICIC
I S
ecurit
ies –
Retail E
quit
y R
esearch
Result
Update
April 30, 2019
CMP: | 2510 Target: | 2700 ( 8%) Target Period: 12 months
Hero MotoCorp (HERHON)
HOLD
Margins disappoint; subdued commentary…
Hero MotoCorp (HMCL) reported a subdued Q4FY19 performance,
particularly on operating margins, which were down 37 bps QoQ to 13.6%.
A spike in raw material & employee costs, in particular, drove the weak
margin performance. Revenues declined 7.9% YoY to | 7,885 crore. Total 2-
W sales volume for the quarter came in at 17.8 lakh units, down 11.5% YoY.
Consequent PAT for Q4FY19 came in at | 730.0 crore, down 24.5% YoY.
HMCL announced a final dividend of | 32/share for FY19.
Volume growth benign, market leadership maintained!
FY18 was a robust year for domestic 2-W industry and HMCL, in particular,
with the company seeing a volume growth of 14% YoY. FY19, however, was
challenging, with mere 3% volume growth primarily tracking an increase in
cost of ownership due to increase in fuel, insurance and financing costs,
which coincided with the high sales festive period i.e. Dussehra-Diwali.
Going forward, with system inventory still higher than the normal range and
muted demand prospects, we expect HMCL to clock volume growth of 6%
in FY20E. It is expected to be supported by pre-buying ahead of BS-VI launch
from April 2020. Post this, we expect uncertainly to prevail and pencil in
conservative 3% volume growth in FY21E. On the market share front, HMCL
is expected to maintain its market leadership in the 2-W segment at ~35%+.
HMCL’s domestic scooter: motorcycle mix was at 10:90 for FY19.
Margins to inch lower vs. 14.5%+ clocked in FY16-19!
The Q4FY19 margin of 13.6% was the lowest in several quarters,
highlighting cost challenges being faced by the company. With prices of key
metal inputs on the uptrend again in recent months and channel inventory
still higher than normal in a highly competitive landscape, the outlook on
operating margins appears cloudy. The management has guided for
margins to hover in the present range of 13.5-14% in the near term. Thus,
we revise our earlier estimates, expecting HMCL to clock 13.8% and 14.0%
EBITDA margins in FY20E and FY21E, respectively.
Valuation & Outlook
At HMCL we expect volumes, sales, PAT to grow at a CAGR of 4.4%, 11.5%
and 7.0% in FY19-21E, with EBITDA margins seen recovering at a slower
pace than earlier anticipated. Single digit volume growth coupled with a
decline in margin trajectory will keep PAT growth under check. Hence, we
downgrade the stock from BUY to HOLD. We now value HMCL at | 2700 i.e.
14x FY21E EPS of | 194/share. We retain our constructive view on the
company courtesy its inexpensive valuations but await signs of volume and
margin revival, before any meaningful stance in our stance, going forward.
On the B/S front, HMCL remains a cash surplus company clocking 25% RoEs
and offers a dividend yield of ~3.5%.
Key Financials FY17 FY18 FY19 FY20E FY21E CAGR (FY19-21E)
Net Sales 28,475.0 32,230.5 33,650.2 36,977.1 41,810.8 11.5%
EBITDA 4,634.8 5,280.2 4,929.8 5,117.8 5,848.0 8.9%
EBITDA Margins (%) 16.3 16.4 14.7 13.8 14.0
Net Profit 3,377.1 3,697.4 3,384.6 3,419.8 3,872.5 7.0%
EPS (|) 169.1 185.1 169.5 171.2 193.9
P/E 14.8 13.6 14.8 14.7 12.9
RoNW (%) 33.4 31.4 26.5 27.1 27.1
RoCE (%) 44.0 42.4 37.5 38.6 38.6
Key Financial Summary
Source: ICICI Direct Research, Company
Particulars
Particular Amount
Market Capitalization | 50124.7 Crore
Total Debt (FY19) | 0 Crore
Cash & Investments (FY19) | 4834.2 Crore
EV | 45290.5 Crore
52 week H/L (|) 3819 / 2517
Equity capital (| crore) 39.9
Face value | 2
Key Highlights
Company disappoints on the
margins front, clocking 13.6% as
against usual 14.5-15.0% trajectory
Muted management commentary
on industry volume growth
prospects (5-7% YoY) and company
margins
Subdued outlook reflects in
relatively inexpensive
valuations
Assign HOLD rating with target
price of | 2,700c
Research Analyst
Shashank Kanodia, CFA
shashank.kanodia@icicisecurities.com
Jaimin Desai
jaimin.desai@icicisecurities.com
ICICI Securities | Retail Research 2
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Exhibit 1: Variance Analysis
Source: Company, ICICI Direct Research
Exhibit 2: Change in estimates
Source: Company, ICICI Direct Research
Exhibit 3: Assumptions
Source: Company, ICICI Direct Research
Q4FY19 Q4FY19E Q4FY18 YoY (%) Q3FY19 QoQ (%) Comments
Total Operating Income 7,885 7,788 8,564 -7.9 7,865 0.3Net sales came in higher primarily tracking higher ASPs as volume de-
growth for the quarter was 11% on a YoY basis
Raw Material Expenses 5,439 5,335 5,793 -6.1 5,415 0.4 RM costs came in higher than our estimates
Employee Expenses 447 389 381 17.4 436 2.7
Other expenses 930 911 1,020 -8.8 910 2.2Other expenses came in higher primarily tracking higher incentives for
retail sales
Operating Profit (EBITDA) 1,069 1,153 1,371 -22.0 1,105 -3.2
EBITDA Margins (%) 13.6 14.8 16.0 -62 bps 14.0 -37 bpsMargins for the quarter were the lowest in the last 16 quarters. All
expenses came in higher than our estimates
Other Income 164 143 167 -1.4 188 -12.5
Interest 2.2 1.5 1.5 42.2 2.2 1.4
Depreciation 150.2 152.2 148.3 1.3 151.8 -1.1 Depreciation came in on expected lines
PBT after Exceptional Items 1,080.8 1,141.7 1,387.2 -22.1 1,138.4 -5.1
Total Tax 350.8 372.2 419.8 -16.4 369.3 -5.0 Tax rate came in steady at 32.5%
PAT 730.0 769.5 967.4 -24.5 769.1 -5.1
EPS (Adjusted) 36.6 38.5 48.4 -24.5 38.5 -5.1 PAT for the quarter came in lower by 25% YoY
Key Metrics
Motorcycle volumes ('000s) 1,623.4 1,623.4 1,767.4 -8.1 1,619.2 0.3
Scooter volumes ('000s) 157.8 157.8 234.2 -32.6 179.7 -12.2 Scooter segment volumes continue to be under pressure
Export volumes('000s) 57.4 57.4 72.0 -20.3 45.2 26.9
Net Blended ASP (|/unit) 44,265 43,720 42,787 3.5 43,720 1.2 Blended ASPs came in higher than our estimates by ~| 550/unit
RM/Vehicle (|/unit) 30,532 29,949 28,942 5.5 30,099 1.4
EBITDA/Vehicle (|/unit) 6,043 6,470 7,235 -16.5 6,499 -7.0 EBITDA/vehicle came in lower tracking higher expenses on all fronts
FY21E
(| Crore) Old New % Change Introduced Comments
Revenue 37,989 36,977 -2.7 41,811Introduce FY21 numbers. Lower volume estimates for FY20E primarily tracking
weak demand sentiments
EBITDA 5,871 5,118 -12.8 5,848
EBITDA Margin (%) 15.5 13.8 -161 bps 14.0
Lower margin estimates following management commentary over limited
scope of margin improvement from current levels given muted demand
prospects and stable commodity prices
PAT 3,991 3,420 -14.3 3,872
EPS (|) 199.9 171.2 -14.3 193.9Lower margin estimates lead to sharp 14% decline in PAT estimates for
FY20E. Introduce FY21E numbers
FY20E
Current Earlier Introduced Comments
FY18 FY19P FY20E FY20E FY21E
Motorcycle volumes ('000s) 6,677 7,081 7,525 7,772 7,744
Scooter volumes ('000s) 910 740 762 831 774
Total volumes ('000s) 7,587 7,821 8,287 8,603 8,519
Lower volume estimates for FY20E. Introduce FY21E numbers,
volume growth is expected to be muted in FY21E given sharp price
increase expected in the BS-VI compliant vehicles
Growth (%, YoY) 3% 6% 3%
Export volumes('000s) 180 204 208 242 221
Gross Blended ASP (|/unit) 43,276 43,026 44,619 44,157 49,081 Expect realisations to increase 10% in FY21E (BS-VI compliance)
RM/Vehicle (|/unit) 28,742 29,815 30,837 30,398 33,921
EBITDA/Vehicle (|/unit) 7,325 6,326 6,175 6,825 6,865 Lower margin estimates and consequent decline in EBITDA/vehicle
ICICI Securities | Retail Research 3
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Conference Call Highlights
Management guidance/outlook and demand
The management expects FY20E to be a tale of two halves. H1FY20E is
expected to be flat for the industry while in H2FY20E it is expected to
grow 8-10% YoY on account of BS-VI related pre-buying and onset of
the festive season. Overall industry volume growth for FY20E is seen at
5-7% YoY
Channel inventory situation has improved post sustained industry wide
correction efforts. For HMCL, inventory levels have come down to 45-50
days of retail sales, with further scope of 5-10 days correction
Rural demand continues to suffer from lack of liquidity support but the
situation could improve post Kharif sowing season
On the scooterisation front, the management commentary suggests
scooter segment growth will lag the motorcycle growth in the 2-W
segment due to high penetration of scooters in the urban markets, which
were key drivers of growth in the past. Hence, scooterisation as a trend
seems to have got arrested as of now
Two new products will be launched in May – Maestro Edge (125 cc
scooter segment) and X Pulse (200 cc motorcycle segment)
Sales, costs and margins
The management believes margins may hover around current levels in
the short term
Revenue from parts was at | 791 crore for Q4FY19 and | 2,836 crore for
FY19, up 13% YoY
The company took a price hike of | 100-150/unit during Q4FY19 and then
a further hike of | 300-350/unit in April 2019
Other
HMCL undertook | 800 crore worth of capex in FY19 with | 1,500 crore
earmarked for FY20E, which includes capex related to the Andhra
Pradesh plant, BS-VI production lines and others
A spike in inventory levels adversely impacted the working capital cycle
Financing level increased to 40% in FY19 against 37% in the year ago
period, with Hero Fincorp’s share of financing at 40% for FY19
ICICI Securities | Retail Research 4
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Financial story in charts
Exhibit 4: Growth in revenues
27,585
28,443
28,475
32,230
33,650
36,977
41,811
9.1
3.1
0.1
13.2
4.4
9.9
13.1
(2)
-
2
4
6
8
10
12
14
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
FY15 FY16 FY17 FY18 FY19P FY20E FY21E
(%
)
(| crore)
Net Sales Growth
Source: Company, ICICI Direct Research
Exhibit 5: Product mix
1,401
1,523
1,498
1,410
1,369
1,477
1,402
1,416
1,441
1,527
1,573
1,291
1,444
1,638
1,783
1,489
1,767
1,911
1,927
1,619
1,623
189
192195 238
207169
173 274 281
219 251
183
177
216
240
220
234196 207
180 158
-300
200
700
1,200
1,700
2,200
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
('0
00s)
Motorcycles Scooters
Source: Company, ICICI Direct Research
Exhibit 6: Margins trend
3,542
4,455
4,635
5,280
4,930
5,118
5,848
12.8
15.7 16.3 16.4
14.7
13.8 14.0
-
2
4
6
8
10
12
14
16
18
0
1000
2000
3000
4000
5000
6000
7000
FY15 FY16 FY17 FY18 FY19P FY20E FY21E
(%
)
(| crore)
EBITDA EBITDA Margins (%)
Source: Company, ICICI Direct Research
We expect HMCL’s volumes and revenue to register
CAGR 4.4% and 11.5% respectively over FY19-21E
Scooters formed 10% of HMCL’s domestic volumes
in FY19
On account of cost challenges and muted volume
growth expectations, the recovery from recent
margin dip is expected to be more prolonged than
earlier imagined
ICICI Securities | Retail Research 5
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Exhibit 7: Cost profile breakup
28787
28449
28425
28014
29206
29099
28169
28799
28942
29265
29520
30099
30532
5063
4803
4837
5680
6372
5283
4547
4659
4706
4642
4260
4700
5179
15.7
16.6 17.6
17.0
13.8
16.3
17.4
15.9 16.0
15.6
15.2
14.0 13.6
10
11
12
13
14
15
16
17
18
20000
24000
28000
32000
36000
40000
Q
4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
(%
)
(|)
Raw material costs /unit Other expenses /unit EBITDA Margins (%)
Source: Company, ICICI Direct Research
Exhibit 8: Trend in profitability
2,386
3,160
3,377
3,697
3,385
3,420
3,872
13.1
32.5
6.9
9.5
(8.5)
1.0
13.2
(15)
(10)
(5)
-
5
10
15
20
25
30
35
0
500
1000
1500
2000
2500
3000
3500
4000
4500
FY15 FY16 FY17 FY18 FY19P FY20E FY21E
(%
)
(| crore)
PAT Growth
Source: Company, ICICI Direct Research
Exhibit 9: Negative working capital cycle
2153.5
674.8 2
381.7
3132.5
3501.2
1335.3
3155.2
1,071.7
1,067.9
1,002.2
1,163.6
667.9
750.5
1,500.0
(10.1)
(8.4) (8.9)
(13.2)
(11.0)
5.8
1.5
(15)
(10)
(5)
0
5
100
400
800
1200
1600
2000
2400
2800
3200
3600
4000
FY15 FY16 FY17 FY18 FY19P FY20E FY21E
(days)
(| crore)
FCF Capex Working Capital Cycle
Source: Company, ICICI Direct Research
EBITDA margins are expected to hover around the
current levels in the next few quarters
We expect HMCL to clock 7.0% CAGR in PAT over
FY19-21E
The company’s working capital cycle has
deteriorated in FY19 on account of spike in inventory
levels however the same is expected to recover
going forward
ICICI Securities | Retail Research 6
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Exhibit 10: Return ratios to remain high
53.2
48.7
44.0
42.4
37.1
34.2 35.2
38.8
35.8
33.4
31.4
26.3
24.1 24.7
4.2
3.1
2.7 2.6
2.5 2.5 2.6
2.2
2.7
3.2
3.7
4.2
4.7
20
25
30
35
40
45
50
55
FY15 FY16 FY17 FY18 FY19P FY20E FY21E
(%
)
RoCE RoE Asset turnover
Source: Company, ICICI Direct Research
Exhibit 11: Net debt negative
2,449.6
3,600.5
5,150.9
6,645.6
4,834.2
5,645.6
6,594.7
43.6
54.8 56.5
62.7
39.0
41.8
44.4
20
25
30
35
40
45
50
55
60
65
0
1000
2000
3000
4000
5000
6000
7000
FY15 FY16 FY17 FY16 FY19P FY20E FY21E
(%
)
(| crore)
Cash & Cash Equivalents As % of total assets
Source: Company, ICICI Direct Research
Exhibit 12: Decent dividend payout
65
60 7
2
85 95
87
87 100
61.6
47.2 45.5
50.3 51.3 51.3 50.8
51.6
-
10
20
30
40
50
60
70
30
50
70
90
110
FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E
(|)
(|)
DPS Dividend Payout
`
Source: Company, ICICI Direct Research
Return ratios at HMCL have come off their highs in
recent years however they are expected to remain
north of 25% levels going forward
HMCL remains a debt free, cash rich company
The company has a history of consistent dividend
pay-outs which provides an element of margin of
safety
ICICI Securities | Retail Research 7
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Exhibit 13: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (| cr) (%) (x) (x) (%) (%)
FY18 32,230.5 13.2 185.1 9.5 13.6 8.2 31.4 42.4
FY19P 33,650.2 4.4 169.5 -8.5 14.8 9.2 26.3 37.1
FY20E 36,977.1 9.9 171.2 1.0 14.7 8.7 24.1 34.2
FY21E 41,810.8 13.1 193.9 13.2 12.9 7.4 24.7 35.2
Source: Company, ICICI Direct Research
Exhibit 14: HMCL currently trading at 12.9x FY21E EPS of | 193.9
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
Jan-19
Apr-19
(|)
Price 22x 21x 19x 18x 17x 15x 14x
Source: Bloomberg, ICICI Direct Research
ICICI Securities | Retail Research 8
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Exhibit 15: Recommendation history vs. consensus
0.0
20.0
40.0
60.0
80.0
100.0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Apr-19Jan-19Nov-18Aug-18May-18Feb-18Nov-17Aug-17May-17Feb-17Nov-16Aug-16Jun-16Mar-16
(%
)(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Reuters, ICICI Direct Research
Exhibit 16: Top 10 shareholders
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Hero Group 31-Dec-18 20.4 40.8 0.0
2 Brijmohan Lall Om Prakash Partnership Firm 31-Dec-18 14.0 27.9 0.0
3 LIC Mutual Fund Asset Management Company Ltd. 31-Dec-18 5.2 10.5 -2.4
4 Life Insurance Corporation of India 31-Dec-18 5.2 10.5 2.0
5 OppenheimerFunds, Inc. 28-Feb-19 3.3 6.7 -1.2
6 Templeton Investment Counsel, L.L.C. 31-Mar-19 2.3 4.6 0.3
7 Lazard Asset Management, L.L.C. 31-Mar-19 2.2 4.3 -0.1
8 The Vanguard Group, Inc. 31-Mar-19 1.7 3.4 0.0
9 Aberdeen Standard Investments (Asia) Limited 31-Mar-19 1.6 3.3 -0.1
10 SBI Funds Management Pvt. Ltd. 31-Dec-17 1.6 3.2 0.5
Source: Reuters, ICICI Direct Research
Exhibit 17: Recent activity
Investor name Value Shares Investor name Value Shares
Westwood Global Investments, L.L.C. +108.1M +2.4M LIC Mutual Fund Asset Management Company Ltd. -107.6M -2.4M
Life Insurance Corporation of India +88.2M +2.0M OppenheimerFunds, Inc. -43.1M -1.2M
Carmignac Gestion +11.4M +0.3M HDFC Asset Management Co., Ltd. -8.6M -0.2M
Templeton Investment Counsel, L.L.C. +9.3M +0.3M Carnegie Fonder AB -6.4M -0.2M
Columbia Threadneedle Investments (US) +8.2M +0.2M ICICI Prudential Life Insurance Company Ltd. -7.7M -0.2M
Buys Sells
Source: Reuters, ICICI Direct Research
Exhibit 18: Shareholding pattern
(in %) Mar-18 Jun-18 Sep-18 Dec-18 Mar-19
Promoter 34.6 34.6 34.6 34.6 34.6
FII 42.3 41.9 38.9 40.0 38.2
DII 11.5 12.0 14.8 15.4 16.1
Others 11.5 11.4 11.7 10.1 11.1
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 9
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Financial Summary
Exhibit 19: Profit and loss statement | crore
(Year-end March) FY18 FY19P FY20E FY21E
Total operating Income 32,230.5 33,650.2 36,977.1 41,810.8
Growth (%) 13.2 4.4 9.9 13.1
Raw Material Expenses 21,834.7 23,317.7 25,556.0 28,896.7
Employee Expenses 1,540.1 1,730.2 1,934.6 2,190.4
Other expenses 3,575.5 3,672.5 4,368.7 4,875.6
Total Operating Expenditure 26,950.3 28,720.5 31,859.3 35,962.7
EBITDA 5,280.2 4,929.8 5,117.8 5,848.0
Growth (%) 13.3 -6.6 3.8 14.3
Depreciation 555.6 602.0 610.1 731.7
Interest 6.3 8.6 9.0 9.5
Other Income 525.8 691.3 564.6 626.5
PBT 5,244.2 5,010.4 5,063.2 5,733.4
Total Tax 1,546.8 1,625.9 1,643.4 1,860.9
PAT 3,697.4 3,384.6 3,419.8 3,872.5
Growth (%) 9.5 -8.5 1.0 13.2
EPS (|) 185.1 169.5 171.2 193.9
Source: Company, ICICI Direct Research
Exhibit 20: Cash flow statement | crore
(Year-end March) FY18 FY19P FY20E FY21E
Profit after Tax 3,697.4 3,384.6 3,419.8 3,872.5
Add: Depreciation 555.6 602.0 610.1 731.7
(Inc)/dec in Current Assets -340.1 -1,696.4 104.8 -615.3
Inc/(dec) in CL and Provisions 250.0 -213.0 511.5 606.8
CF from operating activities 4,162.8 2,077.2 4,646.2 4,595.6
(Inc)/dec in Investments -1,490.2 1,806.6 -800.0 -920.0
(Inc)/dec in Fixed Assets -667.9 -789.5 -1,500.0 -1,000.0
Others 39.6 -802.8 -250.0 -250.0
CF from investing activities -2,118.5 214.3 -2,550.0 -2,170.0
Inc/(dec) in loan funds 0.0 0.0 0.0 0.0
Dividend paid & dividend tax -2,276.6 -2,084.9 -2,084.9 -2,396.4
Inc/(dec) in Sec. premium & Others -6.3 -8.6 -9.0 -9.5
CF from financing activities -2,046.0 -2,304.9 -2,093.9 -2,405.9
Net Cash flow 4.5 -4.8 11.3 29.2
Opening Cash 136.8 141.3 136.5 147.8
Closing Cash 141.3 136.5 147.8 177.0
Source: Company, ICICI Direct Research
Exhibit 21: Balance Sheet | crore
(Year-end March) FY18 FY19P FY20E FY21E
Liabilities
Equity Capital 39.9 39.9 39.9 39.9
Reserve and Surplus 11,728.9 12,817.2 14,152.2 15,628.2
Total Shareholders funds 11,768.9 12,857.1 14,192.1 15,668.1
Total Debt 0.0 0.0 0.0 0.0
Deferred Tax Liability 511.7 536.5 536.5 536.5
Others 114.9 117.2 117.2 117.2
Total Liabilities 12,395.5 13,510.8 14,845.8 16,322.0
Assets
Gross Block 7,405.1 7,998.8 8,748.8 10,498.8
Less: Acc Depreciation 2,919.3 3,521.3 4,131.4 4,863.1
Net Block 4,485.9 4,477.5 4,617.4 5,635.7
Capital WIP 203.8 360.7 1,110.7 360.7
Total Fixed Assets 4,689.7 4,838.2 5,728.0 5,996.3
Investments 7,525.2 5,968.6 7,018.6 8,188.6
Inventory 823.6 1,072.4 1,165.0 1,317.3
Debtors 1,520.2 2,821.6 2,532.7 2,863.8
Loans and Advances 27.6 25.0 28.2 31.9
Cash 141.3 136.5 147.8 177.0
Total Current Assets 2,912.4 3,257.0 4,948.6 4,855.2
Creditors 3,318.8 3,355.3 3,545.7 4,009.3
Provisions 59.8 59.0 62.4 70.5
Total Current Liabilities 4,093.3 4,343.3 4,130.4 4,641.8
Net Current Assets -1,181.0 -1,086.3 818.3 213.4
Application of Funds 12,395.5 13,510.8 14,845.8 16,322.0
Source: Company, ICICI Direct Research
Exhibit 22: Key ratios
(Year-end March) FY18 FY19P FY20E FY21E
Per share data (|)
EPS 185.1 169.5 171.2 193.9
Cash EPS 213.0 199.6 201.8 230.6
BV 589.3 643.8 710.7 784.6
DPS 85.0 95.0 87.0 87.0
Cash Per Share 7.1 6.8 7.4 8.9
Operating Ratios (%)
EBITDA Margin 16.4 14.7 13.8 14.0
PBT / Net sales 14.7 12.9 12.2 12.2
PAT Margin 8.3 8.6 11.1 11.9
Inventory days 9.3 11.6 11.5 11.5
Debtor days 17.2 30.6 25.0 25.0
Creditor days 37.6 36.4 35.0 35.0
Return Ratios (%)
RoE 31.4 26.3 24.1 24.7
RoCE 42.4 37.1 34.2 35.2
RoIC 93.7 62.5 66.4 62.8
Valuation Ratios (x)
P/E 13.6 14.8 14.7 12.9
EV / EBITDA 8.2 9.2 8.7 7.4
Market Cap / Sales 1.6 1.5 1.4 1.2
Price to Book Value 4.3 3.9 3.5 3.2
Solvency Ratios
Current Ratio 0.9 1.3 1.2 1.2
Quick Ratio 0.6 1.0 0.9 0.9
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 10
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
Exhibit 23: ICICI Direct Research coverage universe (Auto & Auto Ancillary)
Sector / Company CMP M Cap
(|) TP(|) Rating (| Cr) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E
Amara Raja (AMARAJ) 665 630 Hold 11356 27.6 29.8 34.8 24.3 22.5 19.2 12.8 11.5 10.0 23.3 22.1 22.4 16.0 15.2 15.5
Apollo Tyre (APOTYR) 207 225 Buy 11844 12.7 14.2 22.5 15.8 14.1 8.9 6.7 6.7 5.7 7.8 9.1 11.0 7.4 9.1 11.1
Ashok Leyland (ASHLEY) 87 85 Hold 25480 5.3 6.4 7.8 16.3 13.6 11.2 7.3 6.6 5.0 28.1 28.2 31.9 21.9 23.2 24.3
Bajaj Auto (BAAUTO) 2987 2380 Hold 86438 140.6 149.7 167.2 17.8 16.7 14.9 11.9 11.3 9.3 22.9 21.1 21.7 21.5 20.3 20.2
Balkrishna Ind. (BALIND) 921 820 Hold 17804 38.2 42.5 49.8 21.1 18.9 16.2 14.2 11.6 9.5 22.4 21.0 22.4 18.1 21.0 22.4
Bharat Forge (BHAFOR) 700 535 Buy 32590 16.2 23.5 27.6 29.0 20.0 17.0 13.9 11.5 9.9 18.2 21.1 23.3 17.3 20.8 21.4
Bosch (MICO) 18000 17565 Hold 54938 449.1 545.6 622.9 40.4 33.2 29.1 25.1 22.4 18.9 14.4 14.9 15.2 21.4 22.2 22.6
Eicher Motors (EICMOT) 30000 21250 Hold 55539 718.9 848.4 1112.9 27.2 24.6 18.9 19.0 16.7 12.3 39.1 34.6 35.3 29.9 26.0 26.4
Escorts (ESCORT) 732 700 Hold 8967 28.1 40.7 44.1 23.8 16.5 15.2 14.2 10.6 9.3 18.8 20.9 20.8 13.5 16.5 15.3
Exide Industries (EXIIND) 214 235 Hold 18211 8.2 8.5 9.6 28.4 24.0 23.4 15.2 13.8 12.3 19.1 18.0 18.7 13.0 12.4 12.9
Hero Moto (HERHON) 2510 2700 Hold 50125 185.1 169.5 171.2 13.6 14.8 14.7 8.2 9.2 8.7 42.4 37.1 34.2 31.4 26.3 24.1
JK Tyre & Ind (JKIND) 87 82 Hold 1973 2.9 10.0 22.0 3.9 8.6 3.9 9.2 5.8 4.1 7.7 12.2 16.1 3.6 12.9 19.2
Mahindra CIE (MAHAUT) 228 275 Buy 8623 14.5 17.0 19.1 16.6 14.1 12.6 9.4 7.5 6.5 12.8 13.2 13.0 13.2 15.5 16.2
Maruti Suzuki (MARUTI) 6900 5815 Sell 202394 255.6 248.3 256.3 27.0 27.8 26.9 14.5 15.8 14.4 21.1 16.3 15.9 18.5 16.3 15.2
Motherson (MOTSUM) 142 125 Hold 44858 5.1 5.3 7.0 25.7 24.5 18.6 9.3 8.5 6.8 16.3 15.2 18.0 17.4 15.7 18.0
Tata Motors (TELCO) 215 145 Hold 63973 26.8 -83.4 16.6 5.6 NA 9.1 2.4 3.3 2.6 9.1 5.1 9.9 10.3 5.9 12.6
Wabco India (WABTVS) 6257 7000 Hold 11868 143.8 172.2 212.3 46.9 39.2 31.8 30.4 26.2 20.8 17.9 17.8 18.2 25.1 25.7 26.0
RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)
Source: Reuters, ICICI Direct Research
ICICI Securities | Retail Research 11
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ICICI Securities | Retail Research 12
ICICI Direct Research Result Update | Hero MotoCorp (HERHON)
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