Hero Moto Corp, 1Q FY 2014

7/27/2019 Hero Moto Corp, 1Q FY 2014

1/14

Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq)Net Sales 6,160 6,247 (1.4) 6,146 0.2EBITDA 915 937 (2.3) 850 7.7

EBITDA margin (%) 14.9 15.0 (14)bp 13.8 103bp

Adj. PAT 549 615 (10.9) 574 (4.5)Source: Company, Angel Research

Hero MotoCorp (HMCL) reported a mixed set of results for 1QFY2014. While theEBITDA margin surprised positively, driven by lower ad spends, top-line andbottom-line were marginally below our estimates. The top-line missed estimatesdue to lower-than-expected growth in net average realization, while the bottom-line was impacted by a higher tax rate. HMCL registered a strong growth of 7-8%in retail sales, though the wholesale volumes declined by 5% yoy, indicating thatthe company managed to clear some of its inventory. According to theManagement, volume growth should revive in 2HFY2014 driven by bettermonsoons and also due to festival demand. The company expects operatingmargins to improve 400-500bp over the next 12-15 months on back of the costreduction initiatives that the company has undertaken. Additionally, HMCL intendsto launch at least eight-ten new products (mostly refreshes and variants) inFY2014, scheduled around the festive season. We expect a modest volume CAGRof ~7% over FY2013-15 due to increasing competition, however, profitability isset to improve gradually driven by easing of commodity prices, favorable currencyand cost control efforts. We maintain our Accumulate rating on the stock.Strong operating performance: HMCLs top-line recorded a decline of 1.4% yoy(flat qoq) to `6,160cr, which was marginally lower than our estimate of `6,290cr.The top-line was impacted largely on account of a 4.9% yoy decline in volumesled by slowdown in demand and stiffer competition from Honda Motors andScooters India. Nevertheless, net average realization surged 3.8% yoy, led byprice increases which mitigated the impact of volume decline to some extent.EBITDA margins surprised positively and jumped 103bp qoq (flat yoy) to 14.9%,ahead of our expectation of 14.1%, driven by a 10% qoq decline in otherexpenditure. This was primarily on account of the lower ad spends and cost controlefforts. The net profit reported a sharp decline of 10.9% yoy to `549cr, marginallybelow our estimate of `568cr, largely on account of a higher tax rate (26.9% asagainst expectation of 22.5%) due to expiration of tax benefits at the Haridwar plant.

Outlook and valuation:At `1,829, the stock is trading at 12.5x FY2015E earnings.We maintain our Accumulate rating on the stock with a target price of `2,048,valuing the stock at 14x FY2015 earnings.

Key financials (Standalone)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet Sales 23,579 23,768 25,562 28,297% chg 21.6 0.8 7.5 10.7

Net Profit 2,378 2,118 2,220 2,922% chg 18.4 (10.9) 4.8 31.6

EBITDA margin (%) 15.3 13.8 14.5 14.4

Adj. EBITDA margin* (%) 11.9 10.4 11.5 13.8EPS (`) 119.1 106.1 111.2 146.3P/E (x) 15.4 17.2 16.5 12.5

P/BV (x) 8.5 7.3 6.0 4.7

RoE (%) 65.6 45.6 40.1 42.1RoCE (%) 49.2 38.9 43.0 47.0

EV/Sales (x) 1.4 1.4 1.2 1.0

EV/EBITDA (x) 8.9 10.0 8.4 7.2Source: Company, Angel Research; Note: * OPM adjusted for change in treatment of royaltycosts; CMP as of July 25, 2013

ACCUMULATECMP `1,829

Target Price `2,048

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code HMCL@IN

Shareholding Pattern (%)

Promoters 52.2

MF / Banks / Indian Fls 10.7

FII / NRIs / OCBs 30.0

Indian Public / Others 7.1

Abs. (%) 3m 1yr 3yr

Sensex 2.1 17.6 9.2

Hero MotoCorp 12.9 10.0 (6.2)

19,805

5,908

HROM.BO

BSE Sensex

Nifty

Reuters Code

Face Value (`)

Automobile

Market Cap (` cr)

Beta

52 Week High / Low

36,527

0.6

2,063/1,434

31,974

2

Avg. Daily Volume

Net Debt (` cr) (3,743)

Yaresh Kothari022-3935 7800 Ext: 6844

[email protected]

Hero MotoCorpPerformance Highlights

1QFY2014 Result Update | Automobile

July 26, 2013


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Hero MotoCorp | 1QFY2014 Result Update

July 26, 2013 2

Exhibit 1:Quarterly financial performance (Standalone)Y/E March (` cr) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)Net Sales 6,160 6,247 (1.4) 6,146 0.2 23,768 23,579 0.8Consumption of RM 4,456 4,603 (3.2) 4,440 0.4 17,398 17,282 0.7

(% of Sales) 72.3 73.7 72.2 73.2 73.3

Staff Costs 222 205 8.2 226 (1.9) 821 736 11.6

(% of Sales) 3.6 3.3 3.7 3.5 3.1

Other Expenses 567 503 12.7 631 (10.0) 2,265 1,943 16.6

(% of Sales) 9.2 8.1 10.3 9.5 8.2

Total Expenditure 5,244 5,310 (1.2) 5,296 (1.0) 20,484 19,960 2.6Operating Profit 915 937 (2.3) 850 7.7 3,284 3,619 (9.2)OPM (%) 14.9 15.0 13.8 13.8 15.3

Interest 3 3 0.7 3 (3.9) 12 21 (44.1)

Depreciation 274 303 (9.6) 266 3.3 1,142 1,097 4.0

Other Income 112 104 7.5 105 7.4 398 365 9.3

PBT (excl. Extr. Items) 750 735 2.1 686 9.4 2,529 2,865 (11.7)Extr. Income/(Expense) - - - - - -

PBT (incl. Extr. Items) 750 735 2.1 686 9.4 2,529 2,865 (11.7)(% of Sales) 12.2 11.8 11.2 10.6 12.1

Provision for Taxation 202 119 68.8 111 80.8 411 487 (15.5)

(% of PBT) 26.9 16.3 16.3 16.3 17.0

Reported PAT 549 615 (10.9) 574 (4.5) 2,118 2,378 (10.9)Adj PAT 549 615 (10.9) 574 (4.5) 2,118 2,378 (10.9)

Adj. PATM 8.9 9.9 9.3 8.9 10.1

Equity capital (cr) 39.9 39.9 39.9 39.9 39.9

Reported EPS (`) 27.5 30.8 (10.9) 28.8 (4.5) 106.1 119.1 (10.9)Source: Company, Angel Research

Exhibit 2:1QFY2014 Actual vs Angel estimatesY/E March (` cr) Actual Estimates Variation (%)Net Sales 6,160 6,291 (2.1)EBITDA 915 888 3.0

EBITDA margin (%) 14.9 14.1 74bp

Adj. PAT 549 568 (3.4)Source: Company, Angel Research

Exhibit 3:Quarterly volume performance(units) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)Total two-wheelers 1,559,282 1,640,290 (4.9) 1,527,351 2.1 6,073,581 6,235,205 (2.6)Domestic 1,527,980 1,595,625 (4.2) 1,488,167 2.7 5,912,538 6,042,902 (2.2)

Exports 31,302 44,665 (29.9) 39,184 (20.1) 161,043 192,303 (16.3)

Motorcycles 1,393,686 1,520,954 (8.4) 1,364,020 2.2 5,499,245 5,779,621 (4.9)Domestic 1,364,546 1,486,654 (8.2) 1,331,283 2.5 5,362,730 5,628,513 (4.7)

Exports 29,140 34,300 (15.0) 32,737 (11.0) 136,515 151,108 (9.7)

Scooters 165,596 119,336 38.8 163,331 1.4 574,336 455,584 26.1Domestic 163,434 108,971 50.0 156,884 4.2 549,808 414,389 32.7

Exports 2,162 10,365 (79.1) 6,447 (66.5) 24,528 41,195 (40.5)Source: Company, Angel Research


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July 26, 2013 3

Top-line performance led by growth in net average realization: For 1QFY2014,HMCLs top-line recorded a decline of 1.4% yoy (flat qoq) to `6,160cr which was

marginally lower than our estimates of `6,290cr on account of lower-than-

expected growth in net average realization. The top-line was impacted largely dueto the 5% yoy decline in total volumes led by slowdown in demand and higher

competition from Honda Motors and Scooters India. While scooters continued with

their strong sales momentum (growth of 38.8% yoy and 1.4% qoq) driven by the

successful launch of the Maestro and easing of capacity constraints, motorcycle

sales posted a decline of 8.4% yoy. However on a sequential basis, motorcycle

sales grew 2.2% led by the marriage season in North India. Nevertheless, net

average realization surged by 3.8% yoy, largely led by price increases and a better

product-mix (higher share of scooters in the mix) which mitigated the impact of

volume decline to some extent. The company took a price increase of `500-

`1,500/ motorcycle (around 2%) in April 2013.

Exhibit 4:Volumes continue to slide downwards

Source: Company, Angel Research

Exhibit 5:Net average realization up 3.8% yoy


Exhibit 6:Net sales down 1.4% yoy


Exhibit 7:Domestic market share trend

Source: Company, SIAM, Angel Research

EBITDA margin surprises positively: HMCLs operating performance surprisedpositively as the EBITDA margin expanded 103bp qoq to 14.9%. This was ahead

of our expectations of 14.1% and was driven by a 10% qoq decline in other

expenditure, which was on account of lower advertising expenditure and also due

to the ongoing cost control efforts. On a yoy basis, margins remained broadly flat

as the positive impact of softening of commodity prices (supported further by

depreciation of the Yen) was mitigated by an increase in other expenditure

1,5

29,5

77

1,5

44,3

15

1,5

89,2

76

1,5

72,0

27

1,6

40,2

90

1,3

32,8

05

1,5

73,1

35

1,5

27,3

51

1,5

59,2

82

23.920.1

11.38.1 7.2

(13.7) (1.0) (2.8) (4.9)

(20.0)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(units) Total volume yoy growth (RHS)

36,8

58

37,4

56

37,6

50

37,9

29

37,8

46

38,6

49

39,1

02

39,7

58

39,2

93

6.7 6.8

5.0

3.12.7

3.23.9

4.8

3.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

35,000

35,500

36,000

36,500

37,000

37,500

38,000

38,500

39,000

39,500

40,000

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

(%)(`) Net average realisation/unit yoy growth (RHS)

5,6

82

5,8

26

6,0

31

6,0

35

6,2

47

5,1

87

6,1

88

6,1

46

6,1

60

32.228.0

16.9

11.910.0

(11.0)

2.61.8 (1.4)

(15.0)

(10.0)

(5.0)

0.05.0

10.0

15.0

20.0

25.0

30.0

35.0

0

1,000

2,0003,000

4,000

5,000

6,000

7,000

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(`cr) Net sales (LHS) yoy change (RHS)

18.314.7 15.8 16.4 15.9

17.5 20.6 21.1 20.8

56.4 54.8 56.1 56.1 56.5

50.0 51.954.0 54.1

46.744.0 45.2 44.4 45.3

39.842.5 43.5 43.8

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%) Scooter Motor-cycle Total 2-wheeler


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July 26, 2013 4

(increase in power, freight and transportations costs). Thus the operating profit

declined 2.3% yoy (up 7.7% qoq) to `915cr. For HMCL, indirect imports account

for ~9.5% of net sales, half of which are denominated in Yen. Direct imports form

~5.5% of net sales, however, they are denominated mostly in US$.

Exhibit 8:EBITDA margins surprises positively


Exhibit 9:Bottom-line impacted by higher tax-rate


Higher tax rate impacts bottom-line: Net profit for the quarter reported a sharpdecline of 10.9% yoy (4.5% qoq) to `549cr, marginally below our estimates of

`568cr. This was primarily on account of the higher tax rate (26.9% as against

expectations of 22.5%) due to the expiration of tax benefits at the Haridwar plant

(tax benefits reduced to 30% from 100% until FY2013). An additional surcharge of

10% announced during the union budget too increased the tax rate according to

the companys Management.

14.6 15.7 15.6 15.3 15.0 13.9 12.6 13.8 14.9

75.3 73.0 73.4 74.1 73.7 73.2 74.5 72.2 72.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%) EBITDA margin Raw material cost/sales

558

604

613

604

615

441

488

574

549

9.810.4 10.2 10.0 9.9

8.57.9

9.38.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

100

200

300

400

500

600

700

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(`cr) Net profit (LH S) Net profit margin (RHS)


5/14


July 26, 2013 5

Conference call Key highlights

The Management expects the domestic two-wheeler industry to grow at a rateof 6-8% in FY2014 driven by better monsoons and festival demand. However,

the company believes that the long term growth for the two-wheeler industry

should be in the range of 10-12% as penetration remains relatively low

(~50% in urban India and ~30% in rural India).

Although the wholesale volumes for HMCL declined 5% yoy, the retail salesincreased by 7-8% during the quarter driven by the marriage season in North

India.

According to the Management, the five year warranty scheme announced bythe company has been received well by the market.

Net average realizations declined 1.8% qoq, despite the price hikes taken inApril 2013, owing to a weaker product mix (larger share of entry level

motorcycles as compared to premium motorcycles).

HMCL currently pays royalty on Ignitor, Impulse, Passion XPro, and Maestroand it does not exceed 5% of net sales.

Imports constitute ~15% of net sales, of which direct imports (USDdenominated) form 5.5%, while indirect imports (50% Yen denominated) form

9.5%. HMCL compensates its vendors with a lag of one quarter.

HMCL has undertaken an intensive cost reduction initiative and expectsbenefits of 400-500bp in operating margins over the next 12-15 months.

Around 70% of the royalty payments (Yen denominated) due to Honda forFY2014 have been hedged. The USD-INR leg of the transaction however,

remains unhedged.

The company expanded its reach in FY2013 by adding 500 touch points toincrease its tally to 5,500 touch points at the end of FY2013. The company

expects to add about 500 more touch points in FY2014.

The new plant at Rajasthan with an installed capacity of 0.75mn will beoperational by 4QFY2014. Post the expansion, the total installed capacity will

increase to 7.7mn units. The company plans to increase the total capacity to

9mn units by the end of FY2015.

The Management indicated that R&D expenses amounted to ~0.4% of netsales in FY2013. HMCL expects R&D cost to inch upwards and expects it to

reach 1-1.25% of net sales going ahead.

HMCL has floated a financing subsidiary to finance its vehicles. The sharecapital of the company stands at `200cr currently and will increase to

`1,000cr by FY2017. HMCL holds ~40% stake in the financing subsidiary.

The company expects the book size of the financial subsidiary to reach

`5,000cr by FY2017.

Tax rates stood higher at 26.9% due to the lower tax benefits from theHaridwar plant. An additional surcharge of 10% levied in the Union Budget


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July 26, 2013 6

also impacted adversely. The Management indicated that the Haridwar plant

accounts for ~35 of total production.

For 1QFY2014, royalty amortization stood at `202cr (`860cr in FY2013). Exports remained muted in 1QFY2014 due to the poor demand environment

across key markets. During the quarter, HMCL ventured into new international

markets like Central America and Africa and plans to get into Latin American

markets of Peru and Ecuador by August 2013.


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July 26, 2013 7

Investment arguments

Expect the demand scenario to remain moderate; however profitability toimprove gradually: We expect the demand environment to remain subdued in1HFY2014 given that consumer sentiments remain dampened led by macro-

economic concerns and rising fuel and product prices. Nonetheless, better

monsoons and festival demand are expected to revive demand in 2HFY2014.

We expect the company to register an ~7% volume CAGR over FY2013-15.

Further, we expect the companys profitability to improve gradually over the

next few quarters driven by the recent pricing action (price hikes of `500-

`1,500 in April 2013) coupled with continuous depreciation of the Yen (in

addition to royalty, indirect imports account for ~9.5% of net sales, half of

which are JPY denominated). The profitability is set to further improve sharply

once the royalty costs are paid out completely in 1QFY2015.

Capacity expansion to meet future increase in demand:HMCL has a current installed capacity of 7mn units across its three plants in

Haridwar, Dharuhera and Gurgaon. The company is setting up two new

plants in Rajasthan (0.75mn units) and Gujarat (1.5mn units) which will come

on stream in FY2014 and FY2015 respectively, thus taking the overall capacity

to 9.25mn units. As a result of capacity expansion, HMCL remains well-poised

to meet increasing demand going ahead.

Outlook and valuation

We broadly retain our earnings estimates for FY2014/15. HMCL registered a

strong growth of 7-8% in retail sales, though the wholesale volumes declined by

5% yoy, indicating that the company managed to clear some of its inventory.

According to the Management, volume growth should revive in 2HFY2014 driven

by better monsoons and also due to the festival demand. The company expects

operating margins to improve 400-500bp over the next 12-15 months on the back

of the cost reduction initiatives undertaken by it. Additionally, HMCL intends to

launch at least eight-ten new products (mostly refreshes and variants) in FY2014

starting around the festive season. We expect a modest volume CAGR of ~7%

over FY2013-15 due to increasing competition, however, profitability is set to

improve gradually driven by easing of commodity prices, favorable currency andcost control efforts. The profitability is set to further improve sharply once the

royalty costs are paid out completely in 1QFY2015. We expect HMCL to register

an ~18% earnings CAGR over FY2013-15.

Exhibit 10:Change in estimatesY/E March Earlier Estimates Revised Estimates % chg

FY2014E FY2015E FY2014E FY2015E FY2014E FY2015ENet Sales (` cr) 25,298 27,665 25,562 28,297 1.0 2.3OPM (%) 14.1 13.7 14.5 14.4 37bp 71bp

EPS (`) 110.3 140.0 111.2 146.3 0.8 4.5Source: Company, Angel Research


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July 26, 2013 8

At `1,829, the stock is trading at 12.5x FY2015E earnings. We maintain ourAccumulate rating on the stock with a target price of `2,048, valuing the stock at14x FY2015 earnings.

Exhibit 11:Key assumptions - VolumesY/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ETotal motorcycles 4,385,858 5,040,971 5,779,621 5,499,245 5,699,083 6,132,112

Domestic 4,293,991 4,926,390 5,628,513 5,362,730 5,497,936 5,834,922< 125cc 4,055,304 4,589,003 5,303,622 5,165,222 5,320,179 5,639,389

>125cc 238,687 337,387 324,891 197,508 177,757 195,533

Exports 91,867 114,581 151,108 136,515 201,148 297,190< 125cc 82,824 102,524 131,026 122,015 183,023 274,534

>125cc 9,043 12,057 20,082 14,500 18,125 22,656

Total scooters 214,272 361,473 455,584 574,336 676,981 773,450Domestic 208,440 342,991 414,389 549,808 648,773 739,602

Exports 5,832 18,482 41,195 24,528 28,207 33,849

Total two-wheelers 4,600,130 5,402,444 6,235,205 6,073,581 6,376,064 6,905,563Source: Company, Angel Research

Exhibit 12:Angel vs consensus forecastAngel estimates Consensus Variation (%)FY14E FY15E FY14E FY15E FY14E FY15E

Total op. income (` cr) 25,562 28,297 25,453 28,384 0.4 (0.3)EPS (`) 111.2 146.3 109.5 140.1 1.5 4.4

Source: Bloomberg, Angel Research

Exhibit 13:One-year forward P/E band


Exhibit 14:One-year forward P/E chart


0

500

1,000

1,500

2,000

2,500

3,000

Apr-03

Mar-04

Feb-0

5

Jan-0

6

Dec-0

6

Dec-0

7

Nov-0

8

Oct-09

Sep-1

0

Sep-1

1

Aug-1

2

Jul-13

(`) CMP (`) 8x 12x 16x 20x

0

5

10

15

20

25

Apr-02

Mar-03

Feb-0

4

Jan-0

5

Jan-0

6

Dec-0

6

Nov-0

7

Oct-08

Oct-09

Sep-1

0

Aug-1

1

Jul-12

Jul-13

(x) Absolute P/E Five-yr average P/E


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July 26, 2013 9

Exhibit 15:HMCL Premium/Discount to Sensex P/E


Exhibit 16:Two-wheeler stock performance vs Sensex


Exhibit 17:Automobile - Recommendation summaryCompany Reco. CMP(`) Tgt. price(`) Upside(%)

P/E (x) EV/EBITDA (x) RoE (%) FY13-15E EPSFY14E FY15E FY14E FY15E FY14E FY15E CAGR (%)

Ashok Leyland Buy 14 22 57.5 37.1 7.6 5.9 3.6 2.3 11.0 74.4

Bajaj Auto Accumulate 2,003 2,102 5.0 16.8 14.3 11.7 9.6 38.9 36.5 15.4

Hero MotoCorp Accumulate 1,829 2,048 12.0 16.5 12.5 8.4 7.2 40.1 42.1 17.5Maruti Suzuki Buy 1,414 1,648 16.6 14.8 12.9 6.7 5.8 14.5 14.6 17.8

Mahindra &Mahindra

Buy 880 1,103 25.3 13.9 12.4 7.4 6.1 23.2 21.8 13.8

Tata Motors Buy 300 347 15.8 8.3 7.2 4.0 3.4 24.6 23.2 13.8

TVS Motor Accumulate 32 35 9.1 6.4 5.5 2.1 1.5 18.1 18.5 15.3


Company background

Hero MotoCorp (HMCL) is a leading 2W manufacturer globally and the market

leader in the domestic motorcycle segment with an ~54% market share. HMCL

has three manufacturing facilities in India, located at Gurgaon, Dharuhera and

Haridwar, with a total capacity of ~7mn units/year as of FY2013.

Over 2008-13, HMCL recorded a strong volume CAGR of ~13%, backed by its

strong brands (Passion and Splendor) and a well-entrenched dealership network,

which has a good presence across rural areas (account for ~45% of total volumes)

as well.

(80)

(60)

(40)

(20)

0

20

40

60

80

Apr-02

Mar-03

Feb-0

4

Jan-0

5

Jan-0

6

Dec-0

6

Nov-0

7

Oct-08

Oct-09

Sep-1

0

Aug-1

1

Jul-12

Jul-13

(%) Absolute premium Five-yr average premium

0

100

200

300

400

500

600

700

Mar-08

Sep-0

8

Mar-09

Aug-0

9

Feb-1

0

Aug-1

0

Feb-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

TVSL HMCL BJAUT Sensex


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July 26, 2013 10

Profit and loss statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ETotal operating income 15,861 19,398 23,579 23,768 25,562 28,297% chg 28.1 22.3 21.6 0.8 7.5 10.7Total expenditure 13,096 16,785 19,960 20,484 21,856 24,210Net raw material costs 10,736 14,111 17,282 17,398 18,455 20,485

Other mfg costs 225 265 300 355 355 407

Employee expenses 438 619 736 821 900 1,010

Other 1,697 1,790 1,643 1,910 2,146 2,308

EBITDA 2,764 2,613 3,619 3,284 3,707 4,086% chg 58.2 (5.5) 38.5 (9.2) 12.9 10.2

EBITDA margin 17.4 13.5 15.3 13.8 14.5 14.4

Adj. EBITDA margin* 17.4 12.1 11.9 10.4 11.5 13.8

Depreciation & amortization 191 402 1,097 1,142 1,126 600

EBIT 2,573 2,210 2,521 2,143 2,580 3,486% chg 64.2 (14.1) 14.1 (15.0) 20.4 35.1

(% of total op. income) 16.2 11.4 10.7 9.0 10.1 12.3

Interest and other charges 2 15 21 12 13 14

Other income 261 290 365 398 453 503

Recurring PBT 2,832 2,485 2,865 2,529 3,021 3,975% chg 59.0 (12.3) 15.3 (11.7) 19.4 31.6

Extraordinary income/(exp.) - (80) - - - -

PBT 2,832 2,405 2,865 2,529 3,021 3,975Tax 600 477 487 411 800 1,053

(% of PBT) 21.2 19.8 17.0 16.3 26.5 26.5

PAT (reported) 2,232 1,928 2,378 2,118 2,220 2,922ADJ. PAT 2,232 2,008 2,378 2,118 2,220 2,922% chg 74.1 (10.0) 18.4 (10.9) 4.8 31.6

(% of total op. income) 14.1 10.4 10.1 8.9 8.7 10.3

Basic EPS (`) 111.8 100.5 119.1 106.1 111.2 146.3Adj. EPS (`) 111.8 100.5 119.1 106.1 111.2 146.3% chg 74.1 (10.0) 18.4 (10.9) 4.8 31.6

Note: Adj. EBITDA margins are calculated after accounting for royalty costs as a part of operating

expense instead of depreciation expense


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July 26, 2013 11

Balance sheet statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity share capital 40 40 40 40 40 40Reserves & surplus 3,425 2,916 4,250 4,966 6,026 7,788

Shareholders Funds 3,465 2,956 4,290 5,006 6,066 7,828Total loans 66 - - - - -

Deferred tax liability 153 247 208 132 132 132

Other long term liabilities - 1,471 1,011 302 302 302

Long term provisions - 36 38 30 30 30

Total Liabilities 3,684 4,710 5,547 5,471 6,531 8,293APPLICATION OF FUNDSGross block 2,751 5,538 6,308 6,773 7,936 9,135

Less: Acc. depreciation 1,092 1,458 2,523 3,665 4,791 5,391

Net Block 1,659 4,080 3,786 3,109 3,146 3,744Capital work-in-progress 48 50 39 24 61 63

Investments 3,926 5,129 3,964 3,624 4,441 5,639Long term loans and advances - 342 534 780 780 780

Other noncurrent assets - 16 26 36 36 36

Current assets 2,883 1,109 1,541 2,068 2,804 3,190Cash 1,907 72 77 181 1,056 1,287

Loans & advances 431 345 476 554 553 610

Other 545 692 988 1,334 1,195 1,294

Current liabilities 4,831 6,017 4,341 4,171 4,738 5,160

Net current assets (1,949) (4,908) (2,801) (2,102) (1,933) (1,970)Misc. exp. not written off - - - - - -

Total Assets 3,684 4,710 5,547 5,471 6,531 8,293Note: Cash includes cash with scheduled banks on dividend current accounts


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July 26, 2013 12

Cash flow statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 2,832 2,405 2,865 2,529 3,021 3,975

Depreciation 191 402 1,097 1,142 1,126 600Change in working capital 484 185 (691) (594) 705 267

Direct taxes paid (575) (481) (583) (411) (800) (1,053)

Others (245) (257) (329) - - -

Cash Flow from Operations 2,687 2,254 2,360 2,666 4,052 3,789(Inc.)/Dec. in fixed assets (210) (361) (503) (450) (1,200) (1,200)

(Inc.)/Dec. in investments (363) (999) 1,443 (709) (817) (1,198)

Others 45 38 (847) - - -

Cash Flow from Investing (528) (1,322) 93 (1,160) (2,017) (2,398)Issue of equity - - - - - -

Inc./(Dec.) in loans (12) - - - - -

Dividend paid (Incl. Tax) (1,997) (599) (2,097) (1,402) (1,160) (1,160)

Others (100) (356) (361) - - -

Cash Flow from Financing (2,109) (955) (2,458) (1,402) (1,160) (1,160)Inc./(Dec.) in cash 49 (23) (6) 104 875 231

Opening Cash balances 13 63 39 77 181 1,056Closing Cash balances 63 39 34 181 1,056 1,287Note: Closing Cash balances excludes cash with scheduled banks on dividend current accounts


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July 26, 2013 13

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 16.4 18.2 15.4 17.2 16.5 12.5P/CEPS 15.1 15.2 10.5 11.2 10.9 10.4

P/BV 10.5 12.4 8.5 7.3 6.0 4.7

Dividend yield (%) 6.0 5.7 2.5 3.3 2.7 2.7

EV/Sales 1.9 1.6 1.4 1.4 1.2 1.0

EV/EBITDA 11.1 12.0 8.9 10.0 8.4 7.2

EV / Total Assets 8.3 6.6 5.8 6.0 4.8 3.6

Per Share Data (`)EPS (Basic) 111.8 100.5 119.1 106.1 111.2 146.3

EPS (fully diluted) 111.8 100.5 119.1 106.1 111.2 146.3

Cash EPS 121.3 120.7 174.0 163.2 167.6 176.3

DPS 110.0 105.0 45.0 60.0 50.0 50.0

Book Value 173.5 148.0 214.8 250.7 303.8 392.0

Dupont AnalysisEBIT margin 16.2 11.4 10.7 9.0 10.1 12.3

Tax retention ratio 78.8 80.2 83.0 83.7 73.5 73.5

Asset turnover (x) 5.7 6.0 4.7 4.4 4.7 4.5

ROIC (Post-tax) 72.7 55.2 41.4 33.4 35.2 41.1

Cost of Debt (Post Tax) 2.3 36.8 - - - -

Leverage (x) (1.7) (1.8) (0.9) (0.8) (0.9) (0.9)

Operating ROE (44.5) 22.9 - - - -

Returns (%)ROCE (Pre-tax) 66.8 52.7 49.2 38.9 43.0 47.0

Angel ROIC (Pre-tax) 102.5 70.9 51.2 40.6 48.3 56.4

ROE 61.4 62.5 65.6 45.6 40.1 42.1

Turnover ratios (x)Asset Turnover (Gross Block) 6.0 4.7 4.0 3.6 3.5 3.3

Inventory / Sales (days) 9 9 9 10 10 10

Receivables (days) 3 2 3 7 8 6

Payables (days) 25 35 40 38 37 38

WC cycle (ex-cash) (days) (59) (83) (61) (40) (38) (40)

Solvency ratios (x)Net debt to equity (1.7) (1.8) (0.9) (0.8) (0.9) (0.9)

Net debt to EBITDA (2.1) (2.0) (1.1) (1.2) (1.5) (1.7)

Int. Coverage (EBIT / Int.) 1,225.2 145.7 118.4 179.9 201.4 245.9


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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Hero MotoCorp

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

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Hero Moto Corp, 1Q FY 2014

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