11 HEROMOTOCO share price target reports by brokerages below. See what is analyst's view on HEROMOTOCO share price forecast, rating, estimates, valuation and prediction behind the target. You may use these research report forecasts for long-term to medium term for your investment or trades in 2020.
We continue to like HMCL for its market leadership in pockets that are expected to recover quicker once Covid-19 effect subsides and for its robust financials [debt free B/S, healthy return ratios, strong cash generation (present FCF yield ~8%)]. However, a sharp stock price run up in the recent past places HMCL near its long period average valuation parameters. We value HMCL at Rs 2,500 (17x P/E on FY22E EPS of | 147.6) and assign HOLD.
HMCL’s Q4FY20 performance was in-line with revenue/EBITDA/PBT while margins came in lower at 10.6% (-300bps YoY, PLe 11.4%) led by contraction in gross margins, negative operating leverage and higher dealer support to clear off BS4 inventory. Management hinted for better than expected pickup in retails on the back of improved rural sentiments (~50% of HMCL sales), pent up demand, likely down trading and shift to personal mobility trend. We cut FY21 EPS by 3% as we cut volumes by 2.5% while we maintain FY22 EPS. We maintain ‘Accumulate’ with a price target of Rs2,444 (earlier Rs2,225) based on 13x Mar’22 EPS (earlier 12x, ~25% discount to 5 year LPA) and Rs162 for NBFC (v/s ~Rs150) to factor in better retails and NBFC performance.
We visited HMCL’s global R&D center and have interacted with senior management (Link) where they re-iterated focus on premium motorcycles (short term), and exports (medium to long term) for next leg of growth. HMCL broadened its premium motorcycle entry through the launch of Xtreme 160 while it launched BS6 variants of Passion pro and Glamour motorcycles with price increase of ~10-14%. HMCL also emphasized on its EV preparedness with commercial launch of EV 2W in 2021. The CIT (R&D unit) has shortened new product development time by ~25% HMCL. We believe while HMCL remain a strong franchise in motorcycle segment, it lagged to seize domestic scooter and exports opportunities. Strong focus on these segments going forward and impending rural recovery led by healthy sentiments should help HMCL outpace competition. We therefore maintain accumulate rating on the stock with price target of Rs2,769 (unchanged).
Hero Motocorp’s (HMCL) strong operating performance was driven by lower commodity prices and cost-saving initiatives. BS6 led the volume weakness (op. lev) and rising RM costs should drag margins over the next 2-3 quarters. We marginally upgrade our EPS estimates, but maintain Neutral rating with TP of ~INR2,690 (~14x Dec’21E EPS + INR100/share for Hero FinCorp).
We expect sales, PAT to grow at a CAGR of 12.9%, 8.4%, respectively, over FY20E-22E. Muted outlook on demand and margins leads us to trim our forward estimates. However, we retain our positive stance on HMCL given its status as India’s largest motorcycle and 2-W player, relatively inexpensive valuations and excellent B/S strength. HMCL remains a debt free, cash surplus company with best-in-class return ratios (10 year average RoCE ~43%) and a generous dividend payer (present dividend yield at ~4.5%). We value HMCL at Rs 2,800 (14x P/E on FY22E EPS of Rs 200) & maintain BUY.
Hero MotoCorp’s Q3FY20 performance were better, with EBITDA margins at 14.8% (+80bp YoY/ +30bp QoQ, PLe: 14.8%) led by gross margin expansion due to RM, cost control benefits and higher spare sales. Management hinted for better H2FY21 on the back of improved rural sentiments should aid sales (>50% of HMCL sales). Unlike general perception, HMCL’s inventory has also come down to ~6 weeks as of 3QFY20 and ~5 weeks by Jan-20. HMCL also managed to pass complete BS6 cost increase in launches it has done so-far. We believe, margin accretion led by inventory correction (~20-30bp) to get reverse in the coming quarters. Also, RM headwinds led by increase in precious metal prices (~4-5% of RM basket) will be partially offset by continued cost control benefits. We therefore factor in stable margins at - 13.5% for FY21/22E respectively. We maintain ‘Accumulate’ with a price target of Rs2,769 (earlier Rs2,740) based on 14x Dec’22 EPS (~20% discount to 10 year LPA). We cut FY21/22 EPS by 3% each to factor in mix impact.
Q2 witnessed demand deceleration on weak consumer sentiments, financing issues and higher pricing related with ABS implementation. However, with some green shoots seen in rural demand by the end of the quarter, we believe the festive demand will see some uptick, first on the retail side followed by wholesale. Inventory levels are also coming down comfortably as a result of higher promotional initiatives. Bountiful monsoon is expected to have a positive impact on rural demand from November as Rabi crop output is expected to be healthy. BS VI pre-buying, low base and good monsoons are expected to reduce the current uncertainty in demand. Margins may remain in similar range as H1 in H2 as well, as higher promotional expenses related with BS IV inventory may negate the impact of soft RM prices. We expect an improvement in margins in FY21 as pent up demand will have result in operating leverage. Reduction in corporate tax along with improved outlook on volumes leads us to raise our estimates and target price. Maintain BUY with a target of ₹2,975.
Promotions in the quarter were tad higher YoY mainly in the form of various financing deals and hence finance penetration increased from 37% to 46% in the quarter sequentially. We are still uncertain on any recovery post festivals and unsure of any major pre-buying if demand sentiments don’t improve. But we believe that there are better chances of revival due to low base effect and on the expectation of better Rabi output. This could drive rural sales and Hero can benefit from it. But at the same time, the BS6 cost increase will be higher in proportion for the commuter segment and destruction in demand in FY21 would affect Hero more than its peers. Hence, we continue to estimate - 2% volume CAGR for FY19-22 and we have not changed our estimates. We expect 5% earnings CAGR for the same period, driven by lower tax rate. We value Hero at 15x FY21E EPS, which is a 10% discount to its long-term average as we expect lower earnings growth in our forecasted period. Our target price is unchanged at Rs2,812 and we maintain our Accumulate rating.
In view of ongoing slowdown, we lower our volume estimates by 11%/8% and revenues by 9%/7% for FY20E/FY21E. However, we expect lower margin fall than our earlier expectation, therefore, we reduce our EBIDTA estimates by 8%/6% for FY20E/FY21E. Factoring new tax rate, we increase our EPS estimates by 5%/1% for FY20E/FY21E. We introduce our FY22E estimates and roll forward our valuation to FY22E. In view of expected rural revival in FY21E, company’s strong market share position to capitalise demand recovery and valuation comfort, we remain positive and reiterate our BUY recommendation on HMCL with a revised TP of Rs3,050 (from Rs2,500), valuing it at 14x FY22E EPS.
Going forward, we expect sales & PAT to grow at a CAGR of 3.4% and 3.9%, respectively, in FY19-21E. Volumes are seen de-growing by 3.5% in this time to 72.8 lakh units while margins are seen consolidating at ~14%. HMCL possess a healthy balance sheet (debt free, cash surplus), realises industry leading return ratios (three year average RoIC at 50%+) and is generous with its dividend payouts with present dividend yield at ~3.5%. Hence, we have a BUY rating on the stock. We value HMCL at | 3,110 i.e. 17x P/E on FY21E EPS of | 183. We are also enthused by HMCL’s ~34% stake in Ather Energy(leading electric 2-W in south India) which helps mitigate the EV risk to its existing business model. We also derive comfort from healthy cash flow generation at HMCL with CFO yield placed at 8%
The increase in BSVI related cost is expected to be higher in the economy and executive segment as a percentage and hence there is a very good chance of pre-buying this year. Also, if sentiment does not improve next year, we expect customers to down-trade towards the economy segment and hence Hero could be a key beneficiary. We reiterate our Buy rating with a target price (TP) of Rs2,607. Under normal monsoons and lower prebuying ahead of BSVI are the key risks to our rating.
Valuations and recommendations: At CMP of Rs2,259 stock is quoting at 11.4xFY21 core earnings. Although near term volume growth outlook for HMCL remains challenging, we remain upbeat on its medium term growth prospects given its competitive advantages like strong brand and distribution network. Also HMCL is in a superior position to benefit from rural economic recovery post decent monsoon. It is a debt-free, cash-rich entity with 35%+ average ROE. We retain our BUY rating on the stock with a revised price target of Rs 2,747 (Auto business PER of 14xFY21E+ Rs92 Associates Value). We reduce our target PER multiple from 15x to 14x to factor in current slowdown in the business.
Earnings declining trend to sustain in FY2020; Retain Hold: The 2W industry’s demand is likely to remain under pressure due to weak consumer sentiments and higher inventory. We expect the 2W industry to decline in FY2020. Declining volumes would lead to negative operating leverage, which coupled with higher competitive intensity would lead to earnings drop in FY2020. We have reduced our FY2020 estimates by 10% to account for volume slowdown and accelerated depreciation charges. FY2021 estimates have been cut by 5%. We retain our Hold rating on the stock with a revised price target (PT) of Rs. 2,550.
1QFY20 operating performance was a beat as margins at 14.4% were up +90bps QoQ on improved cost management. Amidst an uncertain environment, Hero is addressing white spaces in its portfolio and upgrading its existing products. Re-iterate BUY, with a TP of Rs 2,875 (16x FY21 EPS).
From the pricing perspective, full pass-on of the BS6 cost increase might still be challenging. We, factor in volume growth of -1.5% / 3.4% and stable margins at -14% for FY20/21E respectively. Over the coming quarters, for incremental market share gains and improved profitability, success of new launches in the premium (200cc) motorcycle and scooter (125cc) segments would be key for the company. We maintain ‘Accumulate’ with a price target of Rs2,530 based on 14x Mar’21 EPS (~20% discount to 10 year LPA).
We expect near term growth challenges, however normal monsoons and pre buying ahead of BS VI is expected to boost demand from festival season. We maintain ‘Accumulate’ with a price target of Rs2,784 based on 16x Mar’21 EPS. Deterioration in demand post BS VI pre buying is a key risk to our call.
Hero – upping the ante in the premium segment: Hero has launched a range of premium 200cc bikes as it addresses white spaces in its portfolio. The OEM has been practically absent from the premium segment, post its split with Honda in 2010. The new launches reflect Hero’s commitment to gain market share in the high end segment, which accounts for ~20% of the overall motorbike market. By offering a complete portfolio, Hero will be better able to withstand competition as other OEM’s have been increasing competitive intensity in the entry level segment. Also, these launches will enable the market leader to retain market share at 50% in the overall bike segment, in our view. The stock is trading at an attractive valuation of 14.2x on FY20E and it offers a dividend yield of ~3.4%. At this valuation, the risk reward is favorable. We have a BUY rating on the stock, with a TP of Rs 3,080 (16x FY21 EPS).
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 Rs 2700 i.e. 14x FY21E EPS of Rs 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%.
Given the increase in cost on account of the BS6 emission norms coming in April 2020 and already poor demand environment, we feel that FY21 will be a very challenging year for the industry in terms of volumes as well as profitability (difficult to pass on full cost increase). We, thus, factor in volume growth of 5% / 2% for FY20/21E respectively. Over the longer run, for incremental market share gains and improved profitability, success of new launches in the premium (200cc) motorcycle and scooter (125cc) segments would be key for the company. We maintain ‘Accumulate’ with a price target of Rs2,784 based on 16x Mar’21 EPS. At the current price, the stock is trading at 14.7x FY20E and 14.5x FY21E EPS.
Cut estimates to factor earnings pressure; earnings growth to be muted 1% over FY19-21; Retain Hold with PT of Rs. 2,800: Given subdued outlook for the 2W industry and margin pressures, we have cut our FY2020 earnings by 6%. We have introduced FY2021 estimates in this report. Hero’s earnings growth is expected to be muted 1% CAGR over the next two years. We retain our Hold rating on the stock with an unchanged price target (PT) of Rs. 2,800, as we rollover our target multiple on FY2021 earnings.
Hero’s 4Q results were inline with estimates at the operating level – the EBITDA came in at Rs 10.7bn, with a reported margin of 13.6%. Higher tax led to a PAT miss (-25% YoY, -5% QoQ). With a full year dividend of Rs 87 (~3.3% yield) and steady market share, our BUY stands. Our TP is Rs 3,080 (at 16x FY21E EPS), with estimates falling by ~4%.
Over FY2014-18, company posted a sales and net profit CAGR of 6.5% and 17.1% respectively. Volume growth during the period was 5.0%. Over FY2018-20E, the company is expected to post a CAGR of 7.8%, aided by a 7.0% CAGR in volume terms. On net profit front, we expect the company to deliver a flattish performance during the period, as we expect the margins to be under pressure. The stock, has on the other hand has witnessed, a strong de-rating and trades now at 3.7xFY2020 BV (including cash & investments). Given that, the industry is a high ROIC Industry with few dominant players, the stocks downside is protected to certain extent. However, to protect a further de- rating the company has to exhibit all the characteristics of a defensive nature, which implies that its R&D efforts have to fructify and aid company fortify the leadership position. At current juncture, the Two-wheeler market is clearly divided between Hero motors, Honda, TVS motors & Bajaj Auto. While the latter two players are trying to hold onto the market-share, with exports & pricing strategy Hero Motors is trying to get in lines of the players like Honda. Thus, we believe that R&D efforts of the company have to be delivery before this de-rating can be arrested. Company expects its R&D efforts to be clearly visible in next 4-5 years. However, given that the company’s has a strong cash on balance sheet and high ROE of business, enables higher dividend payout, we believe that further underperformance from here on should be restricted from here-on, even for long-term buyers. Hence, we recommend a HOLD.
SOURCE: Data from D'Market via Quandl. Intraday data delayed 15 minutes.
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