INSUBCONTINENT EXCLUSIVE:
ICICI Securities has given a buy rating to Hero MotoCorp with a target price of Rs 2,501
rural exposure.
The management has allayed fears on BS-VI transition
The BS-IV inventory liquidation is largely complete and around 12,000 units are to be recalled in the NCR region
The BS-VI dealer inventory is for one month
Amidst COVID-19 lockdown, the current focus of the management is on maintaining health precautions and developing contingencies around
possible supply chain issues
cent from its previous close of Rs 1639.65
The last traded price is Rs 1,571
Incorporated in 1984, Hero MotoCorp has a market cap of Rs 32740.28 crore.
Investment RationaleThe company has already launched 95 per cent
of its portfolio on BS-VI platform and is currently holding over a month of inventory
BS-VI products would have better fuel efficiency and a price differential of Rs 6,000-8,000 compared to BS-IV units
There will also be benefits from lower commodity basket prices in FY21 as production resumes.
Post Covid-19 outbreak, revival could take
longer for high-ticket discretionary purchases
The brokerage believes the need for safer/affordable non-public transport mobility could aid revival in demand for two-wheelers in rural
markets (due to better agricultural cash flow via better rabi/kharif harvest)
Hero MotoCorp is expected to benefit from better rural recovery due to high motorcycle market share in key rural states
Volume growth momentum could improve from H2FY21
Meanwhile, the recent stock price correction provides a good entry opportunity to investors
The brokerage maintains a buy rating at a target multiple of 14 times FY22E EPS with a target price of Rs 2,501.
FinancialsFor the quarter
ended December 31, 2019, the company reported consolidated sales of Rs 7074.53 crore, down -7.65 per cent from last quarter sales of Rs
7660.27 crore and down -10.87 per cent from last year's same quarter sales of Rs 7936.88 crore
The company reported net profit after tax of Rs 880.13 crore in the latest quarter.