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Analyst Research Report Snapshot


Hero Motocorp (HMCL) - Qtr. Update - Dated - October 23, 2013




Axis Capital Limited


24 Oct 2013





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Hero’s Q2 EBIDTA at Rs 8.3 bn and PAT at Rs 4.8 bn were in line with our estimates but ahead of consensus. Higher spare part sales in the quarter led to marginal beat in revenue. Management indicated YTD retail sales are up 7% (H1 dispatches up 1%) and demand in H2 is likely to remain strong. We have factored in 5% volume growth in H2. We recently downgraded our rating to SELL as we believe (1) optimism on strong rural demand and margin expansion over FY14-16 is overdone and (2) the Street is underestimating the impact of Honda’s Dream Yuga on Hero’s market share (refer our report Not an impregnable fortress dated 21st Oct 2013). Our TP of Rs 1,883 implies downside of 10% from CMP of Rs 2,088. Other highlights  Inventory is 3 weeks based on expected festive sales  New launches: Hero will launch 15 new vehicles/ refreshes in H2FY14. All new platform (including new engines) will be launches in CY14  Rural sales account for 47% of total sales vs. 45% two years ago for Hero. For industry, rural sales account for 40% of total sales. YTD retail sales are up by 7% (5% in urban and 9% in rural)  Prices hiked by Rs 500/unit to Rs 1,500/unit from October. This would partially offset the cost pressures  Currency impact on imports is with a lag of a quarter. Q3 to witness impact of Q2 Regards, Chirag Shah (Sr VP – Automobiles) Institutional Equity Research Axis Capital Ltd. Tel: 9122 4325 1148

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