1QFY2018 Result Update | Automobile
July 27, 2017
Hero MotoCorp
ACCUMULATE
CMP
`3,718
Performance Highlights
Target Price
`4,130
Y/E March (` cr)
1QFY18
1QFY17
% chg (yoy) 4QFY17
% chg (qoq)
Investment Period
12 Months
Net Sales
7,972
7,399
7.7
6,915
15.3
Stock Info
EBITDA
1,296
1,230
5.4
958
35.3
Sector
Automobile
EBITDA margin (%)
16.3
16.6
-37 bps
13.8
241 bps
Market Cap (` cr)
74,242
Adj PAT
914
883
3.5
718
27.3
Net Debt (` cr)
(136)
Source: Company, Angel Research
Beta
1.0
Result meeting consensus estimates: Hero Motocorp’s (HMCL) Q1FY18 number to
52 Week High / Low
3,880/2,844
a great extent, meet the consensus estimates. Net sales were at `7,972cr, up
Avg. Daily Volume
54,516
7.7% yoy. EBITDA was at `1,296cr up 5.4% yoy and PAT was at `914cr, up 3.5%
Face Value (`)
2
yoy. Consensus estimates of revenue, EBITDA and PAT were `8,053cr, `1,280cr and
BSE Sensex
32,382
`912cr. HMCL’s performance looks better than quarterly performance of Bajaj
Nifty
10,021
Auto’s with margins maintained and growth in revenue and PAT.
Reuters Code
HROM.BO
Margins decline: Though Gross margins were maintained above 32%, on yoy
Bloomberg Code
[email protected]
basis there was a decline of 56bps. Sequentially gross margins increased by
82bps. The price hike taken by the company in May-2017, helped it to maintain
Shareholding Pattern (%)
the gross margins above 32%. EBITDA margins were at 16.3% in 1QFY18 vs.
Promoters
34.6
16.6% in 1QFY17 and 13.8% in 4QFY17. The margin declined due to 11% yoy
MF / Banks / Indian Fls
11.5
increase in the staff costs.
FII / NRIs / OCBs
42.9
Realization improves slightly, contribution declines: Net realizations improved
Indian Public / Others
10.9
1.4% to `43,005 per vehicle form `42,391 in 1QFY17. Contribution per vehicle
however has declined by 0.3% yoy to `13,905 in 1QFY18 vs. `13,942 in
4QFY17 due to the higher RM and Employee costs.
Abs. (%)
3m 1yr 3yr
Sensex
7.0
15.2
24.0
Outlook and valuation: Company expects to aggressively gain market share to
Hero MotoCorp
12.0
15.5
46.3
consolidate its position. We expect CAGR of ~14%/11% in the sales/PAT over
next two years. The company expects ~100bps decline in margins due to the
expiry of excise benefits at Haridwar plant. The stock, at CMP, trades at 18x of
FY19E earnings. We value the stock at 20x of FY19E earrings due to slightly
3-year price chart
better growth outlook. We derive price target of `4,130 with accumulate rating.
5000
Key financials (Standalone)
4000
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
3000
Net Sales
28,203
28,170
32,239
36,878
2000
% chg
3.1
(0.1)
14.4
14.4
1000
Net Profit
3,160
3,377
3,682
4,123
% chg
32.5
6.9
9.0
12.0
0
OPM (%)
15.7
16.3
16.0
15.6
EPS (Rs)
158.2
169.1
184.4
206.5
P/E (x)
23.5
22.0
20.2
18.0
Source: Company, Angel Research
P/BV (x)
8.4
7.4
6.3
5.5
RoE (%)
33.1
30.4
31.3
30.7
RoCE (%)
42.8
37.9
39.4
38.4
EV/Sales (x)
2.5
2.4
2.1
1.8
Shrikant Akolkar
EV/EBITDA (x)
16.5
15.8
13.0
11.4
022-3935 7800 Ext: 6846
Source: Company, Angel Research; Note: CMP as of July 26, 2017
[email protected]
Please refer to important disclosures at the end of this report
1
Hero MotoCorp | 1QFY2018 Result Update
Exhibit 1: Quarterly financial performance (Standalone)
Y/E March (` cr)
1QFY18
1QFY17
% chg (yoy)
4QFY17
% chg (qoq)
Total units sold
1,853,647
1,745,389
6.2
1,621,805
14.3
Net sales
7,972
7,399
7.7
6,915
15.3
Consumption of RM
5,394
4,965
8.6
4,736
13.9
(% of Sales)
67.7
67.1
68.5
Staff costs
374
336
11.1
328
13.9
(% of Sales)
4.7
4.5
4.7
Other expenses
908
867
4.7
893
1.6
(% of Sales)
11.4
11.7
12.9
Total Expenditure
6,676
6,169
8.2
5,958
12.1
Operating Profit
1,296
1,230
5.4
958
35.3
OPM
16.3
16.6
13.8
Depreciation
133
115
15.4
135
(1.7)
Other income
132
120
9.4
118
11.4
Finance cost
2
2
5.3
1
6.8
PBT (excl. Extr. Items)
1,293
1,234
4.8
939
37.7
Extr. Income/(Expense)
0.00
0.00
0.00
PBT (incl. Extr. Items)
1,293
1,234
4.8
939
37.7
(% of Sales)
16.2
16.7
13.6
Tax
379
351
8.1
221
71.3
(% of PBT)
29.3
28.4
23.6
Reported PAT
914
883
3.5
718
27.3
Adj PAT
914
883
3.5
718
27.3
Adj. PATM
11.5
11.9
10.4
Equity capital (cr)
40
40
40
Adjusted EPS (`)
45.8
44.2
3.5
35.9
27.3
Source: Company, Angel Research
Total volumes were at 18.54 lakh vehicles, up 6.20 % yoy. On sequential
basis, volumes grew by 14.3%.
Net realization stood at `43,005 per vehicle vs. `42,391 in 1QFY17 and
`42,639 in 4QFY17.
This is second consecutive quarter that company has seen yoy decline in the
contribution per vehicle which stood at `13,905 per vehicle against `13,942
in 1QFY17.
EBITDA came in at `1,296cr vs. 1,230cr in 1QFY17.
EBITDA margins declined by 37bps on yoy basis and improved by ~241bps
on qoq basis. Gross margins declined to 32.3% vs. 32.9% in 1QFY17. This is
mainly due to the increase in the raw material prices.
Net profit increased by 3.5% yoy from `883cr to `914cr.
July 27, 2017
2
Hero MotoCorp | 1QFY2018 Result Update
Exhibit 2: Volume growth at 6% yoy and 14% qoq
Exhibit 3: Realisations & contribution/vehicle trend
2,000,000
20
44,000
16,000
15
1,800,000
42,000
10
14,000
1,600,000
5
40,000
0
1,400,000
12,000
-5
38,000
1,200,000
-10
1,000,000
-15
36,000
10,000
Volumes
yoy growth (%)
Net realization (`)
Contribution / Vehicle (`)
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 4: EBITDA margins decline yoy
Exhibit 5: PAT up 3.5% yoy
1,600
20.0
1,200
14.0
1,400
12.0
1,000
1,200
15.0
10.0
800
1,000
8.0
800
10.0
600
6.0
600
400
4.0
400
5.0
200
2.0
200
0
0.0
0
0.0
EBITDA (`cr)
EBITDA margins (%)
Net profit (`cr)
Net margin (%)
Source: Company, Angel Research
Source: Company, Angel Research
Conference call - Key highlights
Company expects to outperform the industry growth in FY18. Management
expects the industry to grow at higher single digit growth rate in this fiscal.
Long term margin guidance is at 14-15%. Capex for FY18 and FY19E
expected to be `2500cr. This will be spend on expansion of existing facility at
Gujarat and new facility in Andhra Pradesh. The capex also includes provision
for up-gradation of its existing plants.
Company has indicated that the expiry Excise benefits at Haridwar plant in
March-2018 can impact margins by ~100bps; this however would partially
get offset by the tax incentives and higher volumes at newly commissioned
Halol plant. More clarity on the Haridwar plant is awaited from the govt.
While urban demand was strong, company expects rural demand to catch up
with good monsoon.
Spare part revenue grew by 5% yoy in the quarter and near term pick up is
expected.
July 27, 2017
3
Hero MotoCorp | 1QFY2018 Result Update
Company took a price hike in May-17 of about 800-1000per unit to pass on
the increase in the RM prices however with GST implementation, it also offered
discounts on the mass selling models.
Investment arguments
Strong recovery in the domestic vehicle demand: While the industry saw three
back to back disruptions in FY17 and early FY18 due to demonetisation, BSIV
and GST, the demand for 2W domestic automobile demand is expected to
remain strong in FY18E with growth rate in the high single digits. The lower
interest rates, government’s focus on rural economy and normal monsoon this
year is expected to improve the demand for 2Ws.
Hero Motocorp well positioned to gain from improving demand: Hero
Motocorp (HMCL) is a well established brand and commands more than
36.9% market share in the domestic 2W market. It has a wide range of brands
from entry level to high end motorbikes. It also has strong presence in scooters
segment and it is a well recognized in brand in rural area. This is expected to
benefit HMCL gong ahead.
Several growth drives in place: After company has commissioned the
Vadodara and Bangladesh facilities, its total installed capacity has reached
~9.4 million units. It also has a global spare parts facility at Neemrana. As a
result of its capacity expansion, we believe that HMCL remains well positioned
to meet future demand and we believe that going ahead company also will
derive good degree of operating leverage. While in the domestic market,
company remains in top gear to improve its performance. HMCL is expecting
to aggressively gain the market share and consolidate its position in the
domestic market. Company has lined up about half a dozen new product
launches in FY18 and expects them to do well. In the exports too, company is
looking to ramp up its business and has entered two large two wheeler
markets, Nigeria and Argentina. This takes its exposure to 35 countries.
Outlook and valuation
Company expects to aggressively gain market share to consolidate its position. We
expect CAGR of ~14%/11% in the sales/PAT over next two years. The company
expects ~100bps decline in margins due to the expiry of excise benefits at
Haridwar plant. The stock, at CMP, trades at 18x of FY19E earnings. We value the
stock at 20x of FY19E earrings due to slightly better growth outlook. We derive
price target of `4,130 with accumulate rating.
Exhibit 6: Key assumptions - Volumes
Y/E March
FY2014
FY2015
FY2016E
FY2017E
FY2018E
FY2019E
Total two-wheelers
6,245,960
6,631,826
6,632,322
6,664,240
7,438,824
8,407,975
Source: Company, Angel Research
July 27, 2017
4
Hero MotoCorp | 1QFY2018 Result Update
Company background
Hero MotoCorp (HMCL) is a leading 2W manufacturer globally and the market
leader in the domestic motorcycle segment. HMCL has five manufacturing facilities
located in India, and one each in Columbia and Bangladesh. Together it has a
capacity of ~9.4mn units/year as of June-2017. Over 2010-17, HMCL recorded a
volume CAGR of ~5%, backed by its strong brands (Passion and Splendor) and
over 6,000 customer touch points including dealership network across rural as well
urban areas.
July 27, 2017
5
Hero MotoCorp | 1QFY2018 Result Update
Profit and loss statement (Standalone)
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
Total operating income
28,203
28,170
32,239
36,878
% chg
3.1
(0.1)
14.4
14.4
Total Expenditure
23,988
23,840
27,068
31,119
Cost of Materials
19,310
19,012
21,574
24,796
Personnel
1,316
1,396
1,607
1,836
Others Expenses
3,362
3,432
3,887
4,487
EBITDA
4,216
4,329
5,171
5,759
% chg
25.8
4.0
11.6
11.4
(% of Net Sales)
14.9
15.4
16.0
15.6
Depreciation& Amortisation
438
493
540
602
EBIT
3,778
3,837
4,631
5,157
% chg
36.5
1.6
20.7
11.4
(% of Net Sales)
13.4
13.6
14.4
14.0
Interest & other Charges
5
6
6
6
Other Income
422
522
544
627
(% of PBT)
10.1
12.0
10.5
10.8
Recurring PBT
4,195
4,353
5,169
5,778
% chg
29.1
3.8
18.8
11.8
Prior Period & Extraordinary Expense/(Inc.)
-
-
-
-
PBT (reported)
4,195
4,353
5,169
5,778
Tax
1,275
1,281
1,488
1,655
(% of PBT)
30.4
29.4
28.8
28.6
PAT (reported)
2,921
3,072
3,682
4,123
Add: Share of earnings of associate
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
PAT after MI (reported)
2,921
3,072
3,682
4,123
ADJ. PAT
2,921
3,072
3,682
4,123
% chg
32.5
6.9
9.0
12.0
(% of Net Sales)
10.4
10.9
11.4
11.2
Basic EPS (`)
158.2
169.1
184.4
206.5
Fully Diluted EPS (`)
158.2
169.1
184.4
206.5
% chg
32.5
6.9
9.0
12.0
July 27, 2017
6
Hero MotoCorp | 1QFY2018 Result Update
Balance sheet statement (Standalone)
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
SOURCES OF FUNDS
Equity Share Capital
40
40
40
40
Reserves& Surplus
8,794
10,071
11,728
13,377
Shareholders’ Funds
8,834
10,111
11,768
13,417
Minority Interest
-
-
-
-
Total Loans
-
-
-
-
Deferred Tax Liability
280
477
477
477
Other Liabilities
68
75
75
75
Total Liabilities
9,182
10,663
12,320
13,969
APPLICATION OF FUNDS
Gross Block
9,126
10,377
11,677
12,877
Less: Acc. Depreciation
5,542
5,982
6,522
7,124
Net Block
3,584
4,396
5,155
5,754
Capital Work-in-Progress
605
465
365
265
Investments
4,581
5,890
5,890
5,890
Current Assets
3,802
3,944
5,654
7,567
Inventories
673
656
883
909
Sundry Debtors
1,283
1,562
1,502
1,718
Cash
131
137
1,238
2,617
Loans & Advances
595
557
806
922
Other Assets
1,120
1,031
1,225
1,401
Current liabilities
3,448
4,093
4,806
5,569
Net Current Assets
354
(150)
848
1,998
Deferred Tax Asset
58
62
62
62
Mis. Exp. not written off
-
-
-
-
Total Assets
9,182
10,663
12,320
13,969
July 27, 2017
7
Hero MotoCorp | 1QFY2018 Result Update
Cash flow statement (Standalone)
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
Profit before tax
3,160
3,377
5,169
5,778
Depreciation
438
493
540
602
Change in Working Capital
377
421
104
228
Interest / Dividend (Net)
(170)
(193)
6
6
Direct taxes paid
(1,103)
(1,186)
(1,488)
(1,655)
Others
1,148
1,116
-
-
Cash Flow from Operations
3,849
4,028
4,332
4,959
(Inc.)/ Dec. in Fixed Assets
0
0
(1,200)
(1,100)
(Inc.)/ Dec. in Investments
(2,206)
(1,944)
-
-
Cash Flow from Investing
(2,206)
(1,944)
(1,200)
(1,100)
Issue of Equity
1
1
-
-
Inc./(Dec.) in loans
0
0
0
0
Dividend Paid (Incl. Tax)
(1,398)
(1,737)
(2,025)
(2,474)
Interest / Dividend (Net)
(274)
(343)
(6)
(6)
Cash Flow from Financing
(1,671)
(2,079)
(2,031)
(2,480)
Inc./(Dec.) in Cash
(28)
5
1,101
1,379
Opening Cash balances
159
131
137
1,238
Closing Cash balances
131
137
1,238
2,617
July 27, 2017
8
Hero MotoCorp | 1QFY2018 Result Update
Key ratios
Y/E March
FY2016
FY2017
FY2018E
FY2019E
Valuation Ratio (x)
P/E (on FDEPS)
23.5
22.0
20.2
18.0
P/CEPS
20.6
19.2
17.6
15.7
P/BV
8.4
7.4
6.3
5.5
Dividend yield (%)
1.9
2.3
2.7
3.3
EV/Sales
2.5
2.4
2.1
1.8
EV/EBITDA
16.5
15.8
13.0
11.4
EV / Total Assets
5.5
4.6
3.9
3.4
Per Share Data (`)
EPS (Basic)
158.2
169.1
184.4
206.5
EPS (fully diluted)
158.2
169.1
184.4
206.5
Cash EPS
180.2
193.8
211.4
236.6
DPS
72.0
85.0
101.4
123.9
Book Value
440.4
504.3
587.3
669.9
Returns (%)
ROCE
42.8
37.9
39.4
38.4
Angel ROIC (Pre-tax)
107.4
106.0
108.3
111.0
ROE
33.1
30.4
31.3
30.7
Turnover ratios (x)
Asset Turnover (Gross Block)
3.1
2.7
2.8
2.9
Inventory / Sales (days)
9
9
10
9
Receivables (days)
17
20
17
17
Payables (days)
36
45
40
41
WC cycle (ex-cash) (days)
(11)
(16)
(13)
(15)
July 27, 2017
9
Hero MotoCorp | 1QFY2018 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
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Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel has received in-principal approval
from SEBI for registering as a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014. Angel or its associates has not
been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its associates
including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by
Analyst. Angel or its associates/analyst has not received any compensation / managed or co-managed public offering of securities of
the company covered by Analyst during the past twelve months. Angel/analyst has not served as an officer, director or employee of
company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
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Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
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
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15%)
July 27, 2017
10