Technology

The demonetisation has impacted HMCL’s volumes
sharply with decline in all parameters. Company expects the volumes growth to
remain challenging in 4QFY17E and expects high single digit volume growth in
FY18E. As automobile industry recovers, HMCL looks to be better positioned due
to its higher market share in the motorcycle segment. The company also has rural
exposure and as budget sets tone for higher rural spending, HMCL is likely to
benefit. Company has lost ~50bps market share in the scooter segment. We
forecast 6.8% and 9.5% volume growth in FY18E and FY19E. We also forecast
top line and bottom line CAGR of 8.5% and 8.9% over FY17E-FY19E. Company
has indicated of ~50-60bps margin expansion in FY18E which is likely to take the
operating margins at 17% post which we don’t see any lever for expansion. The
stock, at CMP, trades at 17.3x and 15.8x of FY18E and FY19E EPS respectively.
We value the stock at 17x of FY19E earrings to arrive at a price target of Rs3,466.

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