Hero MotoCorp Ltd fundamental

Dear investor,

Please find below mentioned short term fundamental stock for delivery purpose.

 

Company	CMP	Target	BSE Code	NSE Code
Hero MotoCorp Ltd.	2,681	2,850	500182 EROMOTOCO

 

Fundamental :-

• Market Cap:  53,556 Cr.
• Current Price:  2,681
• 52 weeks High / Low  3022.90 / 1475.00
• Book Value:  721.25
• Stock P/E: 16.76
• Dividend Yield: 3.36 %
• ROCE: 39.04 %
• ROE: 26.70 %
• Sales Growth (3Yrs): 6.08 %
• Listed on BSE and NSE
• Company Website
• Face Value:  2.00

• PEG Ratio: 1.40
• Promoter holding: 34.77 %
• Pledged percentage: 0.00 %
• Debt:  450.98 Cr.
• Price to Earning: 16.82
• EPS:  182.59
• Net profit:  3,638 Cr.
• Profit growth: -7.23 %
• Profit growth 7Years: %
• Net profit preceding 12months: 3,805 Cr.
• Profit growth 3Years: 3.58 %
• Dividend yield: 3.35 %
• Debt to equity: 0.03
• Sales last year:  33,971 Cr.
• Sales growth: -13.89 %
• Unpledged promoter holding: 34.77 %
• Investments:  8,359 Cr.
• Intrinsic Value:  4,088

Hero MotoCorp (HMCL) is the dominant market leader in India – the world’s largest two-wheeler market – with over 51% share in the domestic motorcycle market. Along with traditional bike segment, it also has a presence in the domestic scooter market, with five models in its portfolio. HMCL was initially promoted as a joint venture company (both promoters holding 26% equity each) in January 1984 by Hero Cycles Limited and Honda Motor Company (HMC), Japan. In January 2011, the Hero Group and HMC entered into a share transfer agreement, wherein HMC agreed to transfer its entire shareholding of 26% to the Hero Group. The current managing director, Dr. Pawan Munjal has been heading the company for last 18 years; under his able leadership HMCL achieved title of World’s No.1 two-wheeler company in 2001 and continues to sustain the tag till date. Promoter stake is 34.6% as of March 2020 and Company’s market cap is Rs53,760 cr.
 

Investment rationale
 

R&D transformation bearing fruits: Hero ramped up its spend on R&D after parting ways with Honda (2x of its prime competitor in last 5 years). New, advanced and appealing product range is a testimony to the robust Research and Development (R&D) capabilities of CIT that was commenced in 2016. CIT has helped reduce lead times for new product development by 25%. We believe HMCL is on the right path to achieve its medium term strategy on account of its transformation on R&D.
 

Premium & Scooter segment to drive growth: ~50% of customers in the premium segment are below the age of 25. Hero is keen to make inroads into this segment with the launch of the Xtreme 160, which appeals to the youth. Rising number of female commuters along with youth is driving the growth in 125cc scooter segment (25% growth for FY19). One can foresee that the new product line at HMCL is likely to improve its market share in premium and scooter segment. Also, India as a developing economy with huge growth potential has a bottom-of-the-pyramid and low-end working population that is likely to transition into the middle class segment fuelling HMCL’s traditional business segments with rapid growth in demand for exciting new bikes.
 

Ample liquidity to combat pandemic effect: During the recent concall, company management has expressed their views that it is difficult to predict the timeline for demand revival yet they are confident that pent-up demand is likely to come and dealers are likely to benefit from positive announcements of RBI over EMI deferrals. Company is continuing its plan on launching new products and capex with no alterations. Rural sentiments are likely to revive from hereon led by better monsoons. Management is confident of sailing through the impact of pandemic on account of ample liquidity (Rs5,000 cr) on balance sheet and a sustained strategy aimed at catching up on sales.
 

Attractive Valuation: While there is little to doubt that volumes may remain subdued in the near term, pent-up demand is very likely to effervesce thereafter on account of normal monsoon prediction and transition to BS VI. In the past 5 years company’s topline and bottomline has grown at a CAGR of 6.1% & 12% respectively. Company has a healthy balance sheet with cash & cash equivalent of Rs5,000+ cr and generates healthy return ratio (ROE of around 25%+). At current price, the stock is trading at 15.8x of its 1-yr forward earnings.

Duration of recommendation: Short to Medium term.
 

Best Regards,