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February 1, 2019
ICICI Securities Ltd | Retail Equity Research
Result Update
Mixed Q3, compelling risk-reward play …
Hero MotoCorp (HMCL) reported a mixed Q3FY19 performance
Total 2-W sales volume for the quarter came in at 18.0 lakh units, up
5.3% YoY. Scooter sales volume was at 1.8 lakh units, down 18.4%
YoY. Motorcycle sales volume was at 16.2 lakh units, up 8.8% YoY
Consequent net sales were at | 7,865 crore, up 7.7% YoY, with
blended realisations (ASP) for the quarter amounting to | 43,720/unit
vs. | 42,600/unit in Q2FY19 and | 42,745/unit in Q3FY18
EBITDA in Q3FY19 was at | 1,105 crore, down 4.6% YoY with
corresponding EBITDA margins at 14.0% (vs. | 1,158 crore, 15.9%
YoY). Higher other expenses dented margins sequentially, driven by
higher advertising and promotion (A&P) spends.
Consequent PAT for Q3FY19 was at | 769.1 crore, down 4.5% YoY
The company also announced an interim dividend of | 55/share with
record date for the same fixed at February 12, 2019
Recent blip in volumes, scooters a particular drag!
Despite being the overall 2-W space market leader, HMCL has not been at
the forefront of the trend of scooterisation that has played out in the
industry in the past. While the share of scooters in total 2-W has increased
from ~24% to ~33% in FY14-18, scooter volumes as a proportion of
HMCL’s total volumes have remained largely stagnant at ~12% during
the same time period. As a result of lower growth rates vis-à-vis the
industry, HMCL has seen its scooter market share halve between FY14
and H1FY19 (~19.2% vs. ~10.7%). However, in its core motorcycle
segment, the company has withstood competitive intensity and retained
its market share at ~51-53% from FY13-18. In 9MFY19, the company’s
market share has suffered slightly as a result of not participating in
competitive pricing cuts. However, we view this decision favourably as it
prevents structural deterioration in profitability and returns ratios.
Two-wheelers relative bright spot, HMCL as market leader to benefit!
The 2-W space acts as a barometer for Indian auto industry and drives a
lion’s share of vehicle volumes. In near to medium term, we expect 2-W
space to continue to benefit from farm loan waivers in key states (Madhya
Pradesh, Chhattisgarh, Rajasthan) and possible income support for
farmers. Additional income in the hands of individual tax payers due to
increase in standard deduction announced in Interim Union Budget 2019-
20 is a further positive. HMCL has maintained its position as market leader
in the 2-W space over the years, with market share of ~36-40% & would
be a key beneficiary of any fillip to the 2-W industry.
Safe bet in auto OEM space, lucrative dividend yield, retain BUY!
Hero is a market leader in the domestic 2-W segment with market share at
35%+ and 50%+ in its core (~90% of total volumes) motorcycle
segment. The company has consciously refrained from a price war in the
entry level segment and has itself grown by double digits in this segment,
thereby maintaining the quality of earnings. The 2-W industry, over the
long term, has grown at ~1x GDP growth rate and is expected to do so
over FY20E with HMCL growing in tandem with the industry growth rate.
Going forward, revising our estimates, we now factor in 6.5% CAGR in
volumes, with consequent sales & PAT CAGR expected at 8.6% & 3.9%,
respectively. We value HMCL at | 3,000 i.e. 15x P/E on FY20E EPS of
| 200/share and retain our BUY rating on the stock. We also drive comfort
on HMCL from attractive dividend yield of ~4%, CFO yield of ~8% and
FCF yield of ~6%.
Hero MotoCorp (HERHON) | 2625
Rating matrix
Rating : Buy
Target : | 3000
Target Period : 12 months
Potential Upside : 14%
What’s changed?
Target Changed from | 3350 to | 3000
EPS FY19E Changed from | 186.6 to | 174.5
EPS FY20E Changed from | 209.6 to | 199.9
Rating Unchanged
Quarterly performance
(|Crore) Q3FY19 Q3FY18 YoY Q2FY19 QoQ
Revenues 7,864.8 7,305.5 7.7 9,090.9 -13.5
EBITDA 1,104.8 1,158.0 -4.6 1,378.7 -19.9
EBITDA (%) 14.0 15.9 -62 bps 15.2 -37 bps
Reported PAT 769.1 805.4 -4.5 976.3 -21.2
Key financials
| Crore FY17 FY18 FY19E FY20E
Net Sales 28,475 32,230 34,177 37,989
EBITDA 4,634.8 5,280.2 5,122.5 5,871.3
Net Profit 3,377.1 3,697.4 3,485.5 3,991.4
EPS (|) 169.1 185.1 174.5 199.9
Valuation summary
FY17 FY18 FY19E FY20E
P/E (x) 15.5 14.2 15.0 13.1
Target P/E (x) 17.7 16.2 17.2 15.0
EV/EBITDA (x) 10.2 8.7 9.0 7.7
P/BV (x) 5.2 4.5 4.0 3.6
RoNW (%) 33.4 31.4 26.9 27.4
RoCE (%) 44.0 42.4 38.0 39.0
Stock data
Particular Amount
Market Capitalization (| Crore) | 52421.3 Crore
Total Debt (FY18) (| Crore) | 0 Crore
Cash & Investments (FY18) (| Crore) | 6645.6 Crore
EV (| Crore) | 45775.6 Crore
52 week H/L (|) 3862 / 2562
Equity capital (| crore) 39.9
Face value (|) | 2
Price performance
1M 3M 6M 12M
Bajaj Auto Ltd -8.0 -2.2 -6.5 -25.6
Hero MotoCorp Ltd -16.4 -5.9 -18.7 -29.2
Eicher Motors Ltd -18.2 -10.0 -33.8 -29.1
Research Analyst
Shashank Kanodia, CFA
Jaimin Desai
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q3FY19 Q3FY19E Q3FY18 YoY (%) Q2FY19 QoQ (%) Comments
Total Operating Income 7,865 7,778 7,305 7.7 9,091 -13.5 Revenues came in marginally ahead of our estimates primarily tracking higher-
than-expected ASPs
Raw Material Expenses 5,415 5,390 4,922 10.0 6,300 -14.1
Employee Expenses 436 428 402 8.4 434 0.4
Other expenses 910 836 824 10.5 978 -7.0 Other expenses were a tad higher primarily driven by higher advertisement and
promotion expenses
Operating Profit (EBITDA) 1,105 1,124 1,158 -4.6 1,379 -19.9
EBITDA Margins (%) 14.0 14.5 15.9 -62 bps 15.2 -37 bps Margin came in lower tracking higher other expenses partly compensated by
lower raw material costs
Other Income 188 163 110 70.6 224 -16.1 Other income came in a tad higher
Interest 2.2 1.5 1.6 37.6 2.1 0.9
Depreciation 151.8 149.9 138.3 9.8 151.8 0.0
PBT after Exceptional Items 1,138.4 1,135.6 1,128.2 0.9 1,448.5 -21.4
Total Tax 369.3 370.2 322.7 14.4 472.2 -21.8
PAT 769.1 765.4 805.4 -4.5 976.3 -21.2 PAT was broadly in line with our estimates
EPS (Adjusted) 38.5 38.3 40.3 -4.5 48.9 -21.2
Key Metrics
Motorcycle volumes ('000s) 1,619.2 1,605.6 1,488.8 8.8 1,927.3 -16.0
Motorcycle volume grew a healthy 8.8% YoY primarily driven by growth at the
entry level segment
Scooter volumes ('000s) 179.7 193.2 220.3 -18.4 206.8 -13.1 In scooter segment, sales came in muted
Export volumes('000s) 45.2 43.5 43.6 3.7 59.2 -23.6
Net Blended ASP (|/unit) 43,720 43,239 42,745 2.3 42,600 2.6 Increase in ASPs was the real surprise and was up by | 1120/unit
RM/Vehicle (|/unit) 30,099 29,963 28,799 4.5 29,520 2.0
EBITDA/Vehicle (|/unit) 6,499 6,250 7,576 -14.2 6,785 -4.2
Source: Company, ICICI Direct Research
Change in estimates
(| Crore) Old New % Change Old New % Change Comments
Revenue 35,547 34,177 -3.9 40,125 37,989 -5.3 Downward revision in volume estimates leads to downward revision in sales
estimates for FY19E & FY20E
EBITDA 5,459 5,122 -6.2 6,240 5,871 -5.9
EBITDA Margin (%) 15.4 15.0 -37 bps 15.6 15.5 -9 bps Revise downward our margin estimates given high competitive intensity in the
marketplace and raw material tailwinds commencing from Q1FY20
PAT 3,726 3,486 -6.5 4,186 3,991 -4.6
EPS (|) 186.6 174.5 -6.5 209.6 199.9 -4.6 Downward revision in sales & margin estimates leads to downward revision in
EPS estimates
FY19E FY20E
Source: Company, ICICI Direct Research
Assumptions
Current Earlier Introduced Comments
FY17 FY18 FY19E FY20E FY19E FY20EFY20E
Motorcycle volumes ('000s) 5,834 6,677 7,194 7,772 7,374 8,061 Revise downward our volume estimates over FY19E, FY20E primarily
tracking higher competition and general softness in demand
Scooter volumes ('000s) 830 910 769 831 926 1,025 The company has underperformed the industry in the scooter segment
despite new product launch in this segment, leading us to have a cautious
outlook on volumes, going forward
Export volumes('000s) 180 204 223 242 232 273
Gross Blended ASP (|/unit) 45,926 43,276 42,917 44,157 42,829 44,164 Broadly maintain ASP estimates for FY19E & FY20E
RM/Vehicle (|/unit) 28,530 28,742 29,687 30,398 29,678 30,606
EBITDA/Vehicle (|/unit) 7,058 7,325 6,445 6,825 6,512 6,868
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 3
Conference Call Highlights
Management outlook/guidance and demand
The management sees Q4FY19E as being better than Q3FY19 for
the industry and expects high single digit YoY growth for FY20E
Retail demand has picked up strongly in the latter half of January
Rural demand is slightly muted due to low sentiment and
subdued Rabi season sowing. However, the management is
hopeful of rural demand recovering by Q1FY20E
The industry has witnessed downward migration from 125 cc
category to 100 cc category due to insurance incidence increase
Scooterisation trend has slowed down on the back of a rise in fuel
costs impacting the relatively lesser fuel efficient segment
HMCL channel inventory levels are at six to eight weeks of sales
Newly launched Destini 125 garnered favourable response,
grabbing 14% market share in the fast growing segment on the
back of traction in multi ownership households and upgrades
from 100 cc products
Future launches Maestro Edge 125 cc scooter and X Pulse
Premium motorcycle are expected to arrive by H1CY19E
Sales, costs & margins
Commodity headwinds are largely behind HMCL with reduction in
input cost pressures to appear with a quarter’s leg
CBS and ABS cost incidence is expected to be to the tune of
~| 500/unit and ~| 5,000/unit, respectively, with both seen as
being margin neutral
ABS acceptance at the customer level would be a work in
progress and is not expected to be absorbed immediately.
HMCL sees A&P spends remaining at the usual run rate of ~2.5%
of sales.
Spare parts revenue registered 5.5% growth YoY from | 692
crore in Q3FY18 to | 730 crore in Q3FY19.
Others
HMCL has appealed against an income tax demand to the tune of
| 2,337 crore for FY11 received during the quarter. The company
expects a favourable judgement on the same and does not
envision any adverse impact on the financials.
Receivables days have increased by 10 days
Half of the product portfolio has already migrated to CBS-ABS
Dealership count has increased to 725
Share of financing has increased from ~37% last year to ~40%,
with the growth even stronger in Hero Fincorp’ s book at 59%
YoY
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Two-wheeler segment, steady growth to sustain, Hero to benefit!!
Despite being the overall 2-W space market leader, HMCL has not been at
the forefront of the trend of Scooterisation that has played out in the
industry in the past. While the share of scooters in total 2-W has increased
from ~24% to ~33% in FY14-18, scooter volumes as a proportion of
HMCL’s total volumes have remained largely stagnant at ~12% during
the same time period. As a result of lower growth rates vis-à-vis the
industry, HMCL has seen its scooter market share halve between FY14
and H1FY19 (~19.2% vs. ~10.1%). However, in its core motorcycle
segment, the company has withstood competitive intensity and retained
its market share at ~51-53% from FY13-18. In 9MFY19, the company’s
market share has suffered slightly as a result of not participating in
competitive pricing cuts. However, we view this decision favourably as it
prevents structural deterioration in profitability and returns ratios.
Exhibit 1: Growth in revenues
25,275
27,585
28,443
28,475
32,230
34,177
37,989
-
9.1
3.1
0.1
13.2
6.0
11.2
(2)
-
2
4
6
8
10
12
14
0
5000
10000
15000
20000
25000
30000
35000
40000
FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(| crore)
Net Sales Growth
Source: Company, ICICI Direct Research
Exhibit 2: Product mix
1,246
1,499
1,401
1,523
1,498
1,410
1,369
1,477
1,402
1,416
1,441
1,527
1,573
1,291
1,444
1,638
1,783
1,489
1,767
1,911
1,927
1,619
172
181189
192 195238
207169
173274 281
219251
183
177
216
240
220
234
196 207
180
-300
200
700
1,200
1,700
2,200
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
('0
00s)
Scooters Motorcycles
Source: Company, ICICI Direct Research
We expect HMCL’s 2-W volumes to grow at a CAGR of 6.5% in FY19E-20E
to 8.6 million units in FY20E (7.6 million units in FY18). Consequently, we
expect revenues to grow at 8.6% CAGR in FY19E-20E to | 37,989 crore in
FY20E (| 32,230 crore in FY18).
ICICI Securities Ltd | Retail Equity Research Page 5
Margin trajectory to gradually softer in FY19E-20E
The margin trajectory is likely to soften a bit, going forward, in FY18-20E.
This is primarily factoring in calibrated price hikes by the company amid
increase in raw material costs due to a substantial hike in steel prices and
intense completion in the marketplace. Going forward, we expect HMCL
to report EBITDA margins of 15.0% in FY19E and 15.5% in FY20 vs. a
high of 16.4% realised in FY18. Consequent, EBITDA growth is likely to
lag sales growth with EBITDA growing at a CAGR of 2.8% in FY19E-20E to
| 5,871 crore in FY20E vs. | 5,280 crore in FY18.
Exhibit 3: Margins trend
3,540
3,542
4,455
4,635
5,280
5,122
5,871
14.0
12.8
15.7 16.3 16.4
15.0 15.5
-
2
4
6
8
10
12
14
16
18
0
1000
2000
3000
4000
5000
6000
7000
FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(| crore)
EBITDA EBITDA Margins (%)
Source: Company, ICICI Direct Research
Exhibit 4: Raw material costs, other expenses hit margins
29629
28892
28787
28449
28425
28014
29206
29099
28169
28799
28942
29265
29520
30099
4840
5009
5063
4803
4837
5680
6372
5283
4547
4659
4706
4642
4260
4700
15.8
15.6
15.7
16.6 17.6
17.0
13.8
16.3
17.4
15.9
16.0
15.6
15.2
14.0
10
11
12
13
14
15
16
17
18
20000
24000
28000
32000
36000
40000
Q
2FY16
Q
3FY16
Q
4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
(%
)
(|)
Raw material costs /unit Other expenses /unit EBITDA Margins (%)
Source: Company, ICICI Direct Research
Profitability growth to lag sales, EBITDA growth due to other overheads
Going forward, with sales & EBITDA CAGR of 8.6% & 2.8%, respectively,
we expect PAT growth to be 3.9% in FY19E-20E. This is largely factoring
in lower other income amid high dividend payout ratio, capex plans and
decline in yields on surplus cash & cash equivalents. Depreciation is also
expected to increase thereby denting PAT margins to 10.5% in FY20E vs.
11.5% in FY18.
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 5: Trend in profitability
2,109
2,386
3,160
3,377
3,697
3,486
3,991
(11.3)
13.1
32.5
6.9
9.5
(5.7)
14.5
(15)
(10)
(5)
-
5
10
15
20
25
30
35
0
500
1000
1500
2000
2500
3000
3500
4000
4500
FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(| crore)
PAT Growth
Source: Company, ICICI Direct Research
Strong FCFs as working capital cycle continues to remain impressive
HMCL continues to boast of a negative working capital cycle and robust
FCF generation. Even with fairly aggressive capex planned, FCF
generation is likely to be strong as the working capital management
remains strong. At the CMP, it offers an attractive FCF yield of ~6%.
Exhibit 6: Negative working capital cycle fuels strong FCFs; capex withstanding
2153.5
674.8 2
381.7
3132.5
3501.2
2042.0
3525.8
1,071.7
1,067.9
1,002.2
1,163.6
667.9
1,250.0
1,250.0
(10.1)
(8.4) (8.9)
(13.2)
(11.0)
(2.4)
(3.2)
(14)
(12)
(10)
(8)
(6)
(4)
(2)
00
400
800
1200
1600
2000
2400
2800
3200
3600
4000
FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(days)
(| crore)
FCF Capex Working Capital Cycle
Source: Company, ICICI Direct Research
Return ratios to remain elevated, capital efficient business moat stays
With a strong asset turnover and high dividend payout, return ratios are
expected to remain strong, thereby providing a high margin of safety.
Exhibit 7: Return ratios to remain high
51.2 53.2
48.7
44.0
42.4
38.0
39.0 37.7
38.8
35.8
33.4
31.4
26.9 27.4
4.5
4.2
3.1
2.7 2.6
2.5 2.5 2.2
2.7
3.2
3.7
4.2
4.7
20
25
30
35
40
45
50
55
FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
RoCE RoE Asset turnover
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 7
Decent dividend payout policy, net debt negative profile
With strong CFO generation meeting most capex needs, HMCL has
maintained a healthy balance sheet. This has led to a strong dividend
payout policy as investment requirements in two-wheelers remain low
vis-à-vis other automotive segments. Accumulated profits (ex-
appropriations) have largely added to the huge liquid investment
portfolio. Thus, the company has a strong balance sheet with negative net
debt while the cash & cash equivalents including investment comprise
>50% of the asset side. Going ahead, we expect strong cash flow
generation to further lead to an increase in cash & cash equivalents to
~| 7,026 crore by FY20E.
Exhibit 8: Net debt negative as strong cash, equivalents form >50% of total assets
3,284.6
2,449.6
3,600.5
5,150.9
6,645.6
6,153.1
7,026.5
60.4
43.6
54.8 56.5
62.7
49.6
51.6
20
25
30
35
40
45
50
55
60
65
0
1000
2000
3000
4000
5000
6000
7000
8000
FY14 FY15 FY16 FY16 FY18 FY19E FY20E
(%
)
(| crore)
Cash & Cash Equivalents As % of total assets
Source: Company, ICICI Direct Research
HMCL has also been a decent dividend payer with payouts at ~45% on
an average (FY07-15, excluding FY10, FY11 that saw special dividends
taking payouts ~100%). Going ahead, we expect dividend payouts to stay
at decent levels (>50%).
Exhibit 9: Decent dividend payout despite continuing capex plan….
60
65
60 7
2
85 95
95
100
56.6
61.6
47.2 45.5
50.3 51.3
54.4
50.0
-
10
20
30
40
50
60
70
30
50
70
90
110
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(|)
(|)
DPS Dividend Payout
`
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook & valuation
Hero is a market leader in the domestic 2-W segment with market share at
35%+ and 50%+ in its core (~90% of total volumes) motorcycle segment.
The company has consciously refrained from price war in the entry level
segment and itself grown in double digits in this segment thereby
maintaining the quality of earnings. The 2-W industry, over the long term,
has grown at ~1x GDP growth rate and is expected to do so over FY20E
with HMCL growing in tandem with the industry growth rate. Going forward,
revising our estimates, we now factor in 6.5% CAGR in volumes, with
consequent sales & PAT CAGR expected at 8.6% & 3.9%, respectively. We
value HMCL at | 3,000 i.e. 15x P/E on FY20E EPS of | 200/share and retain
our BUY rating on the stock. We also drive comfort at HMCL from attractive
dividend yield of ~4%, CFO yield of ~8% and FCF yield of ~6%.
Exhibit 10: Valuations
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (| cr) (%) (x) (x) (%) (%)
FY17 28,475.0 3.0 169.1 31.3 15.5 10.2 33.4 44.0
FY18 32,230.5 13.2 185.1 9.5 14.2 8.7 31.4 42.4
FY19E 34,177.2 6.0 174.5 (5.7) 15.0 9.0 26.9 38.0
FY20E 37,989.1 11.2 199.9 14.5 13.1 7.7 27.4 39.0
Source: Company, ICICI Direct Research
Exhibit 11: One year forward P/E (HMCL currently trading at 13.1x)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-1
3
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-1
4
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-1
5
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-1
6
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-1
7
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-1
8
Nov-18
Jan-19
(|)
Price 18.6x 16.7x 15.8x 14.9x 12.1x 10.2x 8.4x
Source: Reuters, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 9
Recommended history vs. consensus estimate
0.0
20.0
40.0
60.0
80.0
100.0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Jan-19Oct-18Jul-18May-18Feb-18Nov-17Aug-17May-17Feb-17Nov-16Aug-16May-16Feb-16Dec-15
(%
)(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICI Direct Research
Key events
Date Event
Mar-10 Hero MotoCorp looking to add fourth plant on rural demand growth; capacity of 0.85 mn units
Dec-10 Hero Honda and Honda announce break-up of JV after more than two decades. The solo journey of Hero MotoCorp begins
Feb-11 Honda Motor Co. plans to enter into 100 cc segment intensifying competition against Hero MotoCorp
Apr-11 Hero MotoCorp announces dividend payout, which disappoints investors
Nov-11 Hero MotoCorp announces big long term plans of sales for 10 mn units and revenue $10 billion by 2018
Mar-12 Hero looks at various options to gain technology including Ducati. Investors give a thumbs down
May-12 Hero MotoCorp announces plans to spend | 2,500 crore towards plants in Rajasthan, Gujarat along with R&D centre by 2014
Sep-12 Hero MotoCorp reports weakest monthly volumes since April 2010 as rural demand slows down on weak monsoon
Feb-13 Company continues to report YoY volume declines as 2-W industry faces demand slump, competition intensifies
Apr-13 The management pushes a new five-year warranty strategy. The market response is very favourable
May-14 Hero MotoCorp's new strategy of LEAP starts to show marginal benefits
Jun-14 US based PE firm, Bain Capital sells 2.81% stake in the company for ~|1481 crore
Jul-14 HMCL forms subsidiary in Columbia as part of its vision of expanding globalfootprint
Sep-14 Company plans to set up manufacturing plant in Chitoor, Andhra Pradesh with investment of ~| 1600 crore and capacity of 1.8 million units
Oct-14 HMCL Neemrana plant in Rajashthan goes on stream, taking the combined installed capacity of four plants at 7.65 million per annum
Dec-14 Tiger Woods becomes brand endoser for HMCL
Mar-15 HMCL JV with Magnetti Marelli, HMC-MM inagurates its first production and development centre at Manesar, Haryana
Source: Company, ICICI Direct Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Hero Group 31-Dec-18 20.4 40.8 0.0
2 Brijmohan Lall Om Prakash Partnership Firm 31-Dec-18 14.0 27.9 0.0
3 LIC Mutual Fund Asset Management Company Ltd. 31-Dec-18 5.2 10.5 -2.4
4 Life Insurance Corporation of India 31-Dec-18 5.2 10.5 2.0
5 OppenheimerFunds, Inc. 31-Dec-18 3.9 7.8 -0.1
6 Lazard Asset Management, L.L.C. 31-Dec-18 2.2 4.4 -0.1
7 Templeton Investment Counsel, L.L.C. 31-Dec-18 2.0 4.0 0.0
8 Aberdeen Standard Investments (Asia) Limited 31-Dec-18 1.8 3.6 -0.5
9 The Vanguard Group, Inc. 31-Dec-18 1.7 3.4 0.0
10 SBI Funds Management Pvt. Ltd. 31-Dec-17 1.6 3.2 0.5
(in %) Mar-18 Jun-18 Sep-18 Sep-18 Dec-18
Promoter 34.6 34.6 34.6 34.6 34.6
FII 42.3 41.9 39.6 38.9 40.0
DII 11.5 12.0 14.4 14.8 15.4
Others 11.5 11.4 11.4 11.7 10.1
Source: Reuters, ICICI Direct Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Westwood Global Investments, L.L.C. +108.1M +2.4M LIC Mutual Fund Asset Management Company Ltd. -107.6M -2.4M
Life Insurance Corporation of India +88.2M +2.0M Somerset Capital Management, L.L.P. -20.7M -0.5M
Nomura Asset Management Co., Ltd. +44.3M +0.9M Aberdeen Standard Investments (Asia) Limited -20.5M -0.5M
Northern Trust Investments, Inc. +9.6M +0.2M Jupiter Asset Management Ltd. -17.7M -0.3M
RBC Global Asset Management (UK) Limited +3.6M +0.1M ICICI Prudential Asset Management Co. Ltd. -12.5M -0.3M
Buys Sells
Source: Reuters, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 10
.
Financial summary
Profit and loss statement | Crore
(Year-end March) FY17 FY18 FY19E FY20E
Total operating Income 28,475.0 32,230.5 34,177.2 37,989.1
Growth (%) 0.1 13.2 6.0 11.2
Raw Material Expenses 19,011.8 21,834.7 23,641.2 26,151.6
Employee Expenses 1,396.0 1,540.1 1,703.5 1,882.4
Other expenses 3,432.4 3,575.5 3,710.0 4,083.8
Total Operating Expenditure 23,840.2 26,950.3 29,054.7 32,117.9
EBITDA 4,634.8 5,280.2 5,122.5 5,871.3
Growth (%) 4.5 13.9 -3.0 14.6
Depreciation 492.7 555.6 598.1 645.8
Interest 6.1 6.3 7.9 6.1
Other Income 522.4 525.8 646.1 702.6
PBT 4,658.5 5,244.2 5,162.5 5,922.0
Total Tax 1,281.3 1,546.8 1,677.0 1,930.6
PAT 3,377.1 3,697.4 3,485.5 3,991.4
Growth (%) 6.9 9.5 -5.7 14.5
EPS (|) 169.1 185.1 174.5 199.9
Source: Company, ICICI Direct Research
Cash flow statement | Crore
(Year-end March) FY17 FY18 FY19E FY20E
Profit after Tax 3,377.1 3,697.4 3,485.5 3,991.4
Add: Depreciation 492.7 555.6 598.1 645.8
(Inc)/dec in Current Assets -224.8 -340.1 -917.7 -443.6
Inc/(dec) in CL and Provisions 645.0 250.0 118.2 576.1
CF from operating activities 4,290.0 4,162.8 3,284.1 4,769.7
(Inc)/dec in Investments -1,545.0 -1,490.2 500.0 -850.0
(Inc)/dec in Fixed Assets -1,163.6 -667.9 -1,250.0 -1,250.0
Others 524.3 39.6 -250.0 -250.0
CF from investing activities -2,184.4 -2,118.5 -1,000.0 -2,350.0
Inc/(dec) in loan funds 0.0 0.0 0.0 0.0
Dividend paid & dividend tax -2,091.1 -2,276.6 -2,276.6 -2,396.4
Inc/(dec) in Sec. premium - - - -
CF from financing activities -2,106.3 -2,046.0 -2,284.5 -2,402.5
Net Cash flow 5.4 4.5 7.5 23.3
Opening Cash 131.4 136.8 141.3 148.8
Closing Cash 136.8 141.3 148.8 172.1
Source: Company, ICICI Direct Research
Balance sheet | Crore
(Year-end March) FY17 FY18 FY19E FY20E
Liabilities
Equity Capital 39.9 39.9 39.9 39.9
Reserve and Surplus 10,071.3 11,728.9 12,937.9 14,532.9
Total Shareholders funds 10,111.3 11,768.9 12,977.8 14,572.8
Total Debt 0.0 0.0 0.0 0.0
Deferred Tax Liability 414.3 511.7 511.7 511.7
Others 75.3 114.9 114.9 114.9
Total Liabilities 10,600.9 12,395.5 13,604.4 15,199.5
Assets
Gross Block 6,773.2 7,405.1 7,905.1 9,905.1
Less: Acc Depreciation 2,462.4 2,919.3 3,517.4 4,163.2
Net Block 4,310.7 4,485.9 4,387.8 5,742.0
Capital WIP 270.7 203.8 953.8 203.8
Total Fixed Assets 4,581.4 4,689.7 5,341.6 5,945.8
Investments 5,889.9 7,525.2 7,275.2 8,375.2
Inventory 656.3 823.6 877.1 968.6
Debtors 1,561.9 1,520.2 2,340.9 2,602.0
Loans and Advances 24.2 27.6 26.1 29.0
Cash 136.8 141.3 148.8 172.1
Total Current Assets 2,682.1 2,912.4 3,257.0 4,182.2
Creditors 3,247.3 3,318.8 3,444.0 3,905.2
Provisions 39.0 59.8 62.0 70.4
Total Current Liabilities 3,448.3 4,093.3 4,343.3 4,461.5
Net Current Assets -766.2 -1,181.0 -1,086.3 -279.3
Application of Funds 10,600.9 12,395.5 13,604.4 15,199.5
Source: Company, ICICI Direct Research
Key ratios
(Year-end March) FY17 FY18 FY19E FY20E
Per share data (|)
EPS 169.1 185.1 174.5 199.9
Cash EPS 193.8 213.0 204.5 232.2
BV 506.3 589.3 649.9 729.7
DPS 85.0 95.0 95.0 100.0
Cash Per Share 6.8 7.1 7.5 8.6
Operating Ratios (%)
EBITDA Margin 16.3 16.4 15.0 15.5
PBT / Net sales 14.5 14.7 13.2 13.8
PAT Margin 8.3 8.6 11.1 11.9
Inventory days 8.4 9.3 9.4 9.3
Debtor days 20.0 17.2 25.0 25.0
Creditor days 41.6 37.6 36.8 37.5
Return Ratios (%)
RoE 33.4 31.4 26.9 27.4
RoCE 44.0 42.4 38.0 39.0
RoIC 95.8 93.7 78.3 71.5
Valuation Ratios (x)
P/E 15.5 14.2 15.0 13.1
EV / EBITDA 10.2 8.7 9.0 7.7
Market Cap / Sales 1.8 1.6 1.5 1.4
Price to Book Value 5.2 4.5 4.0 3.6
Solvency Ratios
Current Ratio 0.8 0.9 1.0 1.0
Quick Ratio 0.6 0.6 0.8 0.8
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 11
ICICI Direct coverage universe (Auto & Auto Ancillary)
CMP M Cap
(|) TP(|) Rating (| Cr) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E
Amara Raja (AMARAJ) 776 835 Hold 13261 27.6 30.2 39.8 28.1 25.7 19.5 14.8 13.1 10.2 23.3 22.0 24.7 16.0 15.2 17.1
Apollo Tyre (APOTYR) 211 260 Buy 12056 12.7 16.2 21.6 16.7 13.0 9.8 7.5 7.5 6.4 7.8 9.3 11.1 7.4 9.1 10.7
Ashok Leyland (ASHLEY) 83 115 Hold 23335 5.3 7.1 8.9 15.5 11.6 9.3 10.2 8.3 6.2 28.1 32.1 34.6 21.9 25.1 26.2
Bajaj Auto (BAAUTO) 2500 2380 Hold 72343 140.6 149.7 167.2 17.8 16.7 14.9 11.9 11.3 9.3 22.9 21.1 21.7 21.5 20.3 20.2
Balkrishna Ind. (BALIND) 848 1025 Hold 16384 38.2 50.6 59.7 22.2 16.8 14.2 16.5 12.0 10.0 22.4 26.1 26.2 18.1 26.1 26.2
Bharat Forge (BHAFOR) 480 700 Buy 22329 16.2 23.3 28.0 29.6 20.6 17.2 17.6 14.5 12.2 18.2 22.9 25.7 17.3 23.3 23.9
Bosch (MICO) 18526 20500 Hold 58172 449.1 593.7 661.5 41.3 31.2 28.0 27.0 21.9 19.2 14.4 16.4 16.3 21.4 24.4 24.3
Eicher Motors (EICMOT) 20050 25500 Buy 54656 718.9 926.0 1162.1 27.9 21.7 17.3 20.0 17.0 13.2 39.1 35.9 35.0 29.9 27.9 26.9
Escorts (ESCORT) 670 700 Hold 8213 28.1 40.7 44.1 23.8 16.5 15.2 14.2 10.6 9.3 18.8 20.9 20.8 13.5 16.5 15.3
Exide Industries (EXIIND) 230 285 Buy 19563 8.2 9.3 11.5 27.9 24.8 20.0 16.8 14.6 11.8 19.1 18.9 21.2 13.0 13.2 14.7
Hero Moto (HERHON) 2625 3000 Buy 52421 185.1 174.5 199.9 14.2 15.0 13.1 8.7 9.0 7.7 42.4 38.0 39.0 31.4 26.9 27.4
JK Tyre & Ind (JKIND) 96 100 Hold 2175 2.9 12.9 21.9 32.9 7.4 4.4 9.8 6.0 4.6 7.7 12.6 15.4 3.6 15.0 18.6
Mahindra CIE (MAHAUT) 232 280 Buy 8780 9.5 14.5 17.7 24.5 16.0 13.2 13.7 9.9 8.2 9.8 12.9 13.7 11.2 15.0 17.1
Maruti Suzuki (MARUTI) 6520 6000 Hold 196122 255.6 250.3 284.4 25.5 26.0 22.9 13.5 13.8 11.8 21.1 17.8 18.8 18.5 16.3 16.6
Motherson (MOTSUM) 151 165 Hold 47622 5.1 6.2 9.0 29.8 24.2 16.7 10.8 9.0 6.7 16.3 19.6 26.1 17.4 19.4 23.5
Tata Motors (TELCO) 173 200 Hold 51779 26.8 2.3 17.0 6.9 79.0 10.9 2.7 3.2 2.6 9.1 6.1 8.2 10.3 4.3 8.5
Wabco India (WABTVS) 6290 6800 Hold 11951 143.8 172.2 212.3 43.7 36.5 29.6 28.0 24.1 19.1 17.9 17.8 18.2 25.1 25.7 26.0
Sector / Company
RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 12
RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorises them as Strong
Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is
defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 13
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