Hero MotoCorp (HERHON) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_HeroMotoCorp_Q3FY20.pdf · Hero MotoCorp (HMCL) reported a solid operational performance in Q3FY20

ICIC

I S

ecurit

ies –

Retail E

quit

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esearch

Result

Update

February 7, 2020

CMP: | 2,425 Target: | 2,800 (15%) Target Period: 12 months

Hero MotoCorp (HERHON)

BUY

Balance sheet strength trumps soft volume outlook…

Hero MotoCorp (HMCL) reported a solid operational performance in

Q3FY20. Total 2-W sales volumes at 15.4 lakh units were down 14.3% YoY

(scooters down 41.5% YoY, motorcycles down 11.3% YoY). Net sales were

at | 6,997 crore with decline lower than volume drop tracking improvement

in blended ASPs to | 45,408/unit as product mix shifted even more towards

motorcycles. EBITDA margins at 14.8% were up 30 bps QoQ with gross

margin improvement of 110 bps driving sequential performance. PAT at

| 880.4 crore was supported by shift to lower tax rate regime (effective tax

rate 13.0%). The company declared an interim dividend of | 65/share.

Not out of the woods on demand front

In the run up to the BS-VI changeover, pricing of products launched by 2-W

OEMs thus far including HMCL have surprised us negatively. As against our

expectation of ~10% price increase, actuals have tended to range between

13-15% on average. This, we believe, adds further pressure to a price

sensitive market segment which is already suffering from subdued buyer

sentiment given reduced propensity to spend and cost increase for safety

features and upfront insurance. The domestic 2-W industry has registered

15.8% YoY 9MFY20 volume drop. While retail performance has improved in

recent months (channel inventory down to ~35 days in December), we

expect demand scenario to remain soft over coming six months, with mild

positivity seen from H2FY21E backed by lower base and festive tailwinds.

We build 4.5% overall volume CAGR for HMCL over FY20E-22E.

Margin pressures to accumulate going forward

With the substantial price increases under BS-VI comes the trickiness around

extent of passing on costs to buyers. HMCL has indicated it has been thus

far able to pass on entire absolute costs to customers but we believe pricing

environment would take some time to settle. Lack of any meaningful

operating leverage and rise in commodity costs recently complicates margin

outlook over the medium term. HMCL’s material cost control programme

(LEAP), however, should mitigate these headwinds, to an extent.

Valuation & Outlook

We expect sales, PAT to grow at a CAGR of 12.9%, 8.4%, respectively, over

FY20E-22E. Muted outlook on demand and margins leads us to trim our

forward estimates. However, we retain our positive stance on HMCL given

its status as India’s largest motorcycle and 2-W player, relatively inexpensive

valuations and excellent B/S strength. HMCL remains a debt free, cash

surplus company with best-in-class return ratios (10 year average RoCE

~43%) and a generous dividend payer (present dividend yield at ~4.5%).

We value HMCL at | 2,800 (14x P/E on FY22E EPS of | 200) & maintain BUY.

Key Financials FY18 FY19 FY20E FY21E FY22E CAGR (FY20E-22E)

Net Sales 32,230.5 33,650.5 29,989.1 35,428.7 38,238.1 12.9%

EBITDA 5,280.2 4,929.8 4,389.0 4,769.5 5,266.3 9.5%

EBITDA Margins (%) 16.4 14.6 14.6 13.5 13.8

Net Profit 3,697.4 3,384.6 3,822.5 3,528.3 3,986.8 2.1%

Normalised Net Profit 3,697.4 3,384.6 3,391.9 3,528.3 3,986.8 8.4%

EPS (|) 185.1 169.5 191.4 176.7 199.6

P/E 13.1 14.3 12.7 13.7 12.1

RoNW (%) 31.4 26.3 23.7 22.3 22.6

RoCE (%) 42.4 37.1 29.1 28.8 29.3

Key Financial Summary

Source: ICICI Direct Research, Company

Particulars

Particular Amount

Market Capitalization | 48427.3 Crore

Total Debt (FY19) | 0 Crore

Cash & Investments (FY19) | 4533.4 Crore

EV | 43893.9 Crore

52 week H/L (|) 3021 / 2228

Equity capital (| crore) 39.9

Face value | 2

Key Highlights

Total 2-W sales volume in Q3FY20

came in at 15.4 lakh units, down

14.3% YoY

Sales fall less than volumes

courtesy mix improvement and

resulting ASP increase to |

45,408/unit

Demand scenario soft in short term,

however expected to improve from

H2FY21E once BS-VI pricing

stabilises

Maintain BUY with revised target

price of | 2,800 basis unchanged

B/S strength and relatively

inexpensive valuations

Research Analyst

Shashank Kanodia, CFA

[email protected]

Jaimin Desai

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research

Result Update | Hero MotoCorp

Exhibit 1: Variance Analysis

Q3FY20 Q3FY20E Q3FY19 YoY (%) Q2FY20 QoQ (%) Comments

Total Operating Income 6,997 6,897 7,865 -11.0 7,571 -7.6 Topline was ahead of estimates primarily tracking beat on ASP's

Raw Material Expenses 4,660 4,634 5,415 -13.9 5,126 -9.1

RM costs was the real surprise for the quarter and came in lower

at 66.6% of sales, down 110 bps QoQ

Employee Expenses 470 469 436 7.8 469 0.2

Other expenses 828 828 910 -9.0 875 -5.3 Other expenses were steady at 11.8% of sales

Operating Profit (EBITDA) 1,039 966 1,105 -6.0 1,101 -5.6

EBITDA Margins (%) 14.8 14.0 14.0 80 bps 14.5 30 bpsEBITDA margins came in ahead of estimates primarily tracking

savings in raw material costs

Other Income 182 194 188 -2.9 208 -12.3

Interest 5.9 7.7 2.2 174.1 7.7 -22.8

Depreciation 203.7 208.8 151.8 34.2 203.4 0.1

PBT after Exceptional Items 1,011.5 943.1 1,138.4 -11.1 1,097.8 -7.9

Total Tax 131.1 218.8 369.3 -64.5 162.9 -19.5 Tax arte for the quarter came in muted at 13.0%

PAT 880.4 724.3 769.1 14.5 874.8 0.6

EPS (Adjusted) 44.1 36.3 38.5 14.5 45.9 -3.9PAT came in ahead of estimates tracking beat on margins and

lower effective tax rate

Key Metrics

Motorcycle volumes ('000s) 1,435.7 1,435.7 1,619.2 -11.3 1,547.3 -7.2

Scooter volumes ('000s) 105.1 105.1 179.7 -41.5 144.1 -27.0 Total volumes in Q3FY20 stood at 15.4 lakh units down 14.3% YoY

Net Blended ASP (|/unit) 45,408 44,759 43,720 3.9 44,759 1.4Blended ASP's for the quarter increased by | 650/unit QoQ to |

45,408/ unit vs. our estimates of | 44,759/unit

Source: Company, ICICI Direct Research

Exhibit 2: Change in estimates

FY22E

(| Crore) Old New % Change Old New % Change Introduced Comments

Revenue 31,646 29,989 -5.2 35,947 35,429 -1.4 38,238

Marginally tweaked our sales estimates for FY20E-21E. Introduced

FY22E estimates. We expect sales to grow at a CAGR of 12.9% over

FY20E-22E, albeit post 10.9% YoY decline in FY20E

EBITDA 4,609 4,389 -4.8 4,918 4,770 -3.0 5,266

EBITDA

Margin (%)14.6 14.6 7 bps 13.7 13.5 -22 bps 13.8

Margins are expected to be steady in the range of ~14-15%. The

company has realised sizeable benefits out of commodity price decline

with some quantum expected to reverse going forward

PAT 3,894 3,822 -1.8 3,653 3,528 -3.4 3,987

EPS (|) 195 191 -1.8 183 177 -3.4 200

Broadly maintained PAT estimates for FY20E-21E. Introduced FY22E

numbers. On normalized basis, we expect PAT to stage a CAGR of

8.4% over FY20-22E

FY20E FY21E


Exhibit 3: Assumptions

Comments

FY19 FY20E FY21E FY22E FY20E FY21E

Motorcycle volumes ('000s) 7,081 6,217 6,344 6,741 6,438 6,670

Scooter volumes ('000s) 740 423 476 512 587 615

Total volumes ('000s) 7,821 6,640 6,820 7,252 7,025 7,285

Growth (%, YoY) -15% 3% 6%

Gross Blended ASP (|/unit) 43,026 45,161 51,946 52,726 45,044 49,347We have increased blended ASP's estimates primarily tracking

more than anticipated price hike due to BS-6 transition

On a longer term perspective, we don’t expect domestic 2-W

sales volume to exceed ~7% (1x GDP growth) given healthy

penetration domestically. We have build in volume CAGR of 4.5%

over FY20-22E. It includes motorcycle sales volume CAGR of 4.1%

and scooter sales volume CAGR of 10.0% over FY20-22E

EarlierCurrent





Conference Call Highlights

Management guidance/outlook and demand

HMCL registered double digit retail growth in rural parts of UP, Maharashtra and Gujarat. It was hopeful of

sentiment improvement in the rural economy six months down the line due to healthy Rabi sowing and drill down

impact of Budget and other government initiatives. Overall demand is seen turning better only from H2FY21E

onwards, supported by settling of BS-VI pricing

Rural forms >50% of overall HMCL volumes

HMCL confirmed availability of financing has not been a supply constraint for the last six to nine months

Poor scooter volume performance lately has been on account of run-down of BS-IV production and inventory

Market share loss in entry level segment was attributable in part to lack of major product refreshes e.g. Passion

Colombia volumes grew 18% YoY in Q3FY20 vs. 10% industry growth. Company has ~20% market share in

Bangladesh

BS-VI changeover

HMCL said it would stop BS-IV production by mid-February. All models are BS-VI ready on R&D and production

side and the company is preparing distribution channels as the final piece of the jigsaw

BS-VI products launched thus far (Splendor iSmart, HF Deluxe, Pleasure 110) have received positive feedback on

quality. Assessing impact of changeover on demand and pricing elasticity, however, would take time

HMCL has been able to pass on most of the absolute cost increase under BS-VI

The company stood by its decision to implement fuel injection (FI) technology in BS-VI models as against e-

carburettor variants preferred by some peers. It said the relatively modest price difference (~| 1,000-1,500/unit)

was compensated FI’s better fuel economy, better performance and compatibility with future On Board

Diagnostics (OBD) regulations. However, it did not close the door on e-carburettor for some SKUs in the event of

a business/demand case arising in the future

Management opined that BS-VI transition experience would be smoother than the one related to implementation

of mandatory upfront insurance given the time ecosystem and buyers have been provided to adjust to the change

Revenues, costs and margins

Healthy gross margin performance in Q3FY20 was driven by cost savings under LEAP program, increase in share

of spares within overall revenue pie and docile commodity prices

Some portion of gross margin gains made should reverse in coming months given rise in commodity costs

including steel and precious metals

Spare parts revenue were at | 800 crore (up 9.5% YoY). HMCL plans to deepen distribution network for spares in

order to better address the market potential. Currently it is tapping 35% of the market

Others

Channel inventory stood at 6 weeks as of December and 5 weeks (forward retails) as of January

Commissioning of Andhra Pradesh plant will take place in Q4FY20. The plant would initially serve the state or

South India. HMCL expects no material impact on revenues or profits during FY21E, however

Share of financing stood at 46% in Q3FY20 (largely unchanged YoY), with Hero Fincorp forming 50% of that

The company extends 30 days of credit to dealers for spares and 15 days (interest free) for 2-W

HMCL reiterated intent to remain among top quartile of dividend paying companies, going forward




Financial story in charts

Exhibit 4: Growth in revenues

28,443

28,475

32,230

33,651

29,989

35,429

38,238

12.5

0.1

13.2

4.4

(10.9)

18.1

7.9

(15)

(10)

(5)

-

5

10

15

20

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

FY16 FY17 FY18 FY19 FY20E FY21E FY22E

(%

)

(| crore)

Net Sales Growth


Exhibit 5: Product mix

1,291

1,444

1,638

1,783

1,489

1,767

1,911

1,927

1,619

1,623

1,728

1,547

1,436

183

177

216

240

220

234

196 207

180158 115

144

105

-300

200

700

1,200

1,700

2,200

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

('0

00s)

Motorcycles Scooters


Exhibit 6: Margins trend

4,455

4,635

5,280

4,930

4,389

4,770

5,266

15.7 16.3 16.4

14.6 14.6

13.5

13.8

-

2

4

6

8

10

12

14

16

18

0

1000

2000

3000

4000

5000

6000


(%

)

(| crore)

EBITDA EBITDA Margins (%)


HMCL’s volumes and revenue are expected to

register CAGR 4.5% and 12.9%, respectively, over

FY20E-22E. Pricing growth is seen as outpacing

volume growth largely on the back of introduction of

BS-VI product variants

Product mix continues to evolve in favour of

motorcycles. Run down of BS-IV scooter inventories

has contributed to shift in mix during recent months

EBITDA margins expected to remain under pressure

given steep price hikes under BS-VI and limited

operating leverage benefit. We see margins dip to

13.8% levels by FY22E




Exhibit 7: Cost profile breakup

28014

29206

29099

28169

28799

28942

29265

29520

30099

30532

30342

30304

30241

5680

6372

5283

4547

4659

4706

4642

4260

4700

5179

4410

5192

5358

17.0

13.8

16.3

17.4

15.9

16.0

15.6

15.2

14.0

13.6

14.4

14.5

14.8

10

11

12

13

14

15

16

17

18

20000

24000

28000

32000

36000

40000

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

(%

)

(|)

Raw material costs /unit Other expenses /unit EBITDA Margins (%)


Exhibit 8: Trend in profitability

3,160

3,377

3,697

3,385

3,822

3,528

3,987

32.5

6.9

9.5

(8.5)

12.9

(7.7)

13.0

(15)

(10)

(5)

-

5

10

15

20

25

30

35

0

500

1000

1500

2000

2500

3000

3500

4000

4500


(%

)

(| crore)

PAT Growth


Exhibit 9: Return ratios trend

48.7

44.0

42.4

37.1

29.1 28.8 29.3

35.8

33.4

31.4

26.3

23.7 22.3 22.6

20

25

30

35

40

45

50

55


(%

)

RoCE RoE


RM costs came in lower than anticipated, resulting

in healthy margin beat for the quarter

We expect HMCL to clock 8.4% CAGR in normalised

PAT over FY20E-22E -21E to | 3,987 crore

Return ratios have come off their highs in recent

years. However, they are expected to remain north

of 20% levels, going forward




Exhibit 10: Decent dividend payout

60 7

2

85 95

87 100

100

110

50.2

45.5

50.3 51.3 51.3 52.2

56.6 55.1

-

10

20

30

40

50

60

30

50

70

90

110

FY14 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

(|)

(|)

DPS Dividend Payout

`


Exhibit 11: Segment, model wise volume break-up in Q3FY20

Q3FY19 Q3FY20 YoY % Q3FY19 Q3FY20 YoY % Q3FY19 Q3FY20 YoY % Domestic market share %

(YTD December 2019)

Scooters 174,418 102,211 (41.4) 5,250 2,926 (44.3) 179,668.0 105,137.0 (41.5) 7.9

<125cc 174,418 102,211 (41.4) 5,250 2,926 (44.3) 179,668.0 105,137.0 (41.5)

Destini 125 38,967 21,503 NA 78 382 389.7 39,045.0 21,885.0 (43.9)

Pleasure 35,149 46,212 31.5 1,204 984 (18.3) 36,353.0 47,196.0 29.8

Maestro 62,614 22,558 (64.0) 3,723 1,482 (60.2) 66,337.0 24,040.0 (63.8)

Hero Duet 37,688 11,938 (68.3) 245 78 (68.2) 37,933.0 12,016.0 (68.3)

Motorcycles 1,579,277 1,402,780 (11.2) 36,795 28,899 (21.5) 1,616,072.0 1,431,679.0 (11.4) 51.3

75-110cc 1,395,966 1,163,187 (16.7) 24,153 10,930 (54.7) 1,420,119.0 1,174,117.0 (17.3)

HF Deluxe 534,472 484,246 (9.4) 10,895 5,932 (45.6) 545,367.0 490,178.0 (10.1)

Passion 188,880 112,413 (40.5) 148 1,170 690.5 189,028.0 113,583.0 (39.9)

Splendor 672,324 566,528 (15.7) 12,070 2,664 (77.9) 684,394.0 569,192.0 (16.8)

HF Dawn 290 - (100.0) 1,040 1,164 11.9 1,330.0 1,164.0 (12.5)

110-125cc 169,420 227,496 34.3 8,526 11,062 29.7 177,946.0 238,558.0 34.1

Glamour 169,420 112,872 (33.4) 8,526 9,092 6.6 177,946.0 121,964.0 (31.5)

Splendor - 114,624 NA - 1,970 NA - 116,594.0 NA

125-150cc 3,403 1,844 (45.8) 3,876 2,956 (23.7) 7,279.0 4,800.0 (34.1)

Achiever 1,430 - (100.0) 934 1,542 65.1 2,364.0 1,542.0 (34.8)

Xtreme 1,973 1,844 (6.5) 2,942 1,414 (51.9) 4,915.0 3,258.0 (33.7)

Hunk - - NA 3,165 4,052 28.0 3,165.0 4,052.0 28.0

150-200cc 10,480 10,253 (2.2) 240 3,951 1,546.3 10,720.0 14,204.0 32.5

X Pulse 200T - 8,016 NA - 3,852 NA - 11,868.0 NA

Xtreme 200R 10,480 2,237 (78.7) 240 99 (58.8) 10,720.0 2,336.0 (78.2)

200-250cc 8 - (100.0) - - NA 8.0 - (100.0)

Karizma 8 - (100.0) - - NA 8.0 - (100.0)

Total domestic 1,753,695 1,504,991 (14.2)

Total exports 42,045 31,825 (24.3)

Total 2-W volumes 1,795,740 1,536,816 (14.4) 35.6

Domestic Exports Total

Source: SIAM, ICICI Direct Research

The company intends to remain within top quartile

of dividend payers in India. Present dividend yield is

at ~4.5%




Exhibit 12: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

(| cr) (%) (| cr) (%) (x) (x) (%) (%)

FY18 32,230.5 13.2 185.1 9.5 13.1 7.9 31.4 42.4

FY19 33,650.5 4.4 169.5 -8.5 14.3 8.9 26.3 37.1

FY20E 29,989.1 (10.9) 191.4 12.9 12.7 9.8 23.7 29.1

FY21E 35,428.7 18.1 176.7 -7.7 13.7 8.8 22.3 28.8

FY22E 38,238.1 7.9 199.6 13.0 12.1 7.7 22.6 29.3


Exhibit 13: HMCL currently trading at 12.1x FY22E EPS of ~ | 200/share

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Nov-12

Feb-13

May-13

Aug-13

Nov-13

Feb-14

May-14

Aug-14

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Feb-16

May-16

Aug-16

Nov-16

Feb-17

May-17

Aug-17

Nov-17

Feb-18

May-18

Aug-18

Nov-18

Feb-19

May-19

Aug-19

Nov-19

Feb-20

(|)

Price 22x 21x 19x 18x 17x 15x 14x

Source: Bloomberg, ICICI Direct Research




Exhibit 14: Recommendation history vs. consensus

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Feb-20

Jan-20

Dec-19

Nov-19

Oct-19

Sep-1

9

Aug-19

Jul-19

Jun-19

May-19

Apr-19

Mar-19

Feb-19

Jan-19

Dec-18

Nov-18

Oct-18

Sep-1

8

Aug-18

Jul-18

Jun-18

May-18

Apr-18

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Nov-17

Oct-17

Sep-1

7

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

Feb-17

(%)

(|)

Price Idirect target Consensus Target Mean % Consensus with BUY


Exhibit 15: Top 10 shareholders

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 BAHADUR CHAND INVEST 30-06-2019 20.00 39.94M 0

2 MUNJAL PAWAN 30-06-2019 13.98 27.93M 0

3 LIFE INSURANCE CORP 30-06-2019 5.54 11.06M +0.59M

4 STANDARD LIFE ABERDE 02-07-2019 3.37 6.73M 0

5 SBI FUNDS MANAGEMENT 31-12-2019 3.14 6.27M +0.04M

6 NA 30-06-2019 2.99 5.97M +5.62M

7 BLACKROCK 05-02-2020 2.46 4.92M +0.02M

8 FRANKLIN RESOURCES 06-02-2020 1.97 3.94M -0.17M

9 VANGUARD GROUP 31-12-2019 1.78 3.55M -0.00M

10 LAZARD LTD 31-12-2019 1.59 3.17M -0.39M


Exhibit 16: Shareholding pattern

(in %) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Promoter 34.6 34.6 34.6 34.6 34.6

FII 40.0 38.2 35.2 36.5 35.3

DII 15.4 16.1 20.0 19.2 19.6

Others 10.1 11.1 10.1 9.7 10.5





Financial Summary

Exhibit 17: Profit and loss statement | crore

(Year-end March) FY19 FY20E FY21E FY22E

Total operating Income 33,650.5 29,989.1 35,428.7 38,238.1

Growth (%) 4.4 -10.9 18.1 7.9

Raw Material Expenses 23,317.7 20,347.5 24,905.1 26,880.0

Employee Expenses 1,730.2 1,886.7 2,034.1 2,134.1

Other expenses 3,672.5 3,365.9 3,720.0 3,957.6

Total Operating Expenditure 28,720.5 25,600.1 30,659.2 32,971.7

EBITDA 4930.1 4389.0 4769.5 5266.3

Growth (%) -6.0 -11.0 8.7 10.4

Depreciation 602.0 854.7 938.9 994.2

Interest 8.6 20.3 21.3 22.3

Other Income 691.3 814.5 907.6 1,080.2

PBT 5010.4 4328.5 4717.0 5330.0

Total Tax 1,625.9 1,183.4 1,188.7 1,343.1

PAT 3384.6 3822.5 3528.3 3986.8

Growth (%) -8.5 12.9 -7.7 13.0

Normalised PAT (|) 3,384.6 3,391.9 3,528.3 3,986.8

EPS (|) 169.5 191.4 176.7 199.6

Normalised EPS (|) 169.5 169.8 176.7 199.6


Exhibit 18: Cash flow statement | crore


Profit after Tax 3,384.6 3,822.5 3,528.3 3,986.8

Add: Depreciation 602.0 854.7 938.9 994.2

(Inc)/dec in Current Assets -1,696.4 542.5 -774.4 -400.0

Inc/(dec) in CL and Provisions -213.0 -566.0 646.5 333.9

CF from operating activities 2077.2 4653.7 4339.3 4914.9

(Inc)/dec in Investments 2,107.5 -800.0 -1,100.0 -1,490.0

(Inc)/dec in Fixed Assets -789.5 -1,250.0 -1,000.0 -1,000.0

Others -1,103.7 -200.0 -200.0 -200.0

CF from investing activities 214.3 -2250.0 -2300.0 -2690.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0

Dividend paid & dividend tax -2,084.9 -2,396.4 -1,997.0 -2,196.7

Inc/(dec) in Sec. premium & Others -8.6 -20.3 -21.3 -22.3

CF from financing activities -2304.9 -2416.7 -2018.3 -2219.0

Net Cash flow -4.8 7.3 42.3 28.2

Opening Cash 141.3 136.5 143.8 186.1

Closing Cash 136.5 143.8 186.1 214.3

CFO Yield 4.3% 9.6% 9.0% 10.1%

FCF Yield 2.7% 7.0% 6.9% 8.1%

Payout 51% 52% 57% 55%

Dividend Yield 3.6% 4.1% 4.1% 4.5%


Exhibit 19: Balance Sheet | crore


Liabilities

Equity Capital 39.9 39.9 39.9 39.9

Reserve and Surplus 12,817.2 14,243.3 15,774.6 17,564.7

Total Shareholders funds 12857.1 14283.2 15814.5 17604.6

Total Debt 0.0 0.0 0.0 0.0

Deferred Tax Liability 536.5 536.5 536.5 536.5

Others 117.2 117.2 117.2 117.2

Total Liabilities 13510.8 14936.9 16468.2 18258.4

Assets

Gross Block 7,998.8 8,498.8 10,248.8 11,098.8

Less: Acc Depreciation 3,521.3 4,376.0 5,314.8 6,309.0

Net Block 4477.5 4122.8 4933.9 4789.7

Capital WIP 360.7 1,110.7 360.7 510.7

Total Fixed Assets 4,838.2 5,233.5 5,294.6 5,300.4

Investments 5,968.6 6,968.6 8,268.6 9,958.6

Inventory 1,072.4 985.9 1,164.8 1,257.1

Debtors 2,821.6 2,464.9 2,912.0 3,142.9

Loans and Advances 25.0 22.9 27.0 29.2

Cash 136.5 143.8 186.1 214.3

Total Current Assets 4,948.6 4,413.4 5,230.2 5,658.4

Creditors 3,355.3 2,875.7 3,397.3 3,666.7

Provisions 59.0 50.6 59.8 64.5

Total Current Liabilities 4,130.4 3,564.4 4,210.9 4,544.8

Net Current Assets 818.3 849.0 1,019.2 1,113.5

Application of Funds 13510.8 14936.9 16468.2 18258.4


Exhibit 20: Key ratios


Per share data (|)

EPS 169.5 191.4 176.7 199.6

Cash EPS 199.6 234.2 223.7 249.4

BV 643.8 715.2 791.9 881.6

DPS 87.0 100.0 100.0 110.0

Cash Per Share 227.0 267.4 324.6 400.7

Operating Ratios (%)

EBITDA Margin 14.6 14.6 13.5 13.8

PBT / Net sales 12.9 11.8 10.8 11.2

PAT Margin 10.1 12.7 10.0 10.4

Inventory days 11.6 12.0 12.0 12.0

Debtor days 30.6 30.0 30.0 30.0

Creditor days 36.4 35.0 35.0 35.0

Return Ratios (%)

RoE 26.3 23.7 22.3 22.6

RoCE 37.1 29.1 28.8 29.3

RoIC 59.9 50.2 46.4 50.7

Valuation Ratios (x)

P/E 14.3 14.3 13.7 12.1

EV / EBITDA 8.9 9.8 8.8 7.7

Market Cap / Sales 1.4 1.6 1.4 1.3

Price to Book Value 3.8 3.4 3.1 2.8

Solvency Ratios

Current Ratio 1.3 1.4 1.4 1.4

Quick Ratio 1.0 1.1 1.1 1.1





Exhibit 21: ICICI Direct coverage universe (Auto & Auto Ancillary)

Sector / Company CMP M Cap

(|) TP(|) Rating (| Cr) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E

Apollo Tyre (APOTYR) 170 165 Hold 9725 11.9 8.0 10.2 14.3 21.3 16.7 8.1 8.1 6.6 8.0 4.7 6.4 8.3 4.4 5.5

Ashok Leyland (ASHLEY) 81 75 Hold 23778 6.8 3.9 4.1 12.0 20.5 20.0 7.1 10.9 10.2 26.9 14.5 14.2 24.3 13.9 13.1

Bajaj Auto (BAAUTO) 3163 3300 Hold 91528 161.6 171.3 175.0 19.5 18.4 18.0 14.9 13.8 12.8 21.0 19.7 24.4 19.9 20.3 18.7

Bharat Forge (BHAFOR) 509 450 Hold 23698 22.2 18.5 18.8 22.9 27.5 27.1 11.4 14.0 13.4 17.9 13.2 13.2 19.1 14.4 13.8

Eicher Motors (EICMOT) 20420 19750 Hold 55665 808.1 756.0 798.2 25.3 27.0 25.6 18.1 21.6 19.3 32.5 23.4 22.2 24.8 19.6 17.7

Escorts (ESCORT) 855 810 Hold 10481 39.6 39.5 43.3 21.6 21.7 19.8 12.6 12.8 11.5 21.7 18.1 17.4 15.6 14.2 13.4

Exide Industries (EXIIND) 185 220 Buy 15725 9.9 9.6 10.3 18.6 19.3 17.9 10.9 10.8 9.9 18.4 16.3 16.2 12.9 12.8 12.3

Hero Moto (HERHON) 2425 2800 Buy 48427 169.5 191.4 176.7 14.3 12.7 13.7 8.9 9.8 8.8 37.1 29.1 28.8 26.3 23.7 22.3

M&M (MAHMAH) 584 680 Buy 72603 38.6 46.2 34.5 15.1 12.7 16.9 10.2 10.1 10.1 17.3 14.7 13.2 14.1 12.1 10.3

Maruti Suzuki (MARUTI) 7038 5850 Sell 212604 248.3 201.4 227.7 28.3 34.9 30.9 16.0 21.8 19.0 16.3 8.7 9.7 16.3 12.3 12.9

Tata Motors (TATMOT) 184 200 Hold 65790 -84.6 4.0 21.3 -2.2 45.9 8.6 4.4 4.1 3.2 5.4 8.1 12.0 7.1 6.1 14.7

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)





RATING RATIONALE

ICICI Direct endeavors 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 categorizes them as Buy, Hold,

Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined

as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%

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

[email protected]




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Documents

Hero MotoCorp (HERHON) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_HeroMotoCorp_Q3FY20.pdf · Hero MotoCorp (HMCL) reported a solid operational performance in Q3FY20