LKP Research's research report on Hero MotoCorp
Total net revenues in the quarter went up by 17% yoy while dipping by 12.6% qoq as volumes were up 16% yoy, while dipped by 15.4% qoq. Realisations were up by 0.8% yoy and 3.3% qoq. RM costs to sales came in at 67.4% as against 66.1% yoy as the impact of rising RM prices was felt well in this quarter. Margins came in at 15.8% which were slightly lower than expected as competitive intensity along with higher marketing spends were observed during the quarter. However, tight cost control through its LEAP program and phasing out of other expenses including CSR expenditure were some of the positive levers on the margins. Other expenses to sales were high qoq at 11.3% as compared to 9.9% as marketing spends and discounts were high in the festive quarter. Sequentially the margins have dropped by 16 bps. Depreciation came in 11% higher yoy as Halol plant in Gujarat commissioned in Q4 FY17. Tax rate came in at 28.6% as Haridwar plant benefits narrow down, while net profits came in 23% higher yoy at ₹ 8.05 bn.
Outlook
On the bottomline, setting up of new plants will increase the depreciation expenses but also provide with tax benefits as Halol and AP both are tax haven plants. In line with lower than expected Q3, we have slightly reduced our FY18E/19E estimates, while have introduced FY20E numbers. Rolling over to these numbers, we maintain BUY rating on the stock with a target of ₹4,097.
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