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Buy This Bluechip Auto Stock Reports 131% YoY Profit Gain, Board Focusing On Export: Prabhudas Lilladher
Reputed brokerage firm Prabhudas Lilladher recommends investors to buy the stocks of Hero Motocorp. The company's revenue stood at Rs. 84bn grew 13% QoQ, in the latest quarter. It has also reported a 131% YoY growth in its consolidated net profit at Rs. 590 crore in Q1FY23.
Stock To Buy: Target Price & Financial Result
The Current Market Price (CMP) of Hero Motocorp is Rs. 2,762. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 3,130. This stock has the potential to give a 13.32% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 56,189 crore. The company is offering a 3.38 dividend yield.
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 2,762 |
| Target Price | Rs. 3,130 |
| Potential 1 year return | 13.32% |
| 52 week high share price | Rs. 2,954.45 |
| 52 week low share price | Rs. 2,146.85 |
Hero's 1QFY23 EBITDA margin at 11.2%, was impacted by higher raw material costs (gross margin contraction of ~350bps QoQ). Volumes for the quarter at 1.39mn units grew 17% QoQ owing to marriage season demand. However, ASPs declined 3% to Rs. 60k owing to lower parts revenue. Its EBITDA margin stood at 11.2%, flat QoQ, came below the brokerage firm's expectations of 11.7% owing to higher RM cost. Hero's PAT in the last quarter stood at Rs. 6bn, showing a flat QoQ.
Prabhudas Lilladher: Advantages Of The Stock
Management believes commodity prices have now peaked off. Hence, there would be margin expansion in the coming quarters supported by softened RM costs, price increases and increase in volumes. In the past 6-7 quarters, the price increases have lagged the inflation. Maintaining a buy rating, the brokerage firm said, "We believe Hero will benefit from rural recovery and festive season demand, increasing focus on exports and premiumisation, incremental savings through Leap savings program leading to margin expansion and, success in EV via investment in Ather, in-house mass product (Vida) and JV with Gogoro. Our estimates are largely unchanged. The festive season is expected to be healthy on the back of normal monsoons and increase in crop prices. The company is increasing its focus of premiumisation through its XTec models, which are 7-10% higher in price than the standard ones."
Company portfolio:
Hero MotoCorp is the dominant market leader in India - the world's largest two-wheeler market - with over 50% share in the domestic motorcycle market. Hero MotoCorp currently has an annual combined production capacity of around 9 million units of two-wheelers. The Company's manufacturing facilities at Neemrana and Halol have been aptly called the 'Garden Factories', which have redefined green manufacturing. The management expects margin expansion in the quarters ahead led by commodity cost softening, consistent price hikes, and an increase in volumes. It targets EBITDA margin recovery to at least 14% vs ~11% currently. Management expects to witness healthy demand from rural markets owing to increased crop prices. Hero has been focusing on premiumisation, earlier through Xtreme/Xpulse and now through its Xtec variants.
Disclaimer
The above stock was picked from the brokerage report of Prabhudas Lilladher. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
