Buy This Largecap Auto Stock At Rs. 3,175 Target Price, Tie-Up Planned With Harvey

Top brokerage firm Prabhudas Lilladher has given a buy rating to the stock of Hero Motocorp. Hero is focusing on regaining its market share in the >125cc segment through X-Tec variants in all key models. The company is also focussing on new model launches in the premium space over the next 2 years, and unveiling its new model under its tie-up with Harvey.

Stock To Buy: Target Price

The Current Market Price (CMP) of Hero Motocorp is around Rs. 2,598. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 3,175. This stock has the potential to give a 22.20% return, in the upcoming 12 months. This largecap auto stock is now offering a 3.48% dividend yield.

Stock Outlook
Current Market Price (CMP)	Rs. 2,598
Target Price	Rs. 3,175
Potential Upside	22.20%
52-week high share price	Rs. 2,938.60
52-week low share price	Rs. 2,146.85

Quarterly earnings

Hero's 2QFY23 EBITDA margin at 11.4% came lower than estimates. Volumes at 1.43mn units grew 3% QoQ. This, coupled with ASP growth of 5.3% QoQ to Rs. 63,545 led to revenue growth of 8.1% to Rs. 90.75bn. Higher revenue was led by higher ASPs on the back of improved mix and price hikes. Post reporting a 20% YoY increase in festive retails, management expects demand momentum to continue led by the upcoming wedding season and healthy rural sentiments.

Stock Valuation

Giving a buy rating, Prabhudas Lilladher said, "We believe Hero will be a key beneficiary of rural recovery and any positive demand from the upcoming marriage season. It will benefit from its increasing focus on exports and premiumization. Also, softening of input costs along with its Leap savings program can lead to margin expansion (we build in 230bps expansion over FY22-25E). Maintain buy with a target price of Rs. 3,175."

Key upside

Hero registered a 20% YoY increase in its 32-day festive retail. Festive volumes were at 95% levels of the pre-COVID levels. Going ahead, management expects healthy volumes led by the upcoming marriage season and rural recovery. Inventory levels are at the lower end of its average 4-6 weeks. Earlier through Xtreme/Xpulse and now through its X-Tec variants in all key models, Hero continues to focus on this segment. X-Tec models accounted for 20% of the festive volumes.

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.