The large-cap industry's Hero MotoCorp Ltd and Britannia Industries Ltd both reported strong Q4FY22 results. Hero MotoCorp has proposed a final dividend of 1,750 per cent or Rs. 35 per share, (face value of Rs. 2 per equity share). Whereas, Britannia Industries Ltd with a face value of Rs 1 has recommended a final dividend of 5650% i.e. Rs. 56.50 per equity share of Re. 1/- each to be payable at the 103rd Annual General Meeting. The brokerage company Sharekhan has assigned a buy call recommendation to both stocks, citing a strong outlook.
The brokerage has said "Hero MotoCorp Limited's (Hero's) Q4FY22 results reported lower-than-expected EBITDA margin by 90 bps at 11.2%, due to sharp increase of 280 bps q-o-q in other operating expenses. Net revenues were in line with expectations, while EBITDA and PAT declined 31.7% y-o-y and 27.5% y-o-y, respectively in Q4FY22. The management has given positive guidance and expect the domestic industry to grow in double digits during FY23. April has witnessed strong demand in rural and semi urban areas ahead of festivals and marriages in Q1FY23. With the timely arrival of the monsoon season this year, we expect the rural economy to revive strongly, resulting in recovery of entry and executive level bikes. Hero is likely to be the key beneficiary due to its strong and deep-rooted distribution network. The company's management remained focus on exports and targets 15% volumes from global markets by 2025 in comparison to ~5% in FY2022. In addition, the company is well-placed to benefit from adoption of electric two-wheeler vehicles though its strong research and development (R&D), investments in Ather Energy, and strategic partnership with Taiwan-based Gogoro, a global leader in battery swapping network."
Sharekhan has claimed that "Positive outlook conferred by Hero's management underpins our positive outlook for the two-wheeler industry. Demand drivers for two-wheelers remain strong and will drive growth once economic activities normalise, led by improving personal incomes, increasing penetration in the rural economy and because of 2W being the most preferred mode of personal transportation amid COVID-19. We expect incremental growth in the two-wheeler industry to come from the economy and executive motorcycle segments, driven largely by rural and tier-2 and tier-3 cities. We expect Hero to be the beneficiary in the sector, given its leadership and largest distribution network. Moreover, the company's aggressive plans in scooters, premium bikes and EV segments are likely to augur well for medium-term growth. Post the 10% correction in the stock price over the past six months, the stock is trading at comfortable valuations at a P/E multiple of 13.1x and EV/EBITDA multiple of 6.7x its FY2024E estimates, with an attractive dividend yield of 3.8%. We maintain our Buy rating with an unchanged rice target (PT) of Rs. 3,210."
Sharekhan has said "Britannia Industries (Britannia) registered strong performance in Q4FY2022 even amid a tough business environment. Revenues grew by ~13% y-o-y to Rs. 3,550.4 crore driven by a 4-5% volume growth and 8% realisation growth. The company maintained mid-single digit volume growth in the domestic business for two consecutive quarters. Raw material inflation of 17% in Q4FY2022 led to a 243 bps y-o-y decline in gross margins to 38%. However, lower other expenses resulted in just 66 bps y-o-y decline in OPM to 15.5%. Adjacencies continued to perform well and products such as bread, rusk and dairy drinks are growing in double digits along with improvement in profitability due to a better product mix. Thus, with strong operating performance, the adjusted PAT stood at Rs. 378 crore, better than ours as well as the street's expectation. For FY2022, Britannia's revenues grew by ~8%, while the PAT was lower by 18% y-o-y due to a decline in OPM. The company paid dividend of Rs. 69 per share in FY2022 (including final dividend of Rs. 56.5 per share)."
"Britannia continued to post industry-leading volume growth for consecutive two quarters led by sustained market share gains. It has widened the gap with no.2 player consistently for last six years and focuses on expanding it further. With sustained market share gains, new product launches and higher traction on new channels (including e-Commerce), we expect Britannia's core biscuit category to beat industry growth in the medium term. This along with scale-up in revenues of adjacent categories and efficiencies would help Britannia achieve double-digit earnings growth over FY2022-24E. The stock has underperformed the broader indices in the past year and is trading at discounted valuation of 46.0x/37.2x its FY2023/24E EPS. We maintain our Buy recommendation on the stock with a revised price target of Rs. 4,000," the brokerage has claimed.
The stocks have been picked from the brokerage report of Sharekhan. 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.