Buy Stock of India's Leading 2-Wheeler Large Cap, Suggests Leading Stock Broker

Prabhudas Liladhar suggests investors to buy stock of Hero Motorcorp Limited for it sees significant gains based on the estimates. The brokerage feels that the company stock will surge by upto 19.84% because the company plans to focus on non-core segments to grow. This bluechip company is the leader in 2-wheeler manufacturer in India and over the years it has retained its top spot. Recent quarterly number were little below the expected margins.

Hero Motorcorp Limited quarter 3 Revenue declines and margins flatten

As per the analyst coverage report of Prabhudas Liladhar, Hero Motorcorp Limited's EBIDTA margins were down over previous year. " Hero Motocorp's 3Q EBITDA margin at 11.5% (-67bps YoY, +7bps QoQ) came slightly lower than our estimates at 11.8%, due to 70bpsimpact from Vida launch and higher discounting. Revenue at Rs 80.3 billion declined 11.5% QoQ. Volumes at 1.24 million units declined 13.2%, led the decline in revenue in 3QFY23. Though, ASPs grew 2% QoQ to Rs 64.8k, this increase was lower compared to its peers. Contribution from executive + premium segment contracted 400bps QoQ."

Outlook for weak demand that dropped market share

Guidance from the management team of Hero Motorcorp was also shared to understand the current demand and market share of the company. "Rural recovery has been weak, however, there are some green shoots visible in UP, Bihar, MP, West Bengal and Rajasthan; largely led by marriage season demand. Inventory level stands at ~6 weeks. Hero Motorcorp aims to increase revenue mix from global business to 10%. rom global business to 10%. Hero Motorcorp has lost significant market share (~400bps, since FY19) due weak rural demand, based on affordability issues. It targets regaining market share by expanding its product portfolio (new launches every quarter) and improving its channels and processes. HMCL highlighted that the recently launched "Xoom" scooter has been well received."

Buy share of Hero Motorcorp, with a price target of Rs 3,135

Prabhudas Liladhar expects Hero Motorcorp's margins will improve, as the commodity headwinds phase has been passed. "We expect 2W industry to benefit from rural recovery, low base of export markets and stable pricing environment (as commodity prices cool down in FY24). Accordingly, HMCL is also expected to show double-digit revenue growth in FY24 given (1) product launches in premium/scooter segment, (2) improving market share and (3) higher exports. We expect HMCL's margins to improve in the near term from operating leverage, premiumisation, cost control and stable commodity costs (we build in 230bps expansion over FY22-25E). The company is investing in EVs and aims to have wider product portfolio in next 18-24 months. Maintain 'Buy' at an unchanged target price of Rs 3,135 (at 15x on Dec-24E standalone EPS, Rs 86 for Fincorp and Rs 78 for Ather)"

Hero Motorcorp's stock movement and dividend details

The stock price of Hero MotorCorp Limited closed at Rs 2559.45 per share, it was down by 54.20 points over previous day. Over a year the stock price declined by 6.38%, but over three years the price was up by 7.31%. Its current free float market capitalisation is Rs 33,244.64 crore.

Recent in an exchange filing, the company declared an interim dividend at 3250% i.e. Rs. 65/- per equity share having a nominal value of Rs. 2/- each for the financial year 2022-23. February 17, 2023 is fixed as the record date and the interim dividend/ dispatch of dividend warrants will be completed by March 9, 2023.

Disclaimer

The stocks have been picked from the brokerage report of Prabhudas Liladhar, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.