We maintain our ?hold? rating on Hero MotoCorp with a target price of R2,027. At 13.6 times FY15e, we believe the stock is fairly valued. Our estimates factor in 2.6% and 6.0% y-o-y growth in volumes and 14.5% margins, leading to EPS of R107 and R145 in FY14e and FY15e.
We met the senior management of Hero MotoCorp recently to get a sense of the developments expected over the next few quarters.
Management perceives the overall demand environment in November to be healthy with retail growing in high single digit. With dispatches of its new Splendor iSmart commencing during the month, expect robust wholesales. Hero MotoCorp remains focused on export markets and are also eyeing higher pie of the spare parts market riding its soon-to-be-operational Global Parts Centre. While cost rationalisation strategies are expected to bolster margin, rising competitive intensity from Honda remains a concern.
Robust performance from north India has buoyed the company?s overall retail volumes and the management now expects high single-digit growth. This provides upside risk to management?s earlier guidance of 1.1 million wholesale volumes for October and November, which had implied 5% decline for November.
Moreover, our estimate of 2.4% y-o-y growth in the remaining five months of the current fiscal will be revised up if this pans out.
In our view, focus on new launches and exports will sustain momentum. New scooter and motorcycle launches, focus on improving spare parts and efforts to develop new markets for export will boost revenue growth.
