The street gave a thumbs up to Hero MotoCorp ’s second quarter results as net profit accelerated better-than-expected 19.4% year-on-year to Rs 604 crore and sales rose a robust 28% to Rs 5,784 crore.
The stock hit a high of Rs 2,086.25, up over 4% in morning trade.
Auto sales have slowed down this fiscal, as expensive loans and high petrol prices have hurt passenger car demand. But two-wheeler demand has been strong. Hero MotoCorp saw July-September sales jump to their highest for the quarter at 15.44 lakh units, up 20% year-on-year.
Festive season demand also pushed up its sales in September to its highest ever for the month at near 5.5 lakh units.
While sales volumes have continued to accelerate, some easing of aluminium prices has also come as a much needed shot in the arm for Hero. High raw material prices had hurt margins of automakers for the last several quarters. But that is now on the wane, with Hero’s second quarter operating margin rising over 300 basis points to 15.8%, helped also by 1.5% price hike by the company.
Hitesh Goel of Kotak Securities feels Hero MotoCorp’s margins will remain strong over the next few quarters until rival Honda Motorcycle and Scooter India (HMSI) launches 100cc bikes in FY13, which could put pressure on Hero’s pricing in the lower-end segment.
Credit Suisse expects margins will further improve to 16.5% helped by reduction in commodity prices.
Hero last year called off its over two decade old partnership with Japan’s Honda Motor Co and earlier this week launched its first home production the Impulse under the new brand. The Munjals did flag industry concerns over rising fuel costs and high inflation as it could impact consumer spending in coming months. But the company is confident of its strong momentum.
"Our bottom line results reflect our record top line performance over the past six months...We remain confident of carrying forward the buoyancy in our sales. We expect our retail volumes to peak during the festive month of October, and in anticipation of rising market demand for our products in the coming months, we have been augmenting capacity at our existing plants," Pawan Munjal, MD and CEO of Hero MotoCorp.
Analysts though paint a mixed reaction on the road ahead.
Hero Motocorp has successfully transitioned without its collaborator Honda, with two wheeler volumes well ahead of industry, said Bank of America Merrill Lynch.
"We retain positive outlook on the company's prospects based on (1) superior franchise in commuter bikes, posing strong entry barrier for competition, (2) increasing penetration in rural markets, which account for 45% of sales, and (3) new launches i.e. 150cc Impulse bike and Maestro scooter. (We) retain assumptions of 6.35 million (sales) in FY12, up 17.5% year-on-year and 7.24 million units in FY13, up 14%," it said.
On the other hand, Macquarie believes, that although July-September was a good quarter for Hero MotoCorp, volume growth for next year is a concern, as the company will face capacity constraints, while rival HMSI will commission additional 6 lakh per annum capacity by March 2012.
Credit Suisse raised target price on Hero MotoCorp to Rs 2,522 from Rs 2,492, while maintaining outperform rating. BofA Merrill also maintained a "buy" with target price of Rs 2,290. Kotak Securities has a "sell" on the stock with a target of Rs 1,800, saying there are limited upside triggers and sales growth could moderate to 6% over October-March due to high base effect and new Pulsar and Boxer byke launch by Bajaj Auto .
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The stock hit a high of Rs 2,086.25, up over 4% in morning trade.
Auto sales have slowed down this fiscal, as expensive loans and high petrol prices have hurt passenger car demand. But two-wheeler demand has been strong. Hero MotoCorp saw July-September sales jump to their highest for the quarter at 15.44 lakh units, up 20% year-on-year.
Festive season demand also pushed up its sales in September to its highest ever for the month at near 5.5 lakh units.
While sales volumes have continued to accelerate, some easing of aluminium prices has also come as a much needed shot in the arm for Hero. High raw material prices had hurt margins of automakers for the last several quarters. But that is now on the wane, with Hero’s second quarter operating margin rising over 300 basis points to 15.8%, helped also by 1.5% price hike by the company.
Hitesh Goel of Kotak Securities feels Hero MotoCorp’s margins will remain strong over the next few quarters until rival Honda Motorcycle and Scooter India (HMSI) launches 100cc bikes in FY13, which could put pressure on Hero’s pricing in the lower-end segment.
Credit Suisse expects margins will further improve to 16.5% helped by reduction in commodity prices.
Hero last year called off its over two decade old partnership with Japan’s Honda Motor Co and earlier this week launched its first home production the Impulse under the new brand. The Munjals did flag industry concerns over rising fuel costs and high inflation as it could impact consumer spending in coming months. But the company is confident of its strong momentum.
"Our bottom line results reflect our record top line performance over the past six months...We remain confident of carrying forward the buoyancy in our sales. We expect our retail volumes to peak during the festive month of October, and in anticipation of rising market demand for our products in the coming months, we have been augmenting capacity at our existing plants," Pawan Munjal, MD and CEO of Hero MotoCorp.
Analysts though paint a mixed reaction on the road ahead.
Hero Motocorp has successfully transitioned without its collaborator Honda, with two wheeler volumes well ahead of industry, said Bank of America Merrill Lynch.
"We retain positive outlook on the company's prospects based on (1) superior franchise in commuter bikes, posing strong entry barrier for competition, (2) increasing penetration in rural markets, which account for 45% of sales, and (3) new launches i.e. 150cc Impulse bike and Maestro scooter. (We) retain assumptions of 6.35 million (sales) in FY12, up 17.5% year-on-year and 7.24 million units in FY13, up 14%," it said.
On the other hand, Macquarie believes, that although July-September was a good quarter for Hero MotoCorp, volume growth for next year is a concern, as the company will face capacity constraints, while rival HMSI will commission additional 6 lakh per annum capacity by March 2012.
Credit Suisse raised target price on Hero MotoCorp to Rs 2,522 from Rs 2,492, while maintaining outperform rating. BofA Merrill also maintained a "buy" with target price of Rs 2,290. Kotak Securities has a "sell" on the stock with a target of Rs 1,800, saying there are limited upside triggers and sales growth could moderate to 6% over October-March due to high base effect and new Pulsar and Boxer byke launch by Bajaj Auto .
....more info