Angel Broking has recommended a buy for the Hero Motocorp stock with a target price of Rs 4,130 in a research report dated July 27,2017. The stock currently trades at Rs 3,733 in NSE. This recommendation was made on the back of factors such as strong recovery in domestic vehicle demand, the launch of half a dozen new products, a good degree of operating leverage and capacity expansion. The report observed that the first quarter (Apr- Jun 17) results released by the company have largely met the analyst expectations, and the performance appears to be better than that of Bajaj Auto, with the margins remaining firm and growth in revenue and reported profits. The net sales of the two wheeler manufacturer stood at at Rs 7,972 crore, up by 7.7% when compared on a year on year basis. The EBITDA (earnings before Interest, Taxes, Depreciation and Amortisation) was reported at Rs 1,296 crore, up by 5.4% when compared to the first quarter of the previous fiscal year. The profit after tax rose up by 3.5% in year on year terms to Rs 914 crores.
Angel Broking believes that the demand for two wheeler domestic automobile is expected to remain strong going forward with growth rate in the high single digits. Due to the lower interest rates, government’s focus on rural economy and expectation of a normal monsoon demand for two wheelers is set to rise. The report goes on to say that Hero Motocorp is well positioned to gain from improving demand, as it’s a well established brand and commands nearly 37% market share. After the company had commissioned the Vadodara and Bangladesh facilities, its total installed capacity has reached approximately 9.4 million units, as per Angel Broking. As a result of its capacity expansion, the stock broking firm believes that Hero Motocorp remains well positioned to meet future demand. Hero Motocorp has lined up about half a dozen new product launches in the current financial year and expects them to do well. As per the report, the company is looking to ramp up its business in exports and has entered two large two wheeler markets, Nigeria and Argentina.
Further the report said that the stock, at current levels trades at 18 times of FY19E earnings. Angel Broking valued the stock at 20 times of FY19E earrings due to slightly better growth outlook, and derived the target of Rs 4,130 with a one year timeline.