X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hero Moto.: Lower depreciation boosts profits - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Hero Moto.: Lower depreciation boosts profits
Aug 13, 2015

Hero Motocorp Ltd announced first quarter results of the financial year 2015-2016 (1QFY16). The company has reported a 1.2% YoY fall in sales, while net profits have risen by 33% YoY. Here is our analysis of the results.

Performance summary
  • Revenues fall by 1% YoY on account of the 4% drop in volumes during 1QFY16.
  • Operating margins improve by 1.6% to 15.1% during the quarter on account of lower raw material costs (as percentage of sales).
  • Net profits grow by a healthy 33% YoY led by the expansion in operating margins as well as the substantial fall in depreciation charges.

Standalone financials: A snapshot
(Rs m) 1QFY15 1QFY16 Change
No. of two wheelers sold 1,715,254 1,645,867 -4.0%
Net sales 70,368 69,553 -1.2%
Expenditure 60,896 59,074 -3.0%
Operating profit (EBDITA) 9,472 10,479 10.6%
EBDITA margin (%) 13.5% 15.1% 11.9%
Other income 1,128 1,019 -9.6%
Depreciation 2,915 1,030 -64.7%
Interest 30 5 -82.2%
Profit before tax 7,654 10,463 36.7%
Tax 2,027 2,959 46.0%
Profit after tax / (loss) 5,628 7,503 33.3%
Net profit margin (%) 8.0% 10.8%  
No. of shares (m) 199.7 199.7  
Diluted earnings per share (Rs)*   136.6  
Price to earnings ratio (x)*   19.4  
* based on 12 month trailing earnings & excluding extraordinary items

What has driven performance in 1QFY16?
  • Hero Motocorp's revenues fell by 1% YoY as volumes were down 4% YoY. The fall in volumes was largely attributed to the slowdown in the rural areas, which account for around 60% of total volumes. In addition to this, the company has been facing increasing competition in the economy segment from the likes of Bajaj Auto (CT100 and Platina) and TVS Motors.

  • Operating margins improved by 1.6% to 15.1% during the quarter leading to the 11% YoY growth in operating profits. Lower raw material costs (as a percentage of sales) led to the expansion in margins, while staff costs and other expenditure saw a rise. Other expenditure was higher as increased competitive pressure meant that there was a rise in marketing expenses and ad spends.

  • Net profits grew by a robust 33% YoY due to the 65% YoY fall in depreciation charges. Since the amortization of royalty payments to Honda ended in 1QFY15, there was a substantial reduction in depreciation.
What to expect?

At the current price of Rs 2,649, the stock is trading at a price to cash flow of Rs 12.2 per share based on our FY17 estimates. Hero Motocorp has lined up an investment of Rs 30 bn over the next two years, which will be towards adding capacities and brand building initiatives in the domestic and global markets. The company aims to expand its global footprint to 50 countries and aims to have an annual capacity of 12 m units by 2020, of which exports would account for around 10%. Valuations though seem expensive and so investors should not buy the stock at the current price levels.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HERO MOTOCORP SHARE PRICE


Dec 13, 2017 (Close)

TRACK HERO MOTOCORP

  • Track your investment in HERO MOTOCORP with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

HERO MOTOCORP 8-QTR ANALYSIS

COMPARE HERO MOTOCORP WITH

MARKET STATS