Hero Honda: Deserves re-rating - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

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

Hero Honda: Deserves re-rating

Oct 3, 2000

Hero Honda, India's leading motorcycle company continues to do very well. For the 1QFY01 the company's sales grew by 48% YoY, resulting in a an increase in its market share. Currently the company is enjoying a market share of 48% as compared to 42% in FY2000.The company has managed to do well as it has been continuously coming out with new products in the market. This being despite higher competition from newer entrants to this market. The motorcycle industry is the only one in the automobile segment to have had a worth while performance over the past few years and Hero Honda has continued to grow and maintain its leadership in this segment. The share of motorcycles in India's two wheeler market has gone up from 41% in FY99 to 47.5% in FY2000, while that of scooters has declined from 39% in FY99 to 33% in FY2000.

However despite this the company's share price has not done well in the past year and has come off by 31% YoY. The news regarding Honda Motors 100% subsidiary in India seems to have been overplayed, resulting in a sharp de-rating in Hero Honda's scrip. Though the future plans of this subsidiary are a cause of concern, considering the cordial relationship that the Hero group and Honda Motors have shared in the past, it seems unlikely that this would have an adverse impact on the company.

On valuation terms as compared to its peers in the industry like TVS Suzuki and Bajaj Auto, Hero Honda seems much more attractive due to its higher EPS growth in future and better prospects. TVS Suzuki in future would face higher costs and loss in market share, while Bajaj Auto's scooters continue to report declining volumes. Hence though on P/E basis Hero Honda seems more expensive however keeping in mind the prospects for each company, TVS and Bajaj Auto deserve the lower valuations. Hero Honda is not saddled with any of these problems and is expected to see good growth in profits over the next two years. Also the fact that it continues to enjoy the highest ROE and ROCE amongst its peers makes it more attractive. In the past Hero Honda has traded at over 20x future earnings and hence the current valuations seems low when compared to this.

(FY2000)EPS (Rs)
(FY02E)
P/E (x)
(FY02E)
EPS growth (%)
(FY01E-FY02E)
Gross
margin (%)
ROE
(%)
(ROCE)
%
Hero Honda81.510.330.0%13.4%43.3%38.7%
Bajaj Auto57.65.66.0%12.5%19.2%16.7%
TVS Suzuki53.83.217.0%10.4%27.4%19.1%

Keeping in mind the future prospects, Hero Honda deserves a re-rating. The concerns regarding the 100% subsidiary have battered the stock more than its deserves to be punished.

Equitymaster requests your view! Post a comment on "Hero Honda: Deserves re-rating". Click here!

  

More Views on News

Hero MotoCorp Q4 Net Profit Jumps Over 40% On Strong Operating Performance (Views On News)

May 7, 2021

The company's EBITDA jumped 78.8% YoY on account of cost saving initiatives to offset higher commodity prices and input costs.

Hero MotoCorp's Manufacturing Halt and Electric Vehicle Shift (Company Info)

Apr 22, 2021

Key reasons why the stock of Hero MotoCorp is in focus today.

HERO MOTOCORP Announces Quarterly Results (3QFY21); Net Profit Up 23.2% (Quarterly Result Update)

Feb 10, 2021 | Updated on Feb 10, 2021

For the quarter ended December 2020, HERO MOTOCORP has posted a net profit of Rs 11 bn (up 23.2% YoY). Sales on the other hand came in at Rs 98 bn (up 39.7% YoY). Read on for a complete analysis of HERO MOTOCORP's quarterly results.

Tata Motors' Stock in Focus as Company Meets Global Investors (Views On News)

Jun 8, 2021

Tata Motors' meeting with marquee investors comes on the back of poor earnings.

Mahindra & Mahindra Shares Surge on Bagging Contract for Defense Equipment (Views On News)

Jun 4, 2021

Mahindra & Mahindra has signed a contract with the Ministry of Defence.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

HERO MOTOCORP SHARE PRICE


Jun 18, 2021 (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 - SCOOTERS IND COMPARISON

COMPARE HERO MOTOCORP WITH

MARKET STATS