RESEARCH
CRISIL IER Independent Equity Research
Hero MotoCorp Ltd
Detailed Report
Enhancing investment decisions
CRISIL IER Independent Equity Research
Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process – Analysis
of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL
Fundamental Grade
Assessment
CRISIL
Valuation Grade
Assessment
5/5
Excellent fundamentals
5/5
Strong upside (>25% from CMP)
4/5
Superior fundamentals
4/5
Upside (10-25% from CMP)
3/5
Good fundamentals
3/5
Align (+-10% from CMP)
2/5
Moderate fundamentals
2/5
Downside (negative 10-25% from CMP)
1/5
Poor fundamentals
1/5
Strong downside (<-25% from CMP)
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Last updated: August, 2014
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias
the grading recommendation of the company.
Disclaimer:
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(CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to
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Hero MotoCorp Ltd
RESEARCH
Market leadership intact; volumes to revive in FY17
Fundamental Grade
5/5 (Excellent fundamentals)
April 29, 2016
Valuation Grade
4/5 (CMP has upside)
Industry
Automobiles
Fair Value
CMP
Hero to ride on revival in rural demand and product launches
Hero is expected to be a key beneficiary of an expected revival in rural demand on the back
of its apex positioning in the economy and executive segments. Despite competition, the
company maintains its competitive edge – 1) strong brands such as Splendor, Passion and
Glamour, 2) wide distribution reach (~6,000+ retail points, highest amongst peers), and 3)
established market positioning (72% and 48% share in the economy and executive
segments, respectively) – which positions it well to capitalise on the long-term industry
prospects. Positive response for the recently launched scooter brands - Maestro Edge and
Duet - also augurs well for future prospects. Its domestic volume is expected to record 11.5%
CAGR over FY16-18E, marginally higher than our industry forecasts.
EBITDA margin expanded in FY16, limited scope for further expansion
In FY16, EBITDA margin is likely to expand to 280 bps y-o-y to 15.5%, augmented by soft
raw material prices (subdued input prices of steel, tyres and aluminium) and cost
optimisation. While volume upturn is likely to lead to operating leverage benefits, margins
have limited scope for further expansion - we project 20 bps increase over FY16-18E.
Key challenges - weak positioning in the premium segment and intense competition
Hero has a relatively weaker positioning in the fast growing premium segment (20% of
domestic motorcycles). Emergence of new players (Royal Enfield, Mahindra & Mahindra,
etc.) and successful product launches by existing players (Bajaj and TVS) have heightened
competition. Thus, gaining market share in this key segment and maintaining leadership in
other segments amidst intense competition remain monitorables.
Fair value increased to ₹3,251 per share
We have increased our revenue and earnings estimates for FY17-18. Consequently, we have
revised our fair value to ₹3,251/share from ₹2,910/share. At the current market price of
₹2,897, our valuation grade is 4/5.
KEY FORECAST
(₹ mn)
Operating income
EBITDA
Adj net income
Adj EPS (₹)
EPS growth (%)
Dividend yield (%)
RoCE (%)
RoE (%)
PE (x)
P/BV (x)
EV/EBITDA (x)
Excellent
Fundamentals
5
4
3
2
1
Poor
Fundamentals
1
FY15
2,75,327
34,895
25,209
126.2
21.5
2.0
48.0
41.4
23.4
9.0
16.1
CMP: Current market price
Source: Company, CRISIL Research estimates
FY16E
2,78,298
43,211
30,639
153.4
21.5
2.9
54.3
43.2
19.2
7.7
13.0
FY17E
3,16,472
50,032
35,617
178.4
16.2
3.4
54.6
43.2
16.5
6.6
11.2
FY18E
3,58,054
56,077
39,637
198.5
11.3
4.6
54.5
42.7
14.9
6.1
9.9
4
3
5
Valuation Grade
Strong
Upside
KEY STOCK STATISTICS
NIFTY/SENSEX
7850/25607
NSE/BSE ticker
HEROMOTOCO
Face value (₹ per share)
2
Shares outstanding (mn)
199.7
Market cap (₹ mn)/(US$ mn)
5,78,575/8,698
Enterprise value (₹ mn)/(US$ mn)
5,52,858/8,311
52-week range (₹)/(H/L)
3,172/2,251
Beta
1.0
Free float (%)
65.4%
Avg daily volumes (30-days)
5,07,999
Avg daily value (30-days) (₹ mn)
1,493
SHAREHOLDING PATTERN
100%
8.9%
90%
13.7%
13.5%
13.4%
80%
10.9%
13.4%
13.8%
40.8%
38.5%
38.2%
41.9%
34.6%
34.6%
34.6%
34.6%
Mar-15
Jun-15
Sep-15
14.6%
70%
60%
50%
40%
30%
20%
10%
0%
Promoter
FY14
2,53,135
35,533
20,743
103.9
(2.1)
2.2
45.9
39.0
28.4
10.5
15.6
2
Strong
Downside
Industry growth to revive in FY17 led by uptick in rural consumption
After reporting 3% y-o-y growth in FY16, the domestic 2W industry is expected to revive from
H2FY17 onwards – we expect 9-11% y-o-y growth in FY17. Better farm incomes, assuming
normal monsoons and sustained growth in urban consumption are seen as key growth
catalysts. Lower cost of ownership due to subdued fuel prices and soft interest rates are likely
to provide added impetus. In the longer run, two-wheeler volume is projected to register
8-10% CAGR over FY16-20E, with major thrust from the rural segment.
CFV MATRIX
Fundamental Grade
After a subdued 9MFY16, volumes of Hero MotoCorp Ltd (Hero) - India’s largest two-wheeler
(2W) manufacturer – bounced back in the past three months. A confluence of growth
impediments – subdued rural demand and competition across segments – led to 3% y-o-y
decline in volumes in 9MFY16. However, successful launch of new scooters coupled with
moderate uptick in demand led to 9% volume growth in Q4FY16. Going forward, expected
revival in rural consumption, assuming normal monsoons, is likely to augment domestic 2W
demand, particularly in the economy and executive segments. With sustained market
leadership in these segments (~80% of domestic motorcycles), Hero is well poised to
capitalise on industry revival. Further, low penetration of two-wheelers in rural areas spells
long-term growth potential. Strong market positioning, healthy brand recall and wide rural
reach are expected to enable Hero to benefit from this potential. Launch of new scooter
models is likely to improve its positioning in the fast-growing segment. Nevertheless, weak
positioning in the premium segment and competition across product categories are foremost
challenges. We maintain the fundamental grade of 5/5.
₹3,251
₹2,897
FII
Dec-15
DII
Others
PERFORMANCE VIS-À-VIS MARKET
Returns
1-m
3-m
6-m
12-m
Hero MotoCorp
1%
13%
10%
22%
CNX 500
4%
4%
-3%
-3%
ANALYTICAL CONTACT
Bhaskar Bukrediwala
bhaskar.bukrediwala@crisil.com
Hemali Dhame
hemali.dhame@crisil.com
Sayan Das Sharma
sayan.sharma@crisil.com
Client servicing desk
+91 22 3342 3561
clientservicing@crisil.com
For detailed initiating coverage report please visit: www.crisil.com
CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
1
CRISIL IER Independent Equity Research
Table 1: Hero MotoCorp - business segments
Product / Segment
Sales volume contribution
(FY16)
Sales volume contribution
(FY18E)
Product / service offering
Motorcycles
Scooters
86.5%
13.5%
84.5%
15.5%
Key brands
Pleasure, Maestro, Maestro Edge and Duet
■
Economy segment (100 cc) - HF Dawn and HF
■
Executive segment (>100 to <150 cc) – Splendor,
■
Premium segment (150 cc and above) – Achiever,
Deluxe
Passion , Glamour
CBZ, Hunk, Ignitor, Karizma
Geographic presence
Domestic and exports (Africa, Asia and Latin America)
Market position
■
Largest player with 44% market share in the
Third largest player, with 17% market share as of
motorcycle segment in FY16
FY16
■
Strong position in the economy segment: 48%
■
Market leader in the executive segment: 72% share
■
Weaker position in the premium segment: 6% share
■
Gaining foothold in exports: 8% share in FY16
share in FY16
in FY16
in FY16
Industry growth expectations
5% y-o-y in FY17
16-18% y-o-y in FY17
6-8% CAGR over FY16-20E
14-16% CAGR over FY16-20E
Sales growth
4.9%
(FY14-FY16 – 2-yr CAGR)
Sales forecast
13.4%
(FY16-FY18 – 2-yr CAGR)
Demand drivers
■
Better income and penetration in rural areas
■
Continued shift in preference for scooters
■
Higher urban consumption
■
Convenience in utility
■
Softer interest rates, lower inflation and cost of
ownership
■
New launches
Export demand to be driven by:
■
Lower penetration
Key competitors
Key monitorables / risks
■
Poor public infrastructure facilities
■
Improving per capita incomes
Honda, Bajaj Auto, TVS Motors, Yamaha Motors among others
■
Prolonged slowdown in consumer spending
■
Failure to ramp up presence in export markets
Note: Classification by the industry body SIAM based on engine capacity in five categories.
CRISIL Research classifies in three categories based on engine capacity, positioning and pricing.
Source: Company, CRISIL Research
2
Hero MotoCorp Ltd
RESEARCH
Grading Rationale
Hero beats industry headwinds to maintain market leadership,
well poised to leverage on industry prospects
After growing 8% y-o-y in FY15, domestic 2W volume growth moderated to 3% y-o-y in FY16.
Prolonged slowdown in rural spending led to muted domestic motorcycle volume in FY16.
Growth in scooters also moderated from FY15 levels (25% y-o-y), but remained in double
Volume growth picked up
digits (12% y-o-y). Although Hero’s domestic 2W volume remained flat in FY16, it posted
substantially in Q4FY16, after a
strong volume growth in Q4FY16 (9% y-o-y versus a decline of 3% y-o-y in 9MFY16) and
muted 9MFY16
maintained its market leadership in the domestic 2W industry. The company continues to
sustain its leadership in the economy segment with a dominant 48% share. It continues to
lead the executive segment (largest within domestic 2W industry) as well, with over 72%
share, supported by strong positioning of brands such as Splendor, Passion and Glamour.
While intense competition and weaker product positioning are posing challenges in the
premium segment of domestic motorcycles and scooters, the company is trying to combat
them by launching products (especially in scooters segment). The industry is expected to
recover in H2FY17, powered by higher consumption, both in rural areas (assuming normal
monsoon) and urban areas (where some resilience is already visible). The company is well
poised to benefit from the industry upturn owing to strong positioning in the key economy and
executive segments. Entry into newer geographies is likely to amplify growth in exports.
Figure 1: Hero has sustained apex positioning in the
Figure 2: New launches helped maintain market share in
domestic motorcycle market
scooters
(%)
(%)
60%
48%
48%
32%
32%
46%
44%
7% 7%
14%
5%
FY12
FY11
Hero
8%
6%
7%
25%
14%
26%
12%
8%
8%
5%
6%
7%
9%
FY13
FY14
FY15
FY16
Honda
50%
47%
55%
55%
43%
40%
11%
5%
44%
31%
27%
8%
45%
53%
49%
Bajaj
TVS
30%
21%
20% 18%
10%
17%
20%
17%
16%
19%
19%
16%
15%
10%
0%
0%
2%
FY11
FY12
FY13
0%
Others
Source: Company, CRISIL Research
Hero
Honda
13%
18%
17%
15%
8%
5%
5%
FY14
FY15
Yamaha
TVS
15%
7%
6%
FY16
Others
Source: Company, CRISIL Research
Structural changes to aid industry revival in H2FY17
The domestic 2W industry is expected to benefit from an upturn in structural drivers such as
urban consumption, lower inflation and softer interest rates. Lower cost of ownership,
stemming from subdued fuel prices and encouraging cues on the supply side (model launches
by OEMs and capacity expansion) should also spur growth. Higher government spending on
social infrastructure augurs well for the industry too. However, this is contingent on the
assumption of normal monsoon in FY17.
3
CRISIL IER Independent Equity Research
Table 2: Structural factors to turn favourable in FY17
Two wheeler
Impact
2014-15
2015-16E
2016-17P
Overall demand
F
NF
F
Demand-side variables
F
NF
F
NF
NF
F
Farm incomes
NF
NF
F
Rural wages
NF
NF
N
F
N
F
F
N
F
Cost of ownership
N
N
F
Fuel prices
N
F
F
Interest rates
N
N
F
Taxes and duties
F
NF
N
F
N
F
F
F
F
F
N
F
Rural demand
Urban demand
Consumer confidence
Supply-side variables
New model launches
Capacity
expansion/constraints
F= favourable, N = Neutral, NF = Not favourable
Source: CRISIL Research
Rural demand expected to keep the long-term story intact
Low penetration levels and expected rise in number of addressable households offer ample
scope for increasing rural offtake – also seen as a major growth driver in the long run.
Table 3: Rural penetration lags urban levels
Name
Addressable household (as a % of total household) (on the
basis of a threshold income level)
Penetration (as a % of addressable household)
Rural
Urban
~50%
~95%
~42%
~67%
Source: CRISIL Research
The number of addressable households is likely to grow by 39 million in FY15-20 to reach
135-145 million. The government’s focus on driving economic activity in rural India, growth in
affordability and latent rural demand are expected to aid the rise in penetration. On the urban
side, we estimate addressable households to remain at ~97%, but penetration levels to
improve to ~80% by FY20.
4
Hero MotoCorp Ltd
RESEARCH
Table 4: Robust long-term growth potential for the 2W industry
Volume growth
Name
(FY16-20E)
Motorcycles
6%-8%
Reasons
■
Growing rural consumption will improve demand for the economy and
executive segments
■
Improving urban consumption and newer products to drive demand for
■
Changing customers’ preferences
■
Greater convenience and utility
■
Gender neutral positioning (which has increased demand from women)
■
Enhanced product features and quality
the premium segment
Scooters
14%-16%
Total 2W
8%-10%
Hero to ride on revival in economy and executive segments
Hero remains the dominant player in the key economy and executive segments, together
constituting ~80% of the motorcycle category. However, slowdown in rural consumption,
following two years of sub-normal monsoons, has pulled down growth in both segments. Rural
consumption is expected to pick up in H2FY17, assuming normal rain, which bodes well for
these segments and Hero’s volume.
Gaining market share in executive segment
Executive motorcycles form the largest segment of the domestic industry, despite posting
slowest pace of growth. Hero has the strongest brands – Splendor, Passion and Glamour –
and vast distribution reach, particularly in rural areas of North and East India. Notwithstanding
Market share improved to 72% in
competitive pressure, the company has gained share in FY16 – increased to 72% in FY16
FY16 from 66% in FY15
from 66% a year ago. We expect Hero to significantly draw on the growth prospects, given its
strong brands in this segment.
Figure 3: Continue to gain market share in executive segment
100%
90%
80%
3.4
16.8
7.4
70%
3.0
2.0
12.0
21.2
2.6
20.2
4.8
14.4
10.3
9.2
2.9
8.4
22.4
14.6
Figure 4: Volume decline lower than that of the segment
2.3
4.0
25%
21.6
20%
19.7
10%
50%
5%
72.4
30%
75.7
66.5
62.6
61.0
66.3
Hero's growth was flat even
though industry growth fell
16.0%
15%
60%
40%
22.3%
72.1
9.6%
5.1%
12.4%
0%
5.6%
2.4%
1.9%
-5%
20%
due to its strong market
-1.6%
-2.7%
-10%
10%
-9.4%
-15%
0%
FY 10
Hero
FY 11
FY 12
Honda
Source: CRISIL Research
FY 13
FY 14
Bajaj
FY 15
Others
FY16
FY11
FY12
FY13
Executive segment growth
-9.5%
FY14
FY15
FY16
Hero
Source: CRISIL Research
5
CRISIL IER Independent Equity Research
Strong presence in less-penetrated rural areas gives an edge
The company has a wide distribution network – over 6,300 touch points, higher than Honda
(~5,000) and TVS (~3,000). While Honda has wider footprint down South, Hero is particularly
strong in the less-penetrated rural areas of North and East India.
Competition is a key challenge in the economy segment
Subdued farm income growth and product launches at attractive prices have prompted a shift
from the lower range of the executive segment (where Splendor and Passion are wellpositioned) towards the economy segment. Consequently, this segment has performed better
than the executive segment in FY16 – 17% y-o-y growth against 10% y-o-y decline in the
executive segment. Owing to the highly successful launch of CT100 by Bajaj (36% share) in
the economy segment, Hero’s segmental share slipped to 48% in FY16 from 54% in FY15.
Although the company maintains its leading position in the segment, intensifying competition
is a challenge.
Table 5: New products impact market share
Figure 5: Hero lost market share to Bajaj
(%)
60.0
Market
share
Bajaj
Hero
Market
Price
FY15
share
Product
Segment
(‘000)
%
FY16 %
CT 100
Economy
~₹37
NA
24.4
Platina
Economy
~₹45
23.5
11.4
HF Series
Economy
~₹38
53.9
48.3
Splendor
Executive
~₹50
38.5
42.3
Passion
Executive
~₹47
20.8
19.4
Economy
19.5
22.8
Executive
61.8
56.1
50.0
53.2
43.5
46.4
30.2
30.0
20.0
26.3
28.8
28.7
24.7
26.6
24.9
21.9
24.2
19.4
24.9
35.6
21.8
16.3
FY 10
FY 11
Source: CRISIL Research
Even as the premium segment grew 13% y-o-y in FY16, weak product positioning and
competitive pressure dragged down Hero’s growth by 17.6%. In contrast, the industry reported
robust growth, driven by rising urban incomes and consumption. The premium segment also
garnered higher share in domestic motorcycles – 21% in FY16, up ~250bps y-o-y – owing to
better quality of products and technology, deployed by both, existing and new players.
However, Hero was unable to improve its product positioning after it split with Honda due to
lack of technological advantage and brand positioning in this segment. As a result, its market
6
48.1
44.7
10.0
Weak product positioning in premium segment to affect Hero’s
volume growth and market share
share fell ~215 bps to 5.8% in FY16.
53.3
40.0
Hero
Source: CRISIL Research
56.4
FY 12
FY 13
Bajaj
FY 14
FY 15
Others
FY16
Hero MotoCorp Ltd
RESEARCH
Figure 6: Weak positioning eroded Hero’s market share in the segment
(%)
50.0
46.0
48.2
42.1
45.0
40.6
37.1
40.0
35.0
35.2
35.0
market
30.0
25.0
Royal Enfield continues to gain
19.6
20.4
22.2
19.4
15.0
in
the
premium
segment from Bajaj, Honda and
Hero
16.2
16.0
20.0
share
11.5
10.0
5.0
4.1
3.2
FY 10
Hero
FY 11
Honda
4.6
FY 12
Bajaj
7.3
FY 13
11.0
FY 14
Royal Enfield
7.9
FY 15
TVS
5.8
FY16
Others
Source: CRISIL Research
Hero plans to launch three other versions of its motorcycles, along with HX250R. However,
the success of these models is a monitorable.
‘Technology’ is key to success in this segment – Hero taking several
initiatives
■
In FY15, Hero commenced operations at its R&D Centre at Kukus, Rajasthan with
600 engineers.
■
Hero has appointed Dr. Markus Braunsperger from BMW, Germany as its chief
technology officer.
■
Despite several steps initiated towards technological development, Hero’s ability to either
build in-house technology or enter into further technological tie-ups and improve its
product acceptability would determine its success. This remains a key monitorable.
Product launches to bolster positioning in scooter segment
Hero’s market share in the domestic scooters segment dropped to 19.1% in FY15 from 22.6%
in FY14, as it did not launch new products (maintained its two platforms - Maestro and
Pleasure since 2012) and due to strong competition. However, in H2FY16, Hero launched a
new platform viz. Hero Duet (developed in-house), which helped it gain market share in
Gained market share in the scooter
Q4FY16. It also launched a new variant – Maestro Edge. Going ahead, it is expected to
segment after the launch of Duet
launch new models such as Dare (125cc), ZIR (150cc) and Leap Hybrid (124cc petrol unit)
and Maestro Edge models
during FY17 and FY18. Further, there are plans of launching other premium scooters as well.
Product launches are likely to help Hero revive its aging product portfolio. It gained market
share (20% in Q4FY16 from 12% in Q2FY16; FY16 market share of 17%) after the launch of
new products during the festive season. While the positive consumer response is
encouraging, sustenance of this momentum in the coming quarters is a monitorable. We
expect the scooter segment to record 20% CAGR over FY16-18E.
7
CRISIL IER Independent Equity Research
Figure 7: Scooter segment to see traction in growth
('000)
1,200
23%
Figure 8: Hero’s share up after the launch of new products
25%
1,000
20%
57%
60%
51%
12%
600
9%
32%
15%
10%
8%
20%
10%
752
819
901
12%
1,009
0%
0
FY14
FY15
Scooter
FY16
FY17E
FY18E
26%
27%
26%
21%
20%
19%
31%
27%
Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
Hero
Source: CRISIL Research
Despite India’s 2W exports increasing 18% y-o-y in FY15, Hero’s share remained ~9%.
Growth was muted in FY16 due to industry slowdown. Yet, over the long term, Hero has a
focused strategy on exports. While it currently caters to demand from ~22 countries, it plans to
strengthen its positioning in the existing markets and enter new markets.
Setting up manufacturing facilities in attractive markets
Hero has set up a manufacturing facility with a capacity of 150,000 units in Bangladesh.
It holds a 55% stake (JV with Niloy Group) and has invested $40 mn.
Hero has invested $70 mn on a subsidiary in Colombia. It has an installed capacity of
78,000 units, which could scale up to 150,000 units. While the subsidiary serves existing
markets via 120 outlets, eventually it could cater to other markets in Latin America.
Hero also plans to set up assembly units in Kenya, Tanzania, and Uganda in East Africa.
We expect such expansions to help Hero optimise costs and drive product differentiation for
local customers.
Going ahead, demand from key target markets - Africa, Latin America and South-East Asia is a monitorable. While we forecast ~12-14% CAGR for Indian 2W exports over FY16E-20E,
Hero’s exports are estimated to grow marginally faster at ~15%.
23%
17%
13%
Aug-15 Sep-15
Entry into new markets to bolster export growth
8
53%
0%
Growth (RHS)
Source: CRISIL Research
■
29%
20%
5%
687
54%
54%
50%
10%
200
■
30%
30%
400
■
52%
50%
40%
800
57%
Honda
Other
Hero MotoCorp Ltd
RESEARCH
Figure 9: Hero’s export growth highly sensitive to industry
Figure 10: Bajaj leads in exports; potential for Hero to
trends
improve share
50.0%
(%)
53.0%
60.0%
80.0
44.5%
36.2%
70.0
40.0%
30.0%
65.7
65.9
67.7
66.1
63.5
61.9
30.2
30.0
58.9
60.0
34.3%
50.0
29.0%
20.0%
6.5%
10.0%
-0.9%
17.9%
5.1%
40.0
30.0
0.0%
1.0%
-10.0%
-20.0%
FY11
-18.8%
FY13
FY14
FY12
Industry growth
Source: Company, CRISIL Research
26.3
24.2
25.7
8.3
7.8
8.1
8.2
6.3
8.1
8.1
FY 11
FY 12
FY 13
FY 14
FY 15
FY16
10.0
-16.3%
-30.0%
20.0
33.0
25.9
FY15
Hero growth
FY16
FY 10
Hero
Bajaj
others
Source: Company, CRISIL Research
9
CRISIL IER Independent Equity Research
Key Risks
Prolonged slowdown in rural consumption
The economy and executive segments (largely driven by rural growth) form ~85% of Hero’s
revenue. If poor monsoons in FY17 dent growth in farm incomes, it could have an adverse
impact on demand for Hero’s products.
Failure to maintain momentum in scooter sales
Our assumptions hinge on growth traction in Hero’s scooter segment. The company’s inability
to scale up sales, due to competitive factors or lack of product acceptability, would adversely
impact its growth potential.
10
Hero MotoCorp Ltd
RESEARCH
Financial Outlook
Revenue to record 13% CAGR over FY16E-18E
Revenue is expected to grow at a CAGR of 13.4% over FY16-18E driven by volume growth of
11.5%. The motorcycle segment is expected to log a CAGR of 15%. Scooter sales are
expected to post ~11% CAGR, fuelled by product launches and better acceptability. Exports
are expected to grow ~17% in compounded terms.
Figure 11: Revenue to record CAGR of ~13% over FY16-
Figure 12: New products to drive volume growth over the
FY18E
next few years
(₹ bn)
(mn units)
350
13.7%
13.1%
300
250
200
8.8%
5.6%
150
100
1.1%
50
253
275
278
316
358
FY14
FY15
FY16E
Operating Income
FY17E
16%
9.00
14%
8.00
12.0%
12%
7.00
10.0%
10%
6.00
8%
5.00
6%
4.00
4%
3.00
2%
2.00
0%
1.00
-2%
0.00
FY18E
11.8%
14.0%
11.3%
8.0%
6.2%
6.0%
2.8%
4.0%
2.0%
0.0%
0.0%
-2.0%
6.25
6.63
6.63
7.41
8.25
FY14
FY15
FY16E
FY17E
FY18E
-4.0%
-6.0%
Growth (RHS)
Volumes
Growth (RHS)
Source: CRISIL Research
Source: CRISIL Research
Figure 13: Growth in blended realisation to remain tepid
Figure 14: Motorcycle segment to be major contributor
(₹)
43,000
2.5%
2.5%
2.3%
3.0%
42,500
2.5%
42,000
2.0%
41,500
0.8%
1.5%
0.6%
1.0%
41,000
40,500
100%
2%
3%
3%
4%
4%
90%
11%
3%
11%
2%
12%
2%
13%
2%
14%
67%
66%
65%
64%
63%
17%
17%
17%
17%
18%
FY17E
FY18E
80%
60%
0.5%
50%
0.0%
40%
-0.5%
30%
39,500
-1.0%
20%
39,000
-1.5%
10%
40,000
40,092
40,396
40,638
41,654
42,607
-2.0%
38,500
FY14
FY15
Realisation
Source: CRISIL Research
FY16E
FY17E
FY18E
Growth (RHS)
2%
70%
0%
FY14
Economy
FY15
FY16E
Executive
Premium
Scooters
Export
Source: CRISIL Research
11
CRISIL IER Independent Equity Research
EBITDA margin to improve ~20 bps over FY16E-18E
We expect EBITDA to increase at ~13% CAGR over FY16-18E and margin to improve by ~20
bps to 15.7% in FY18E. Operating margins are expected to expand 180 bps y-o-y to 15.5%
driven by soft material prices, and benefits of cost optimisation programme. While we expect
material prices to remain benign, we see limited scope for further expansion in margins going
ahead.
Figure 15: EBITDA improved on cost optimising program
Figure 16: EBITDA margins have been expanding
(₹ mn)
(₹ mn)
60,000
50,000
15.8%
15.5%
15.7%
18.0%
16.0%
14.0%
12.7%
14.0%
40,000
12.0%
10.0%
30,000
8.0%
20,000
6.0%
4.0%
10,000
35,533
34,895
43,211
50,032
56,077
FY14
FY15
FY16E
FY17E
FY18E
2.0%
0.0%
EBITDA
12,000
15.1%
15.8%
15.6%
16.0%
13.5%
10,000
12.0%
18.0%
12.3%
14.0%
8,000
12.0%
10.0%
6,000
8.0%
4,000
6.0%
4.0%
2,000
9,348
8,218
8,384
10,479
10,834
11,399
2.0%
0.0%
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16
EBITDA
EBITDA margin (RHS)
EBITDA margin (RHS)
*Improvement in EBITDA margin in FY16 includes benefits of lower raw
material cost
Source: CRISIL Research
Source: CRISIL Research
PAT to increase ~14% over FY16E-18E
Growth in EBITDA is likely to drive 14% CAGR in PAT over FY16-18E. However, lower other
income is likely to limit this expansion.
Figure 17: PAT and PAT margin trend
(₹ mn)
11.0%
45,000
40,000
35,000
11.3%
11.1%
9.2%
10.0%
8.2%
30,000
8.0%
25,000
6.0%
20,000
15,000
4.0%
10,000
5,000
2.0%
20,743
25,209
30,639
35,617
39,637
FY14
FY15
FY16E
FY17E
FY18E
-
0.0%
Adj PAT
Source: Company, CRISIL Research
12
12.0%
Adj PAT margin (RHS)
Hero MotoCorp Ltd
RESEARCH
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors such as industry and business prospects, and financial
performance.
Strong and experienced management
Owned by the Munjal Group, Hero MotoCorp is one of the the largest 2W companies. The top
management, highly experienced in the industry, includes –
■
Pawan Munjal, Chairman, Managing Director and CEO, is responsible for growth and
strategic planning for the entire group. He has managed to achieve technological
excellence in the company's operations. He is also on the board of Indian Institute of
Management, Lucknow and Indian School of Business.
■
Sunil Kant Munjal was appointed Joint Managing Director effective August 2011. He is
also on the Board of Indian School of Business, Hyderabad and visiting faculty at various
Led by strong, experienced top
management and aptly supported
by a professional second line
business schools and corporates.
The long-standing association of top management members with the company fosters
continuity and depth of management and institutionalised knowledge.
A professional set-up and a strong second line
Hero’s management has adopted a professional approach by inducting various professionals
from the industry, at senior and mid-management levels to steer the company to the next level
of growth. The second line of management also has a long association with the company. A
fair degree of autonomy in decision making at the respective business unit level, provides
significant operational flexibility.
13
CRISIL IER Independent Equity Research
Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses the
shareholding structure, board composition, typical board processes, disclosure standards and
related-party transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a company’s corporate governance.
Overall, corporate governance at Hero meets the statutory requirements, supported by
reasonably good board practices and involvement of an independent board.
Board composition - complying with listing norms
Hero’s board has 11 members, with seven independent directors, which meets the
requirements under clause 49 of SEBI’s listing guidelines. The board brings to the table sector
expertise relevant to the business and diversified technical, business and administrative
experience.
Independent directors of repute
The well-rounded board includes independent directors across various fields such as
corporate affairs, finance, public service, entrepreneurship, technology, amongst others.
Independent directors have vast experience in their respective domains. Some of the directors
are M Damodaran (former head of SEBI), Pradeep Dinodia, Ravi Nath (Supreme Court
advocate), Dr. Anand Burman (Chairman – Dabur Ltd), Shobhana Kaminee (Entrepreneur –
Director at Apollo Hospital).
Good quality of earnings; satisfactory disclosure levels
■
Hero’s quality of earnings is good, based on the following factors:
–
The company has generated positive operating cash flows in the past eight years
despite incurring capex.
–
Debtor and inventory days rose slightly, while creditor days fell due to business
requirements.
■
The company has consistently paid dividends over the past few years – dividend payout
has been higher than 50% in the past five years.
■
In our opinion, disclosure levels are satisfactory based on publicly available information
such as quarterly analyst presentations, annual reports, content on website, quarterly
conference calls and other public documents.
14
Hero has good corporate
governance practices
Hero MotoCorp Ltd
RESEARCH
Valuation
Grade: 4/5
We have revised our earnings forecasts for FY16-18 and raised our fair value to ₹3,251 per
Fair value revised to ₹3,251
share from ₹2,910 per share. The fair value implies P/E multiples of 18.2x and 16.4x in FY17E
per share
and FY18E, respectively. At the current market price of ₹2,897, our valuation grade is 4/5.
Key DCF assumptions
We have considered the discounted value of the firm’s estimated free cash flow from FY17E
to FY26E. We have assumed a terminal growth rate of 3% beyond the explicit forecast period
until FY26.
WACC computation
FY17E-26E
Terminal value
Cost of equity
12.1%
12.1%
Cost of debt (post tax)
7.3%
6.7%
WACC
Terminal growth rate
12.8%
12.8%
3.0%
Sensitivity analysis to terminal year EBITDA margin and terminal growth rate
margin
Terminal year EBITDA
Terminal growth rate
1%
2%
3%
4%
5%
14.3%
2,820
2,933
3,069
3,236
3,447
15.3%
2,895
3,015
3,160
3,338
3,561
16.3%
2,971
3,098
3,251
3,439
3,676
17.3%
3,046
3,181
3,342
3,541
3,790
18.3%
3,122
3,263
3,433
3,642
3,905
Source: CRISIL Research estimates
One-year forward P/E band
One-year forward EV/EBITDA band
(₹)
(₹ mn)
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
12,00,000
10,00,000
8,00,000
6,00,000
4,00,000
Source: NSE, CRISIL Research
EV
16x
Apr-16
Jan-16
Nov-15
Jun-15
Aug-15
Mar-15
Dec-14
Jul-14
Oct-14
Feb-14
12x
May-14
Dec-13
Jul-13
8x
Sep-13
Apr-13
Jan-13
Nov-12
Apr-16
Jan-16
Jun-12
24x
Aug-12
15x
21x
Jan-12
12x
18x
0
Mar-12
Hero MotoCorp
Nov-15
Jun-15
Aug-15
Mar-15
Dec-14
Jul-14
Oct-14
Feb-14
May-14
Dec-13
Jul-13
Sep-13
Apr-13
Jan-13
Nov-12
Jun-12
Aug-12
Jan-12
Mar-12
2,00,000
20x
Source: NSE, CRISIL Research
15
CRISIL IER Independent Equity Research
P/E – premium / discount to Nifty
P/E movement
(Times)
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
25
+1 std dev
20
15
-1 std dev
10
Apr-16
1yr Fwd PE (x)
Apr-16
Jan-16
Nov-15
Jun-15
Aug-15
Mar-15
Dec-14
Jul-14
Oct-14
Feb-14
May-14
Dec-13
Jul-13
Sep-13
Apr-13
Jan-13
Nov-12
Jun-12
Premium/Discount to CNX 500
Median premium/discount to CNX 500
Aug-12
Jan-12
0
Mar-12
Jan-16
Nov-15
Jun-15
Aug-15
Mar-15
Dec-14
Jul-14
Oct-14
Feb-14
May-14
Dec-13
Jul-13
Sep-13
Apr-13
Jan-13
Nov-12
Jun-12
Aug-12
Mar-12
Jan-12
5
Median PE
Source: NSE, CRISIL Research
Source: NSE, CRISIL Research
Share price movement
Fair value movement since initiation
500
(₹)
('000)
450
3,500
14,000
400
3,000
12,000
2,500
10,000
250
2,000
8,000
200
1,500
6,000
150
1,000
4,000
500
2,000
350
300
100
50
0
TTQ (RHS)
NIFTY 500
CRISIL Fair Value
Apr-16
Dec-15
Jul-15
Feb-15
Sep-14
May-14
Dec-13
Jul-13
Mar-13
Oct-12
May-12
Dec-11
Aug-11
Oct-10
Mar-11
Jan-10
Apr-16
Jul-15
Dec-15
Feb-15
Sep-14
May-14
Jul-13
Dec-13
Oct-12
Mar-13
May-12
Dec-11
Mar-11
Aug-11
Oct-10
May-10
Jan-10
Hero MotoCorp
May-10
0
0
Hero MotoCorp
-Indexed to 100
Source: NSE, CRISIL Research
Source: NSE, BSE, CRISIL Research
Peer comparison
M. cap
Company
Price to book ratio (P/B)
RoE
EV/EBITDA
FY16E
FY17E
FY18E
FY16E
FY17E
FY18E
Hero MotoCorp Ltd
492,919
15.9
14.1
12.7
6.3
5.3
4.5
41.8
39.5
37.6
11.0
9.7
Bajaj Auto Ltd
677,119
17.8
15.7
13.7
5.2
4.4
3.8
32.1
30.6
29.7
12.6
11.0
9.9
TVS Motor Co Ltd
136,683
30.9
20.3
15.1
8.1
6.0
4.5
29.4
34.3
33.9
17.8
13.0
10.4
17.8
15.7
13.7
5.2
4.4
3.8
29.4
30.6
29.7
12.6
11.0
9.9
Median
16
(₹ mn)
Price earnings ratio (P/E)
FY16E FY17E FY18E FY16E FY17E FY18E
8.8
Hero MotoCorp Ltd
RESEARCH
CRISIL IER reports released on Hero MotoCorp Ltd
Date
Nature of report
Fundamental
grade
Fair value
Valuation
grade
CMP
(on the date of report)
03-Dec-09
Initiating coverage
5/5
₹1,747
3/5
₹1,693
28-Jan-10
Q3FY10 result update
5/5
₹1,775
4/5
₹1,565
21-Apr-10
Q4FY10 result update
5/5
₹1,937
3/5
₹1,852
10- Aug-10
Q1FY11 result update
5/5
₹1,910
3/5
₹1,865
09- Nov-10
Q2FY11 result update
5/5
₹1,893
3/5
₹1,829
25-Feb-11
Q3FY11 result update
5/5
₹1,893
5/5
₹1,505
05-May-11
Q4FY11 result update
5/5
₹1,797
4/5
₹1,598
22-Jul-11
Q1FY12 result update
5/5
₹1,797
3/5
₹1,789
20-Sep-11
Detailed Report
5/5
₹1,797
2/5
₹2,201
25-Oct-11
Q2FY12 result update
5/5
₹1,797
2/5
₹2,071
25-Jan-12
Q3FY12 result update
5/5
₹1,890
3/5
₹1,888
10-May-12
Q4FY12 result update
5/5
₹2,023
3/5
₹1,871
20-Jul-12
Q1FY13 result update
5/5
₹2,023
3/5
₹2,082
25-Oct-12
Q2FY13 result update
5/5
₹1,939
3/5
₹1,838
24-Jan-13
Q3FY13 result update
5/5
₹1,842
3/5
₹1,783
02-May-13
Q4FY13 result update
5/5
₹1,684
3/5
₹1,618
01-Aug-13
Q1FY14 result update
5/5
₹1,733
3/5
₹1,820
24-Oct-13
Detailed Report
5/5
₹1,882
3/5
₹2,085
06-Feb-14
Q3FY14 result update
5/5
₹1,939
3/5
₹1,985
02-Jun-14
Q4FY14 result update
5/5
₹2,033
2/5
₹2,391
08-Aug-14
Q1FY15 result update
5/5
₹2,433
3/5
₹2,592
03-Nov-14
Q2FY15 result update
5/5
₹3,090
3/5
₹3,011
20-Feb-15
Q3FY15 result update
5/5
₹3,090
4/5
₹2,659
18-May-15
Q4FY15 result update
5/5
₹2,729
3/5
₹2,521
01-Sep-15
Q1FY16 result update
5/5
₹2,729
3/5
₹2,384
03-Nov-15
Q2FY16 result update
5/5
₹2,729
3/5
₹2,583
07-Mar-16
Q3FY16 result update
5/5
₹2,910
3/5
₹2,836
29-Apr-16
Detailed report
5/5
₹3,251
4/5
₹2,897
17
CRISIL IER Independent Equity Research
Company Overview
Incorporated in 1984, Hero Honda (now known as Hero MotoCorp) was promoted through a
joint venture between India’s Hero Group and Japan’s Honda Motor Company. Under that
arrangement, Honda provided technical support to Hero MotoCorp in return for royalty. In
January 2011, Honda transferred its entire 26% stake in Hero to the promoters, thereby
terminating the joint venture. With effect from April 2011, Hero Honda Motors has been
renamed Hero MotoCorp Ltd. In FY16, it sold 6.6 mn two-wheelers.
Manufacturing unit
The company has four manufacturing facilities - Haryana (Dharuhera and Gurgaon, set up in
1985 and 1997, respectively), Uttarakhand (Haridwar, set up in 2008) and Rajasthan
(Neemrana set up in 2015). Its total annual manufacturing capacity is 8 mn as of FY16. It
plans to set up the fifth plant in Gujarat and one in Andhra Pradesh subsequently. It has
commenced operations at Global Parts Center in Neemrana and R&D center in Kukus,
Rajashtan. Internationally, it plans to set up manufacturing facilities in Bangladesh and
Columbia.
Product profile
Motorcycles and scooters constitute 86.5% and 13.5%, respectively, of the company’s overall
sales volume in FY16.
Segment
Motorcycles
100 cc
HF Dawn, HF Deluxe, Splendor Plus, Splendor, Passion, Passion Pro and variants
125 cc
Glamour, Super Splendor and variants
150 cc & above
Premium brands – Hunk, CBZ Xtreme, Karizma, Impulsor, Ignitor
Segment
Scooters
100 cc
Pleasure
110 cc
Maestro, Duet
Distribution network
Hero has a very strong distribution network, with ~6,000 customer touch points - a mix of
dealers and service centres across India.
Milestones
1983
Signed joint collaboration agreement with Honda Motor Co. Ltd of Japan
1984
Hero Honda Motors Ltd incorporated
1985
First motorcycle - CD 100 - rolled out
1994
New motorcycle model - Splendor - introduced; 1,000,000 motorcycle produced
1997
Hero MotoCorp's second manufacturing plant in Gurgaon inaugurated
2003
Became the first Indian company to cross the cumulative 7 mn sales mark
2004
Renewed joint technical agreement with Honda Motors Company, Japan
2005
First scooter model from Hero MotoCorp - Pleasure – introduced
th
Received ‘India's most preferred two-wheeler brand’ award from CNBC Awaaz in the automobiles category
2006
One of the eight Indian companies to enter Forbes’ top-200 list of world's most reputed companies
2009
Received 'Two Wheeler Manufacturer of the Year' award from NDTV Profit Car & Bike Awards 2009
18
Hero MotoCorp Ltd
RESEARCH
2010
Awarded ‘Company of the Year" by ET awards for corporate excellence
Awarded 'Two Wheeler Manufacturer of the Year’ by NDTV Profit Car & Bike Awards 2010
2011
Honda transferred its entire 26% stake in Hero MotoCorp to Munjals, bringing an end to the joint venture. After
this, the company was renamed Hero MotoCorp Ltd
2012
Entered into a strategic partnership with US sportbikes maker EBR
Entered into an alliance with AVL, Austria for engine design and development
2013
Entered into an alliance with Engines Engineering, Italy for engine design
2014
Entered Africa and Central America, Bangladesh and Turkey
Investment of 49% in strategic technological partner Erik Buell Racing for $25mn
Launched retail arm - Hero Fincorp Ltd
Initiated cost-cutting measure – Leap 20 - to bring high level of innovation
Formed a JV in partnership with Magnetti Marelli to develop next gen 2W fuelling system
2015
Commenced operations at fourth plant and Global parts center at Neemrana, Rajashtan; R&D Center at Kukus,
Rajasthan
Technological partner – EBR - declared bankrupcy
19
CRISIL IER Independent Equity Research
Annexure: Financials
Income statement
(₹ m n)
Operating incom e
EBITDA
EBITDA m argin
Balance Sheet
FY14
FY15
FY16E
FY17E
2,53,135
2,75,327
2,78,298
3,16,472
35,533
34,895
43,211
50,032
14.0%
12.7%
15.5%
15.8%
FY18E
56,077
15.7%
11,076
5,405
4,285
4,805
5,512
EBIT
24,458
29,490
38,926
45,227
50,565
Operating PBT
Other income
Exceptional inc/(exp)
PBT
Tax provision
Minority interest
PAT (Reported)
Less: Exceptionals
Adjusted PAT
FY14
FY15
FY16E
FY17E
Equity share capital
Reserves
Minorities
Net w orth
399
399
399
399
399
55,836
65,186
75,910
88,376
96,303
-
-
-
-
-
56,235
65,585
76,309
88,775
96,703
-
118
117
28
-
-
Convertible debt
-
-
24,339
29,373
38,898
45,227
50,565
Other debt
-
1,000
492
-
4,266
5,152
3,834
4,242
4,487
Total debt
-
1,000
492
-
(1,803)
-
-
-
28,881
32,722
42,732
49,469
7,862
9,316
12,093
13,851
276
55,052
Total liabilities
55,175
65,850
76,066
88,040
95,967
15,414
Assets
18,974
28,509
34,998
42,693
47,422
7,159
5,275
5,500
7,000
3,241
26,133
33,784
40,498
49,693
50,663
6,536
6,627
6,627
6,627
6,627
-
-
-
-
23,406
30,639
35,617
39,637
(1,803)
-
-
-
25,209
30,639
35,617
39,637
20,743
Net fixed assets
Capital WIP
Total fixed assets
Investm ents
(735)
-
(1,060)
-
(735)
-
Deferred tax liability (net)
21,019
276
FY18E
3,58,054 # Liabilities
Depreciation
Interest
(₹ m n)
(735)
(735)
Current assets
Ratios
Inventory
FY14
FY15
Operating income (%)
5.6
8.8
EBITDA (%)
7.9
Adj PAT (%)
Adj EPS (%)
FY16E
6,696
8,614
9,912
11,272
12,753
11,406
13,718
15,249
17,341
19,619
Loans and advances
7,121
11,292
11,414
13,450
15,217
Cash & bank balance
687
1,545
2,138
4,096
10,807
12.1
Marketable securities
35,034
25,171
25,171
25,171
25,171
16.2
11.3
Total current assets
60,944
60,341
63,884
71,330
83,568
16.2
11.3
Total current liabilities
44,824
39,956
34,943
39,610
44,891
Net current assets
16,120
20,385
28,941
31,720
38,677
6,386
5,055
-
-
-
55,175
65,850
76,066
88,040
95,967
FY17E
FY18E
1.1
13.7
13.1
(1.8)
23.8
15.8
(2.1)
21.5
21.5
(2.1)
21.5
21.5
Grow th
Profitability
EBITDA margin (%)
EBIT margin (%)
Sundry debtors
Intangibles/Misc. expenditure
14.0
15.5
15.8
15.7
14.1
Total assets
10.7
14.0
14.3
8.2
9.2
11.0
11.3
11.1
RoE (%)
39.0
41.4
43.2
43.2
42.7
Cash flow
RoCE (%)
45.9
48.0
54.3
54.6
54.5
(₹ m n)
RoIC (%)
54.2
56.7
54.6
54.6
56.1
Pre-tax profit
28,605
34,525
42,732
49,469
55,052
Total tax paid
(10,246)
(8,992)
(12,093)
(13,851)
(15,414)
Depreciation
11,076
5,405
4,285
4,805
5,512
(13,270)
(7,964)
28,702
17,668
26,961
39,602
44,903
Capital expenditure
(9,712)
(11,725)
(5,945)
(14,000)
(6,482)
Investments and others
(4,871)
9,773
-
-
-
(14,583)
(1,952)
(5,945)
(14,000)
(6,482)
Adj PAT Margin (%)
9.7
12.7
Valuations
Price-earnings (x)
28.4
23.4
19.2
16.5
14.9
Price-book (x)
10.5
9.0
7.7
6.6
6.1
Net cash from operations
EV/EBITDA (x)
15.6
16.1
13.0
11.2
9.9
Cash from investm ents
2.2
2.1
2.0
1.8
1.6
61.8
51.2
55.6
55.6
68.4
2.2
2.0
2.9
3.4
4.6
EV/Sales (x)
Dividend payout ratio (%)
Dividend yield (%)
Working capital changes
Net cash from investm ents
FY14
(734)
FY15
FY16E
FY17E
(821)
FY18E
(246)
Cash from financing
Equity raised/(repaid)
B/S ratios
Inventory days
12
15
17
17
17
Debt raised/(repaid)
Creditors days
49
49
42
42
42
Dividend (incl. tax)
Debtor days
15
17
19
19
19
Others (incl extraordinaries)
(29)
(17)
(3)
2
3
Net cash from financing
Working capital days
Gross asset turnover (x)
7.6
6.8
5.4
5.0
4.8
Change in cash position
Net asset turnover (x)
13.4
11.6
8.8
8.1
7.9
Closing cash
Sales/operating assets (x)
10.5
9.2
7.5
7.0
7.1
Current ratio (x)
1.4
1.5
1.8
1.8
1.9
Debt-equity (x)
0.0
0.0
0.0
0.0
0.0
Net debt/equity (x)
(0.6)
(0.4)
(0.4)
(0.3)
(0.4)
(₹ m n)
Interest coverage (EBIT/ Interest)
207
252
1,399
-
-
Operating Incom e
Interest coverage (EBITDA/Interest)
301
298
1,553
-
-
Change (q-o-q)
Change (q-o-q)
FY14
628
(14,781)
(662)
-
-
-
(508)
(492)
(14,219)
(19,915)
(23,151)
(1,639)
-
(14,858)
(20,423)
0
(23,644)
(31,710)
0
(31,710)
858
593
1,958
6,712
1,545
2,138
4,096
10,807
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
68,393
-1.1%
67,939
-0.7%
69,553
2.4%
68,371
-1.7%
72,948
6.7%
7,380
-14.2%
7,486
1.4%
9,449
26.2%
9,744
3.1%
10,260
5.3%
687
FY16E
FY17E
FY18E
EBIT m argin
10.8%
11.0%
13.6%
14.3%
14.1%
103.9
126.2
153.4
178.4
198.5
Reported PAT
5,830
4,765
7,503
7,721
7,959
CEPS
159.3
153.3
174.9
202.4
226.1
Adj PAT
5,830
6,316
7,503
7,721
7,959
Book value
281.6
328.4
382.1
444.5
484.2
Change (q-o-q)
Dividend (₹)
65.1
60.0
85.2
99.1
135.7
199.7
199.7
199.7
199.7
199.7
Adj EPS (₹)
Actual o/s shares (mn)
Source: CRISIL Research
20
FY15
(15,199)
1,000
Quarterly financials
EBIT
Per share
(210)
-23.6%
8.3%
18.8%
2.9%
3.1%
Adj PAT m argin
8.5%
9.3%
10.8%
11.3%
10.9%
Adj EPS
29.2
31.6
37.6
38.7
39.9
Hero MotoCorp Ltd
RESEARCH
Focus Charts
Leadership position in motorcycles
Revenue to grow ~14% CAGR over FY16E-18E
(%)
(₹ bn)
350
48%
48%
46%
45%
44%
44%
13.7%
16.0%
13.1%
14.0%
300
12.0%
250
32%
32%
8.8%
31%
27%
26%
25%
200
10.0%
8.0%
5.6%
6.0%
150
11%
7% 7%
8%
12%
8%
8%
6%
7%
14%
14%
5%
5%
6%
7%
9%
FY11
FY12
FY13
FY14
FY15
FY16
Hero
Honda
Bajaj
2.0%
8%
5%
TVS
50
253
275
278
0.0%
358
-2.0%
FY14
Others
FY15
FY16E
FY17E
Operating Income
Source: CRISIL Research
EBITDA margin to remain rangebound
Return ratios to expand further
FY18E
Growth (RHS)
(%)
60,000
50,000
316
-
Source: CRISIL Research
(₹ mn)
4.0%
1.1%
100
15.8%
15.5%
18.0%
15.7%
16.0%
14.0%
12.7%
14.0%
40,000
12.0%
10.0%
30,000
8.0%
20,000
6.0%
60.0
51.3
51.6
50.8
41.4
42.4
41.8
41.0
FY15
FY16E
FY17E
FY18E
48.0
45.9
50.0
40.0
39.0
30.0
20.0
4.0%
10,000
35,533
34,895
43,211
50,032
56,077
FY14
FY15
FY16E
FY17E
FY18E
2.0%
-
10.0
0.0%
EBITDA
FY14
EBITDA margin (RHS)
RoE (%)
RoCE (%)
Source: Company, CRISIL Research
Share price movement
(₹)
('000)
3,500
14,000
3,000
12,000
2,500
10,000
350
2,000
8,000
300
1,500
6,000
250
1,000
4,000
500
2,000
150
100
50
Apr-16
Dec-15
Jul-15
Feb-15
Sep-14
May-14
Jul-13
Dec-13
Oct-12
Hero MotoCorp
Mar-13
Dec-11
May-12
0
Mar-11
Hero MotoCorp
200
Aug-11
Apr-16
Jul-15
Dec-15
Feb-15
Sep-14
May-14
Jul-13
Dec-13
Oct-12
May-12
Aug-11
Mar-13
CRISIL Fair Value
400
Oct-10
TTQ (RHS)
Dec-11
Oct-10
Mar-11
Jan-10
May-10
0
450
Jan-10
0
500
May-10
Fair value movement since initiation
NIFTY 500
-Indexed to 100
Source: NSE, BSE, CRISIL Research
Source: NSE, CRISIL Research
21
CRISIL IER Independent Equity Research
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RESEARCH
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CRISIL IER Independent Equity Research
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