Analysts Raise Target Price For Hero MotoCorp After Q2 Results But Remain Cautious

Most analysts hiked target price for Hero MotoCorp Ltd. as the two-wheeler maker’s quarterly net profit managed to beat estimates even as its sales volume fell amid a prolonged auto slowdown. But they remain cautious as a recovery in demand may still be some time away.

The company’s net profit fell 10.3 percent over last year to Rs 875 crore during the July-September period, according to its exchange filing. That, however, beat the Bloomberg consensus estimate of Rs 775 crore.

The bottomline was mainly hurt because of a decline in sales volumes and about Rs 60 crore expense related to one-time voluntary retirement scheme. Hero MotoCorp’s sales volumes fell 20.1 percent year-on-year to 16.91 lakh units during the quarter.

The company’s operating income, though fell, managed to beat estimates. The fall was partly offset by higher-than-expected realisations that rose 5 percent year-on-year to Rs 44,761 per unit.

Here’s what brokerages have to say about Hero MotoCorp’s Q2 Results 2019-20.

JPMorgan

• Maintains ‘Underweight’ but hikes target price to Rs 2,450 apiece from Rs 2,400.
• Margin beat in a weak volume quarter.
• Early green shoots in demand but recovery likely to take time.
• Growth outlook clouded by transition to Bharat Stage VI emission norms.

CLSA

• Maintains ‘Sell’ but hikes target price to Rs 2,500 apiece from Rs 2,350.
• Weak quarter but margin beat.
• Some demand improvement, but more regulatory pressures ahead.
• Margins unlikely to improve further with BS-VI costs around the corner.

Edelweiss

• Maintains ‘Hold’ and hikes target price to Rs 2,963 a share from Rs 2,763.
• Company focusing to bring down dealer inventory levels to 30 days.
• Should benefit from the expected recovery in rural demand.
• Scope for market share gains remains challenging given lower growth.
• Estimates volume CAGR to remain flat over FY19–21 on weak demand.

Emkay

• Maintains ‘Hold’ and cuts target price to Rs 3,150 from Rs 3,200.
• Expects revenue growth to moderate at 3 percent CAGR over FY19-22.
• Lower growth expected owing to continuing market share losses.
• Downside risks include weak macro environment and high competition.

SBI Cap

• Maintains ‘Hold’ with a target price of Rs 2,350 apiece.
• Lower raw material costs drove strong beat on operating performance.
• Festive season retails growing at low single digits.
• Rural sentiments to revive from hereon led by better monsoons.
• Demand uncertainty post festivals remain.
• Estimates flat earnings over FY19-22 amid structural headwinds.