Q1 Results: Analysts Cut Target Price For Hero MotoCorp Amid Sales Slowdown

Most analysts cut their target price for Hero MotoCorp Ltd. as Indian automakers are yet to recover from the worst sales slowdown in a decade.

India’s second-largest two-wheeler maker by market value said demand during the year will depend on the progress of monsoon, upcoming festive season and improvement in liquidity situation. Weak economic sentiments, it said in a media statement, impacted the company’s first-quarter performance.

Hero MotoCorp’s sales fell, and margin contracted in the quarter ended June. But its net profit beat estimates. Its profit jumped 38 percent year-on-year due to a Rs 737.5-crore one-time gain from the reversal of a national calamity contingent duty that the company paid for its Haridwar plant.

Here’s what brokerages have to say about Hero MotoCorp’s first-quarter performance:

CLSA

• Maintains ‘Sell’, cuts target price to Rs 2,100 from Rs 2,350 apiece.
• Cuts EPS estimates by 4-6 percent.
• No signs of spring in Indian two-wheeler market.
• Margin headwinds to persist.

UBS

• Maintains ‘Sell’; cuts target price to Rs 2,250 from Rs 2,400 apiece.
• First quarter in line on good cost control; Ebitda margin rose.
• Expects domestic volume to decline 10/4 percent in FY20/FY21.
• Management says dealer funding issues not acute.

Macquarie

• Downgrades to ‘Neutral’ from ‘Outperform’; cuts target price to Rs 2,400 from Rs 3,000 apiece.
• Cuts EPS estimates by 12 percent for FY20/21 due to lower volume assumption.
• Underlying operating performance remained muted due to lower sales and cost hike.
• Weak demand, high channel inventory, regulatory changes and intense competition.

Motilal Oswal

• Maintains ‘Neutral’ with a target price of Rs 2,525 apiece.
• Cuts FY21 EPS estimate by about 4 percent to factor in reduced volume, lower margins
• Retail volumes declined 6 percent in first quarter.
• Enquiry levels are good, but demand deferment is a problem.
• Company is hopeful of a demand recovery starting with festive season.

CIMB

• Maintains ‘Add’ with a target price of Rs 2,962 apiece.
• Higher rainfall and favourable government policy to aid rural demand.
• 110cc scooter segment sales volume declined 23 percent during the first quarter.
• Hero could be a beneficiary of easing concerns over rainfall.