Dear All,
Forwarding you the Result Update on Hero Honda for 4QFY2011 with a Neutral recommendation.
Hero Honda (HH) reported an in-line performance for 4QFY2011, driven by robust volume growth. However, input cost pressures coupled with higher ad spends during the Cricket World Cup impacted profitability, leading to a decline in the bottom line. Owing to the uncertainty with regards to access to technology and product development capability post the split with Honda Motor Co., we remain Neutral on the stock.
In-line performance during 4QFY2011: HH registered in-line net sales growth of 30.8% yoy and 4.4% qoq to `5,391cr, primarily driven by a 22.6% yoy increase in volumes and a 6.7% yoy increase in average net realisation following better product mix and price increases. Sequentially, volumes and realisation grew by 1.8% and 2.6%, respectively. Adjusted operating profit (adjusted for royalty payments) declined by 8.3% yoy to `653cr due to substantial operating margin contraction, down 515bp yoy and 130bp qoq to 12.1%, due to raw-material cost pressures (up 574bp yoy). Consequently, net profit fell by 16.2% yoy to `502cr.
Outlook and valuation: We broadly maintain our volume growth estimates and model the company to record a ~13% CAGR in revenue over FY2011–13E, aided by a 10.3% CAGR in volumes during the period. We expect margins to remain under pressure on account of input cost pressures and higher advertising and R&D spends. As a result, net profit is expected to register a 7.6% CAGR over FY2011–13E. Further, due to intense competition in the two-wheeler segment, we believe HH’s market share will remain under pressure, leaving limited room for earnings upgrade. We remain Neutral on the stock.
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If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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