herohonda-ru4qfy2010-190410-100420051814-phpapp01

8/3/2019 herohonda-ru4qfy2010-190410-100420051814-phpapp01

http://slidepdf.com/reader/full/herohonda-ru4qfy2010-190410-100420051814-phpapp01 1/9

1

4QFY2010 Result Update I Automobile

April 19, 2010

Please refer to im ortant disclosures at the end of this re ort Sebi Re istration No: INB 010996539

Investment Period 12 Months

Stock Info

Sector Automobile

Market Cap (Rs cr) 37,881

Beta 0.7

52 WK High / Low 2,094/1,061

Avg. Daily Volume 73835

Face Value (Rs) 2

BSE Sensex 17,401

Nifty 5,204

Reuters Code HROH.BO

Bloomberg Code HH@IN

Shareholding Pattern (%)

Promoters 55.0

MF/Banks/Indian FIs 7.2

FII/NRIs/OCBs 30.0

Indian Public 7.8

Abs. (%) 3m 1yr 3yr

Sensex (0.5) 57.9 27.8

HH 13.5 70.8 189.8

For 4QFY2010, Hero Honda (HH) registered 20% yoy growth in Net Sales to

Rs4,093cr (Rs3,412cr), and a 49% surge in Net Profit to Rs599cr (Rs402cr)

that was above our expectations. The company reported robust performance

on the Operating front, owing to higher operating efficiency and a yoy dip in

the Raw Material cost. Going ahead, the company expects to maintain its

market share, following the launch of motorcycles over the next few quarters to

combat competition. On the bourses, the stock price has seen a decline in the

last few sessions and is currently trading below its fair valuations. Hence, we

recommend an Accumulate rating on the stock.

Top-line in-line; Bottom-line exceeds expectations: For 4QFY2010, Hero

Honda (HH) clocked a 20% growth in Net Sales to Rs4,093cr (Rs3,412cr),

which was in line with our estimates. EBITDA Margins increased by 89bp yoy,

owing to lower Raw Material costs, which fell by 142bp yoy and accounted for

67.6% of Sales (69.1% in 4QFY2009), and due to better Operating leverage

during the quarter. HH reported a 49% surge in Net Profit to Rs599cr

(Rs402cr) during 4QFY2010, owing to an improvement in the OPM and a

lower Tax provision arising from the commencement of its Haridwar plant.

Outlook and Valuation: We expect HH to record around a 10% CAGR inRevenues over FY2010-12E, aided by around an 8% CAGR in Volumes duringthe period. We estimate the OPM to decline to around 16.3% (16.9%) in

FY2012E, due to the increasing Raw Material prices (aluminum and steel). Weexpect the Net Profit to register a CAGR of 8% over FY2010-12E, on accountof the Tax benefits availed by HH at its new plant in Uttaranchal. We haverevised our EPS estimates marginally upwards to Rs120.3 (Rs113 earlier) forFY2011E and to Rs130.3 (Rs123), following the better-than-expected4QFY2010 performance by the company. We recommend Accumulate thestock, with a Target Price of Rs2,085, owing to the recent decline in the stockprice.

Key Financials

Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Net Sales 12,319 15,758 17,332 19,009% chg 19.2 27.9 10.0 9.7

Net Profit 1,282 2,232 2,403 2,602

% chg 32.4 74.1 7.7 8.3

OPM (%) 13.9 16.9 16.5 16.3

EPS (Rs) 64.2 111.8 120.3 130.3

P/E (x) 29.6 17.0 15.8 14.6

P/BV (x) 10.0 10.0 7.9 6.6

RoE (%) 37.8 58.9 56.1 49.4

RoCE (%) 42.1 61.6 58.0 51.6

EV/Sales (x) 2.5 2.0 1.7 1.5

EV/EBITDA (x) 20.1 12.5 11.4 10.2

Source: Company, Angel Research

Hero Honda

Performance Highlights

AccumulateCMP Rs1,897Target Price Rs2,085

Vaishali JajooTel: 022 – 4040 3800 Ext: 344

E-mail: [email protected]



April 19, 2010 2

Hero Honda I 4QFY2010 Result Update

Top-line in-line, riding on robust volumes: For 4QFY2010, Hero Honda (HH)clocked a 20% growth in Net Sales to Rs4,093cr (Rs3,412cr), which was in line withour estimates. Sales increased primarily on the back of a strong 18.9% growth in Volumes and a marginal rise in the yoy average Realisations of around Rs34,492per bike (compared to Rs34,192 last year). Operating Margins improved by 89bp,

on the back of a decline in Raw Material costs, decent Top-line growth and optimaloperating leverage. As a result, the Bottom-line spurted by 49% to Rs599cr (Rs402cr)during the quarter, surpassing our expectation of Rs545cr.

Margins improve on better operating leverage: During 4QFY2010, HH’s EBITDA Margins increased by 88bp yoy, owing to lower Raw Material costs, which fell by 142bp yoy and accounted for 67.6% of Sales (69.1% in 4QFY2009) and betterOperating leverage during the quarter. Other Expenditure increased by 46bp yoy during the quarter, due to higher Advertising expenditure. HH reported 26.7% yoy increase in Operating Profit to Rs682cr (Rs538cr) in 4QFY2010.

Net Profit exceeds expectations: HH reported a 49% surge in Net Profit to Rs599cr(Rs402cr) during 4QFY2010, owing to the improvement in the OPM and a lowerTax provision arising from the commencement of its Haridwar plant. Other Income,which mainly comprised of treasury gains, increased by 80.6% yoy to Rs99.2cr(Rs54.9cr) for 4QFY2010, and aided the Bottom-line growth during the quarter.

Market share reduced in FY2010; future outlook cautious: HH’s domesticMotorcycle Segment market share of 53.9% at the end of FY2010 has come downfrom about 63.1% at the end of FY2009. The company has guided to clock fivemillion motorcycles Sales Volume in FY2011E. The Scooter Segment recorded anoverall Volume growth of 37.2% yoy during FY2010, with its new launch, Pleasure,selling about 17,500 units per month.

Exhibit 1: Motorcycle Segment Volume

Source: SIAM, Angel Research

(20)

0

20

40

60

80

100

500,000

700,000

900,000

1,100,000

1,300,000

1 Q F Y 2

0 0 7

2 Q F Y 2

0 0 7

3 Q F Y 2

0 0 7

4 Q F Y 2

0 0 7

1 Q F Y 2

0 0 8

2 Q F Y 2

0 0 8

3 Q F Y 2

0 0 8

4 Q F Y 2

0 0 8

1 Q F Y 2

0 0 9

2 Q F Y 2

0 0 9

3 Q F Y 2

0 0 9

4 Q F Y 2

0 0 9

1 Q F Y 2

0 1 0

2 Q F Y 2

0 1 0

3 Q F Y 2

0 1 0

4 Q F Y 2

0 1 0

%Units

Market Share(RHS) Volume(LHS) % yoy growth(RHS)



April 19, 2010 3


Exhibit 2: 4QFY2010 Performance

Y/E March (Rs cr) 4QFY2010 4QFY2009 % chg FY2010 FY2009 % chg

Net Sales 4,092.6 3,411.8 20.0 15,758.2 12,319.1 27.9

Consumption of RM 2,768.4 2,356.5 17.5 10,736.4 8,742.0 22.8

(% of Sales) 67.6 69.1 68.1 71.0

Staff Costs 146.0 119.0 22.7 560.3 448.7 24.9

(% of Sales) 3.6 3.5 3.6 3.6

Other Expenses 496.2 398.0 24.7 1,796.9 1,416.7 26.8

(% of Sales) 12.1 11.7 46.0 11.4 11.5

Total Expenditure 3,410.6 2,873.4 18.7 13,093.6 10,607.4 23.4

Operating Profit 682.0 538.4 26.7 2,664.6 1,711.8 55.7

OPM 16.7 15.8 88.5 16.9 13.9

Interest (4.5) (9.6) (53.6) (20.6) (31.7) (34.9)

Depreciation 48.7 44.4 9.7 191.5 180.7 6.0

Other Income 99.2 54.9 80.6 338.0 218.7 54.5

PBT (excl. Extr. Items) 737.0 558.6 31.9 2,831.7 1,781.5 59.0

Extr. Income/(Expense) - - - - - -

PBT (incl. Extr. Items) 737.0 558.6 31.9 2,831.7 1,781.5 59.0

(% of Sales) 18.0 16.4 18.0 14.5

Provision for Taxation 138.2 156.4 (11.6) 599.9 499.7 20.1

(% of PBT) 18.8 28.0 21.2 28.1

Reported PAT 598.8 402.2 48.9 2,231.8 1,281.8 74.1

PATM 14.6 11.8 14.2 10.4

Equity capital (cr) 39.9 39.9 39.9 39.9

EPS (Rs) 30.0 20.1 48.9 111.8 64.2 74.1

Source: Company, Angel Research



April 19, 2010 4


Key Highlights

Haridwar plant to ramp-up production

HH commenced expansion plans at its Haridwar in Uttarakhand, with the first plant

commissioned in April 2008 with an initial capacity of 500,000 units. The company aims to increase its total installed capacity to 5.7 million (from 5.4 million) by August2010. This will be done through an incremental investment of Rs130cr at its thirdand newest plant at Haridwar. This plant also avails of tax benefits, including a100% Excise exemption for 10 years, and a 100% Income Tax exemption for the firstfive years and 30% for the next five years.The company has two plants in the Gurgaon area, besides the one at Haridwar,which enjoy tax benefits. Due to the increasing production levels at the Haridwarplant, the company's overall tax rate for 2009-10 has come down to 21.2% from28% in the previous fiscal.

Outlook and Valuation

The Two-wheeler Segment registered an improvement in Sales in FY2010, on theback of the various measures adopted by the government to revive the Auto Sector,coupled with the positive developments on the macro-economic front. We believethat although the substantial ownership base of Two-wheelers has reduced theheadroom for higher double-digit growth rates, the increased Replacement demandis expected to sustain Volumes. The rural markets are also expected to register bettergrowth on account of the new demand arising from the relevant rural population.Thus, we estimate the Two-wheeler Segment to maintain its growth momentum andto register around a 9% CAGR in Volumes over the next few years.

We expect HH to record around a 10% CAGR in Revenues over FY2010-12E, aidedby around an 8% CAGR in Volumes during the period. We estimate the OPM todecline to around 16.3% (16.9%) in FY2012E, due to the increasing Raw Materialprices (aluminum and steel). We expect the Net Profit to register a CAGR of 8% overFY2010-12E, on account of the Tax benefits availed by HH at its new plant inUttaranchal. We have revised our EPS estimates marginally upwards to Rs120.3(Rs113 earlier) for FY2011E and to Rs130.3 (Rs123), following the better-than-expected 4QFY2010 performance by the company. We recommend Accumulate thestock, with a Target Price of Rs2,085, owing to the recent decline in the stock price.

Exhibit 3: Trading above average P/E

Source: C-line, Angel Research

-

5.0

10.0

15.0

20.0

25.0

A p r - 0 2

J u l - 0 2

O c t - 0 2

J a n - 0 3

A p r - 0 3

J u l - 0 3

O c t - 0 3

J a n - 0 4

A p r - 0 4

J u l - 0 4

O c t - 0 4

J a n - 0 5

A p r - 0 5

J u l - 0 5

O c t - 0 5

J a n - 0 6

A p r - 0 6

J u l - 0 6

O c t - 0 6

J a n - 0 7

A p r - 0 7

J u l - 0 7

O c t - 0 7

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0



April 19, 2010 5


Exhibit 4: Premium/Discount in HH P/E v/s Sensex P/E

Source: C-line, Angel Research

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

A p r - 0 2

A u g - 0 2

D e c - 0 2

A p r - 0 3

A u g - 0 3

D e c - 0 3

A p r - 0 4

A u g - 0 4

D e c - 0 4

A p r - 0 5

A u g - 0 5

D e c - 0 5

A p r - 0 6

A u g - 0 6

D e c - 0 6

A p r - 0 7

A u g - 0 7

D e c - 0 7

A p r - 0 8

A u g - 0 8

D e c - 0 8

A p r - 0 9

A u g - 0 9

D e c - 0 9

A p r - 1 0



April 19, 2010 6


Profit & Loss Statement Rs crore

Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E

Net Sales 9,895 10,335 12,319 15,758 17,332 19,009

Total operating income 9,895 10,335 12,319 15,758 17,332 19,009

% chg - 4.5 19.2 27.9 10.0 9.7Total Expenditure 8,741 9,005 10,607 13,094 14,477 15,920

Net Raw Materials 7,173 7,406 8,742 10,736 11,834 13,069

Other Mfg costs 149.6 152.2 - - 260.0 285.1

Personnel 299.0 321.2 448.7 560.3 572.0 608.3

Other 1,119 1,126 1,417 1,797 1,811 1,958

EBITDA 1,153 1,330 1,712 2,665 2,855 3,089

% chg - 15.3 28.7 55.7 7.1 8.2

(% of Net Sales) 11.7 12.9 13.9 16.9 16.5 16.3

Depreciation& Amortisation 139.8 160.3 180.7 191.5 240.0 255.9

EBIT 1,014 1,170 1,531 2,473 2,615 2,833

% chg 15.4 30.9 61.5 5.7 8.3

(% of Net Sales) 10.2 11.3 12.4 15.7 15.1 14.9

Interest & other Charges 1.6 2.0 (31.7) (20.6) 3.5 2.9

Other Income 234.1 242.8 218.7 338.0 354.9 372.6

(% of PBT) 17.6 16.2 12.3 11.9 12.0 11.6

Recurring PBT 1,246 1,410 1,781 2,832 2,966 3,203

% chg - 13.2 26.3 59.0 4.8 8.0

Extraordinary (Expense)/Inc. 80.8 88.7 - - - -

PBT 1,327 1,499 1,781 2,832 2,966 3,203

Tax 388.2 442.4 499.7 599.9 563.6 600.5

(% of PBT) 29.3 29.5 28.1 21.2 19.0 18.8

PAT (reported) 858 968 1,282 2,232 2,403 2,602

ADJ. PAT 777 879 1,282 2,232 2,403 2,602

% chg - 13.1 45.8 74.1 7.7 8.3

(% of Net Sales) 7.9 8.5 10.4 14.2 13.9 13.7

Basic EPS (Rs) 38.9 44.0 64.2 111.8 120.3 130.3

Fully Diluted EPS (Rs) 38.9 44.0 64.2 111.8 120.3 130.3

% chg - 13.1 45.8 74.1 7.7 8.3



April 19, 2010 7


Balance Sheet Rs crore


SOURCES OF FUNDS

Equity Share Capital 39.9 39.9 39.9 39.9 39.9 39.9

Preference Capital - - - - - -Reserves& Surplus 2,430 2,946 3,761 3,744 4,745 5,712

Shareholders Funds 2,470 2,986 3,801 3,784 4,785 5,751

Total Loans 165.2 132.0 78.5 78.5 78.5 78.5

Deferred Tax Liability 128.2 125.4 144.4 144.4 144.4 144.4

Total Liabilities 2,763 3,244 4,024 4,007 5,008 5,974

APPLICATION OF FUNDS

Gross Block 1,649 1,756 2,310 3,030 3,333 3,656

Less: Acc. Depreciation 635 783 943 1,134 1,374 1,630

Net Block 1,014 974 1,367 1,896 1,959 2,026

Capital Work-in-Progress 189.9 408.5 120.5 90.9 83.3 73.1

Goodwill 151.2 182.5 206.5 206.5 206.5 206.5

Investments 1,974 2,567 3,369 3,406 4,507 5,676

Current Assets 913 937 1,013 2,373 1,946 1,973

Cash 35.8 131.1 219.6 1,273.2 830.7 757.0

Loans & Advances 266.7 191.2 317.2 394.0 390.0 427.7

Other 610.8 614.5 476.8 705.8 725.4 788.4

Current liabilities 1,479 1,825 2,053 3,759 3,488 3,773

Net Current Assets (566) (888) (1,039) (1,386) (1,542) (1,800)

Mis. Exp. not written off - - - - - -

Total Assets 2,763 3,244 4,024 4,007 5,008 5,974

Cash Flow Statement Rs crore


Profit before tax 1,327 1,499 1,781 2,832 2,966 3,203

Depreciation 139.8 160.3 180.7 191.5 240.0 255.9

Change in Working Capital 309 (339) (364) (1,473) 293 (219)

Less: Other income 763 (334) (227) (1,007) 185 (157)

Direct taxes paid 388.2 442.4 499.7 599.9 563.6 600.5

Cash Flow from Operations 625 1,212 1,325 1,956 2,751 2,797

(Inc.)/Dec. in Fixed Assets (474.4) (356.7) (289.5) (484.5) (295.1) (312.3)

(Inc.)/Dec. in Investments 88 (593) (802) (37) 1,101) (1,169)

(Inc.)/Dec. in loans andadvances

27.0 78.8 (103.3) (90.5) 0.3 (34.0)

Other income 234.1 242.8 218.7 338.0 354.9 372.6

Cash Flow from Investing (125) (628) (976) (274) (1,041) (1,143)

Issue of Equity - - - - - -

Inc./(Dec.) in loans 20.6 33.2 53.5 - - -

Dividend Paid (Incl. Tax) 455 397 444 467 1,869 1,402

Others (1,098) (919) (758) (1,096) (4,022) (3,130)

Cash Flow from Financing (622) (489) (260) (629) (2,152) (1,728)

Inc./(Dec.) in Cash (122.9) 95.3 88.5 1,053.7 (442.5) (73.7)

Opening Cash balances 159 36 131 220 1,273 831

Closing Cash balances 36 131 220 1,273 831 757



April 19, 2010 8


Key Ratios


Valuation Ratio (x)

P/E (on FDEPS) 48.7 43.1 29.6 17.0 15.8 14.6

P/CEPS 38.0 33.6 25.9 15.6 14.3 13.3P/BV 15.3 12.7 10.0 10.0 7.9 6.6

Dividend yield (%) 0.9 1.0 1.1 4.2 3.2 3.7

EV/Sales 3.1 2.9 2.5 2.0 1.7 1.5

EV/EBITDA 31.2 26.6 20.1 12.5 11.4 10.2

EV / Total Assets 13.0 10.9 8.5 8.3 6.5 5.3

Per Share Data (Rs)

EPS (Basic) 38.9 44.0 64.2 111.8 120.3 130.3

EPS (fully diluted) 38.9 44.0 64.2 111.8 120.3 130.3

Cash EPS 50.0 56.5 73.2 121.3 132.3 143.1

DPS 17.0 19.0 20.0 80.0 60.0 70.0

Book Value 123.7 149.5 190.3 189.5 239.6 288.0

Dupont Analysis

EBIT margin 10.2 11.3 12.4 15.7 15.1 14.9

Tax retention ratio 0.7 0.7 0.7 0.8 0.8 0.8

Asset turnover (x) 4.1 3.5 3.6 4.8 5.0 4.0

RoIC (Post-tax) 29.4 28.2 31.9 59.6 61.3 49.0

Cost of Debt (Post Tax) - - - - - -

Leverage (x) - - - - - -

Operating RoE 29.4 28.2 31.9 59.6 61.3 49.0

Returns (%)

RoCE (Pre-tax) 39.9 38.9 42.1 61.6 58.0 51.6

Angel RoIC (Pre-tax) 25.6 25.8 29.0 71.3 50.7 44.1

RoE 34.7 32.2 37.8 58.9 56.1 49.4

Turnover ratios (x)

Asset Turnover (Gross Block) 6.6 6.1 6.1 5.9 5.4 5.4

Inventory / Sales (days) 9.3 10.5 9.5 8.9 9.7 9.5

Receivables (days) 9.1 11.2 6.6 6.1 5.2 5.2

Payables (days) 39.0 41.8 42.2 38.9 40.6 39.3

WC cycle (ex-cash) (days) (22.2) (28.6) (33.7) (45.4) (53.0) (47.3)

Solvency ratios (x)

Net debt to equity (0.7) (0.9) (0.9) (1.2) (1.1) (1.1)Net debt to EBITDA (1.6) (1.9) (2.1) (1.7) (1.8) (2.1)

Interest Coverage (EBIT/Int.) 629.6 584.8 - - 754.4 993.6



April 19, 2010 9


Research Team Tel: 022-4040 3800 E-mail: [email protected] Website: www.angeltrade.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this

document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to

arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),

and should consult their own advisors to determine the merits and risks of such an investment.

Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are

inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company

may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as

opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,

and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we

cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel

Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other

reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on,

directly or indirectly.

Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services

in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the

use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement Hero Honda

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies’ Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors..

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946

Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.Tel : (022) 3952 4568 / 4040 3800

herohonda-ru4qfy2010-190410-100420051814-phpapp01

Documents

Transcript of herohonda-ru4qfy2010-190410-100420051814-phpapp01