Hero Motocorp limited reported in line set of Q3FY20 numbers. Total Income decline of around 11% (YoY) came in on expected lines as there was a de-growth of ~14% in quarterly sales volume. Hero’s managed to pull up its blended realization by 4% for the quarter. Better operating efficiencies and lower input cost led to EBIDTA margin going up to 14.94% from 13.98% in Q3FY19. Higher PAT was primarily on account of availing lower tax structure. Numbers appears to be promising in a challenging environment. Better acreage under Rabi crop and higher food inflation is expected to be leaving more disposable income in the hands of farmers. Entry segment (i.e. 100cc) of motorcycle is likely to see revival in volume growth sooner on back drop of aggressive pricing and transition to BSVI technology. We believe that the newly launched BSVI models will have a price impact of around 15% in cost of ownership. Hero being the dominant player in the entry level segment, we believe it will continue to beat competition and strengthen its market share further.
Recommendation: BUY
We had initiated buy recommendation on Hero in our ‘Multicap Investment Advisory Portfolio’ at Rs. 2600 for a target price per share of Rs. 3,376, valuing the company at a PER a of 16x on FY21e. Lower interest rate regime, controlled input prices, higher operating efficiencies, better crop realization by farmers, higher Rabi crop acreage augurs well for the company. We believe Hero will be able to retain its margins and regain steady growth in volumes. Valuation has become more attractive, after the price correction of around 7.20% from our recommended level. We recommend BUY on HEROMOTOCORP.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Posted by Mehul Kothari | Published on 22-JAN-2020
Key factors Analysis
Indian equity markets: De-escalation of tensions between the US and Iran and positive global cues like signing of the recent initial trade agreement between the US and China have helped the frontline indices to scale fresh all-time highs. In the broader markets, mid and small-cap indices have outperformed the benchmark indices for the last couple of weeks.
Macro-economics: India’s economic growth has slowed down significantly in the last couple of quarters mainly due to liquidity tightness (lack of credit availability) to small corporates and SMEs. Trade uncertainty between the US and China and slower growth across major economies has also led to slower domestic growth.
Expect gradual recovery in economic growth in coming quarters, helped by a favourable base, some revival in private consumption spending led by the easing liquidity situation and recent government announcements to support growth.
Sectoral view: 2020 could be the year of a cyclical recovery for the economy and sectors like financials, metals, materials and automobiles will outperform, while FMCG and utilities could see muted participation. Stock-specific outperformance is expected in mid and small-cap segments. Stock pickers will be rewarded.
Equity market valuations: We expect the Nifty 50 EPS to see traction of over 20% in FY21. Discounting the Nifty 50 at FY21E at a PER of 21x, Nifty’s year-end target is likely to be around 12,600.
Outlook going forward: We continue to remain positive on equities; however, valuation comfort has moderated after the recent up move seen in markets. Valuation-wise, certain large-cap stocks look overvalued so a staggered shift from large to mid and small caps is recommended. Possible broad-based earnings cycle recovery led by corporate tax cuts should benefit mid and small caps.Monetary policy actions: After reducing the policy rates by 135 bps over the past one year, the RBI paused in December 2019; however, the policy guidance provides for maintaining the accommodative stance as long as necessary for reviving growth.
The RBI may remain on pause mode for the remainder of FY20 as near-term inflation data is likely to remain elevated on higher food prices and the MPC wants to wait for the budget to see fiscal risks and its implications for growth. We may see status quo on rates till the end of FY20.
Yield curve: The RBI’s decision to conduct Operation Twist (simultaneous purchase and sale of government bonds) has led to benchmark G-sec yields coming down from ~6.85% to 6.60%. However, implementation of Operation Twist has elongated the rate-cut cycle by 6 months.
Growth-inflation dynamics provide visibility for a prolonged period of lower policy rates for the coming months. However, fiscal concerns and higher inflation may keep the longer end of the yield curve volatile.
Liquidity & bond rates: There has been a contraction in corporate spreads of late especially for AAA & AA-rated corporates but not so much for lower-rated ones.
From a risk-return perspective, the short-to-medium end of the yield curve offers better riskadjusted returns as the RBI has maintained an accommodative stance and the system has seen surplus liquidity for last couple of months, and is expected to remain in surplus mode going forward.
Outlook going forward: We recommend a combination of short-duration and medium-to-long duration funds with a portfolio maturity range of 2–5 years.
Going forward, decent quality AA-rated papers shall see higher spread compression and offer an attractive investment opportunity for investors willing to go down a bit on the yield curve.
Disclaimer: This document has been prepared by IndiaNivesh Shares & Securities Private Limited (“INSSPL”), for use by the recipient as information only and is not for circulation or public distribution. INSSPL includes subsidiaries, group and associatecompanies, promoters, employees and affiliates. INSSPL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy orcompleteness has not been verified by INSSPL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSSPL and/or its officers, employees and the recipient must exerciseindependent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to bealtered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSSPL. This document is solely for information purpose andshould not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments cango up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSSPL does not take responsibility thereof. The research analysts of INSSPL have adhered to the code of conduct under Regulation 24(2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is 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. Nothing in this document constitutes legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSSPL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice.)
Hero Motocorp Limited - Q3 FY20 Stock Result Updates
In line top line, Margin expansion aided by lower input cost while PAT growth boosted by lower taxes!
Rating: BUY | CMP: Rs 2411 | Target Price: Rs 3376 | Upside: 40%
Hero Motocorp limited reported in line set of Q3FY20 numbers. Total Income decline of around 11% (YoY) came in on expected lines as there was a de-growth of ~14% in quarterly sales volume. Hero’s managed to pull up its blended realization by 4% for the quarter. Better operating efficiencies and lower input cost led to EBIDTA margin going up to 14.94% from 13.98% in Q3FY19. Higher PAT was primarily on account of availing lower tax structure. Numbers appears to be promising in a challenging environment. Better acreage under Rabi crop and higher food inflation is expected to be leaving more disposable income in the hands of farmers. Entry segment (i.e. 100cc) of motorcycle is likely to see revival in volume growth sooner on back drop of aggressive pricing and transition to BSVI technology. We believe that the newly launched BSVI models will have a price impact of around 15% in cost of ownership. Hero being the dominant player in the entry level segment, we believe it will continue to beat competition and strengthen its market share further.
Recommendation: BUY
We had initiated buy recommendation on Hero in our ‘Multicap Investment Advisory Portfolio’ at Rs. 2600 for a target price per share of Rs. 3,376, valuing the company at a PER a of 16x on FY21e. Lower interest rate regime, controlled input prices, higher operating efficiencies, better crop realization by farmers, higher Rabi crop acreage augurs well for the company. We believe Hero will be able to retain its margins and regain steady growth in volumes. Valuation has become more attractive, after the price correction of around 7.20% from our recommended level. We recommend BUY on HEROMOTOCORP.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
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Monthly Market Outlook – Debt & Equity Outlook for January 2020
Key factors Analysis Indian equity markets: De-escalation of tensions between the US and Iran and positive global cues like signing of the recent initial trade agreement between the US and China have helped the frontline indices to scale fresh all-time highs. In the broader markets, mid and small-cap indices have outperformed the benchmark indices for the last couple of weeks. Macro-economics: India’s economic growth has slowed down significantly in the last couple of quarters mainly due to liquidity tightness (lack of credit availability) to small corporates and SMEs. Trade uncertainty between the US and China and slower growth across major economies has also led to slower domestic growth. Expect gradual recovery in economic growth in coming quarters, helped by a favourable base, some revival in private consumption spending led by the easing liquidity situation and recent government announcements to support growth. Sectoral view: 2020 could be the year of a cyclical recovery for the economy and sectors like financials, metals, materials and automobiles will outperform, while FMCG and utilities could see muted participation. Stock-specific outperformance is expected in mid and small-cap segments. Stock pickers will be rewarded. Equity market valuations: We expect the Nifty 50 EPS to see traction of over 20% in FY21. Discounting the Nifty 50 at FY21E at a PER of 21x, Nifty’s year-end target is likely to be around 12,600. Outlook going forward: We continue to remain positive on equities; however, valuation comfort has moderated after the recent up move seen in markets. Valuation-wise, certain large-cap stocks look overvalued so a staggered shift from large to mid and small caps is recommended. Possible broad-based earnings cycle recovery led by corporate tax cuts should benefit mid and small caps.Monetary policy actions: After reducing the policy rates by 135 bps over the past one year, the RBI paused in December 2019; however, the policy guidance provides for maintaining the accommodative stance as long as necessary for reviving growth. The RBI may remain on pause mode for the remainder of FY20 as near-term inflation data is likely to remain elevated on higher food prices and the MPC wants to wait for the budget to see fiscal risks and its implications for growth. We may see status quo on rates till the end of FY20. Yield curve: The RBI’s decision to conduct Operation Twist (simultaneous purchase and sale of government bonds) has led to benchmark G-sec yields coming down from ~6.85% to 6.60%. However, implementation of Operation Twist has elongated the rate-cut cycle by 6 months. Growth-inflation dynamics provide visibility for a prolonged period of lower policy rates for the coming months. However, fiscal concerns and higher inflation may keep the longer end of the yield curve volatile. Liquidity & bond rates: There has been a contraction in corporate spreads of late especially for AAA & AA-rated corporates but not so much for lower-rated ones. From a risk-return perspective, the short-to-medium end of the yield curve offers better riskadjusted returns as the RBI has maintained an accommodative stance and the system has seen surplus liquidity for last couple of months, and is expected to remain in surplus mode going forward. Outlook going forward: We recommend a combination of short-duration and medium-to-long duration funds with a portfolio maturity range of 2–5 years. Going forward, decent quality AA-rated papers shall see higher spread compression and offer an attractive investment opportunity for investors willing to go down a bit on the yield curve. Disclaimer: This document has been prepared by IndiaNivesh Shares & Securities Private Limited (“INSSPL”), for use by the recipient as information only and is not for circulation or public distribution. INSSPL includes subsidiaries, group and associatecompanies, promoters, employees and affiliates. INSSPL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy orcompleteness has not been verified by INSSPL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSSPL and/or its officers, employees and the recipient must exerciseindependent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to bealtered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSSPL. This document is solely for information purpose andshould not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments cango up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSSPL does not take responsibility thereof. The research analysts of INSSPL have adhered to the code of conduct under Regulation 24(2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is 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. Nothing in this document constitutes legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSSPL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice.)
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2nd Week of February 2020 - Weekly BSE Gainers, NSE Gainers & Losers Stock Market Report
Indian Markets Recap Indian Indices (% Change) INDEX Close 1D 5D 1M 3M NIFTY 12,098 -0.33 3.7 -1.3 1.6 BSE500 15,867 -0.05 4.1 0.2 3.2 SENSEX 41,142 -0.40 3.5 -1.1 2.0 MID CAP 100 18,368 0.66 4.8 5.6 9.9 NSE SMALL CAP 100 6,247 0.11 3.1 3.2 8.8 Source: Company, IndiaNivesh Research Global Markets Global Markets (% Change) INDEX Close 1D 5D 1M 3M DJIA 29,103 -0.94 3.0 1.0 5.1 NASDAQ 9,521 -0.54 4.0 3.7 12.3 FTSE 7,467 -0.51 2.5 -1.6 1.5 Nikkie 23,744 -0.35 3.4 -0.4 1.5 Hangseng 27,246 -0.58 3.4 -4.9 -1.5 Source: Company, IndiaNivesh Research Nifty Outlook (SELL on RISE) Bank Nifty Outlook US 10 Year Bond Yield INDIA 10 Year Bond Yield Sectoral Movement INDEX Close 1D 5D 1M 3M Banking 31,202 -0.3 4.6 -2.8 1.5 IT 16,470 0.60 1.15 3.2 7.1 Pharma 8,342 1.38 4.09 3.5 7.1 Fin Services 14,502 -0.3 5.4 -0.7 4.6 Media 1,827 1.9 4.1 3.2 0.1 NIFTY PSU BANK 2,313 -0.1 1.5 -6.0 -5.1 Auto 8,065 -0.95 2.34 -2.0 -1.3 FMCG 30,810 0.24 2.03 1.4 -3.6 Real Estate 320 -1.8 5.0 3.1 14.0 Metals 2,711 0.8 9.3 -4.6 3.7 NIFTY PVT BANK 17,182 -0.4 4.6 -3.1 1.1 Source: Bloomberg Sectoral Recap / Lines on performance Sectoral Outlook FII Activity: Derivatives and Cash Market (Weekly) Derivative View LONG BUILT UP SYMBOL Close Price change % OI OI Change % IDEA 5.3 1.92% 473536000 9.37% DIVISLAB 2074.7 2.25% 1770000 8.80% APOLLOHOSP 1669.45 1.26% 1811500 8.47% SRF 4098.3 2.23% 896250 6.32% CIPLA 445.05 0.98% 14990250 6.21% Source: Company, IndiaNivesh Research SHORT BUILT UP SYMBOL Close Price change % OI OI Change % MRF 70962.8 -1.22% 21570 9.55% GODREJCP 649.65 -0.76% 6480000 8.36% KOTAKBANK 1660.2 -1.21% 8858800 6.95% DLF 235.65 -4.27% 34409100 6.37% PETRONET 273.75 -0.02% 20037000 6.35% Source: Company, IndiaNivesh Research Nifty 50 Pivot SYMBOL Close S2 S1 Pivot R1 R2 ADANIPORTS 369.55 363.65 366.60 370.15 373.10 376.65 ASIANPAINT 1858.70 1836.03 1847.37 1861.93 1873.27 1887.83 AXISBANK 748.15 728.58 738.37 743.78 753.57 758.98 BAJAJ-AUTO 3134.85 3061.08 3097.97 3143.48 3180.37 3225.88 BAJFINANCE 4654.30 4594.97 4624.63 4655.77 4685.43 4716.57 BAJAJFINSV 9623.30 9506.73 9565.02 9619.33 9677.62 9731.93 BPCL 491.40 481.40 486.40 491.00 496.00 500.60 BHARTIARTL 539.45 531.48 535.47 542.23 546.22 552.98 INFRATEL 247.80 239.80 243.80 246.40 250.40 253.00 BRITANNIA 3251.40 3202.60 3227.00 3261.50 3285.90 3320.40 CIPLA 443.20 433.53 438.37 442.13 446.97 450.73 COALINDIA 185.05 175.12 180.08 183.07 188.03 191.02 DRREDDY 3166.70 3114.90 3140.80 3162.90 3188.80 3210.90 EICHERMOT 19736.30 19123.07 19429.68 19973.32 20279.93 20823.57 GAIL 123.00 120.80 121.90 123.25 124.35 125.70 GRASIM 787.65 774.22 780.93 792.27 798.98 810.32 HCLTECH 607.70 595.30 601.50 605.35 611.55 615.40 HDFCBANK 1242.20 1224.87 1233.53 1240.27 1248.93 1255.67 HEROMOTOCO 2443.45 2378.95 2411.20 2453.60 2485.85 2528.25 HINDALCO 197.40 190.67 194.03 196.22 199.58 201.77 HINDUNILVR 2159.95 2127.45 2143.70 2157.85 2174.10 2188.25 HDFC 2405.65 2364.82 2385.23 2418.77 2439.18 2472.72 ICICIBANK 536.45 531.18 533.82 537.78 540.42 544.38 ITC 213.40 211.00 212.20 213.95 215.15 216.90 IOC 117.50 114.00 115.75 116.75 118.50 119.50 INDUSINDBK 1298.80 1261.90 1280.35 1313.20 1331.65 1364.50 INFY 777.30 767.87 772.58 775.72 780.43 783.57 JSWSTEEL 279.30 270.10 274.70 277.35 281.95 284.60 KOTAKBANK 1653.05 1624.38 1638.72 1658.33 1672.67 1692.28 LT 1299.00 1284.73 1291.87 1303.13 1310.27 1321.53 M&M 569.10 550.43 559.77 570.63 579.97 590.83 MARUTI 6971.75 6870.58 6921.17 6985.58 7036.17 7100.58 NTPC 115.60 110.77 113.18 114.72 117.13 118.67 NESTLEIND 16327.80 16112.07 16219.93 16302.47 16410.33 16492.87 ONGC 109.25 105.32 107.28 108.52 110.48 111.72 POWERGRID 190.40 186.33 188.37 190.58 192.62 194.83 RELIANCE 1433.65 1414.05 1423.85 1438.10 1447.90 1462.15 SBIN 320.55 314.72 317.63 321.32 324.23 327.92 SUNPHARMA 430.80 413.37 422.08 431.92 440.63 450.47 TCS 2136.55 2103.52 2120.03 2135.52 2152.03 2167.52 TATAMOTORS 173.60 169.77 171.68 174.92 176.83 180.07 TATASTEEL 57.50 55.50 56.50 58.00 59.00 60.50 TECHM 824.45 810.18 817.32 821.38 828.52 832.58 TITAN 1275.00 1249.87 1262.43 1270.97 1283.53 1292.07 UPL 543.10 528.47 535.78 545.62 552.93 562.77 ULTRACEMCO 4471.80 4392.13 4431.97 4489.48 4529.32 4586.83 VEDL 144.60 140.33 142.47 143.88 146.02 147.43 WIPRO 243.95 240.58 242.27 244.63 246.32 248.68 YESBANK 38.70 37.13 37.92 38.93 39.72 40.73 ZEEL 249.75 230.92 240.33 245.92 255.33 260.92 Source: Company, IndiaNivesh Research Note: The levels for TATASTEEL are of TATASTEEL Partly Paid up Share Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing.")