Hero Honda –Hold- Religare Hichens Harrison
Hero Honda‘s (HH) Q4FY10 results were ahead of expectations. On a q-o-q basis, raw material cost/unit declined 0.8% against the expectation of an 1.8% increase during the quarter. Tax outgo too was lower-than-forecasted as production was ramped up at the Haridwar plant. Consequently, net profits stood at Rs5.9 billion, beating our estimates by a commendable 9.6%.
HH’s revenues grew 20.8% y-o-y driven by an 18.9% growth in volumes and a 1.6% growth in realizations. On a QoQ basis, volumes grew 6.8% while realizations inched up 0.9%.
EBITDA margin stood at 17.3% (flat q-o-q; up 150 bps y-o-y) for the quarter, beating our and street estimates. Raw material costs declined 110bps q-o-q aided by a quick ramp up at the Haridwar plant and higher excise savings. Â Other expenses increased 120 bps q-o-q, due to higher marketing expenses during IPL and WC Hockey tournaments.
The increase stemmed from the combined impact of higher margins and a lower tax rate of 18.8% arising from the higher-than-expected production at the Haridwar plant.
Currently the stock is trading at 16.6x FY11 and 15.7x FY12 earnings. We maintain our HOLD recommendation on HH as the current valuations provide limited upside from the current levels.
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