Prabhudas Lilladher has given Buy recommendation for Hero Motocorp with a target price of Rs. 3130 in its research report issued on Aug 16, 2022

Prabhudas Lilladher’s research report on Hero Motocorp

Hero’s 1QFY23 EBITDA margin at 11.2% (flat QoQ PLe: 11.7%) came below our expectations and was impacted by higher raw material costs (gross margin contraction of ~350bps QoQ). However, management expects margin expansion in the quarters ahead led by commodity cost softening, consistent price hikes and increase in volumes. It targets EBITDA margin recovery to at least 14% vs ~11% currently. Festive season is expected to be healthy on the back of normal monsoons and increase in crop prices. The company is increasing its focus of premiumisation through its XTec models, which are 7- 10% higher in price than the standard ones. We maintain BUY, as we believe Hero will benefit from (1) rural recovery and festive season demand (2) increasing focus on exports and premiumisation (3) incremental savings through Leap savings program leading to margin expansion and (4) success in EV via investment in Ather, in-house mass product (Vida) and JV with Gogoro.

Outlook

Our estimates are largely unchanged. Maintain ‘BUY’ with a target price of Rs 3,130 (at 15x on FY24E standalone EPS, Rs 143 for Fincorp and Rs 63 for Ather).

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