Prabhudas Lilladher has given Buy recommendation for Hero Motocorp with a target price of Rs. 3150 in its research report issued on May 04, 2022

Prabhudas Lilladher’s research report on Hero Motocorp

Hero’s 4QFY22 EBITDA margin at 11.2% (PLe: 11.9%) was impacted due to higher other expenditure (13.1% of sales vs 10.3% QoQ) on account of CSR spends (50-60bps impact). However gross margin expansion of 170bps to 30.7% surprised positively, driven by commodity inflation being softer than price hikes taken. Management expects turnaround in coming months with economy picking up. The company will continue to navigate margin pressure (in 1HFY23) through price hikes, cost savings and premuimisation. We maintain BUY, as we believe Hero will benefit from (1) rural recovery and wedding 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 EBITDA margin estimates contracts by 60/10bps for FY23/24, considering the impact of commodity inflation. Maintain ‘BUY’ with a target price of Rs 3,150 (at 15x on FY24E standalone EPS, Rs 143 for Fincorp and Rs 63 for Ather).

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