Hero Moto Corp Result Updated

3QFY2012 Result Update | Automobile
January 20, 2012
Hero MotoCorp
NEUTRAL
Performance Highlights
CMP
Target Price
Y/E March (` cr)
3QFY12
3QFY11
% chg (yoy)
Angel est.
% diff
6,031
5,162
16.9
6,057
(0.4)
Net sales
Adj. EBITDA
715
577
24.0
753
(5.0)
Adj. EBITDA margin (%)
11.9
11.2
68bp
12.4
(57)bp
Adjusted PAT
613
509
20.5
629
(2.5)
`1,951
-
Investment Period
Stock Info
Automobile
Sector
Market Cap (` cr)
38,955
Beta
Source: Company, Angel Research
Hero MotoCorps (HMCL) 3QFY2012 results were slightly lower than our
expectations on the operating front as EBITDA margin contracted (sequentially)
due to adverse product mix and higher royalty expenses, led by unfavorable forex
movement. Going ahead, we expect slight moderation in the domestic industry
demand and increase in competitive intensity, thereby pressurizing HMCLs
market share. We believe the stock is fairly valued at current levels and maintain
our Neutral rating on the stock.
Adverse forex movement impacts overall performance: HMCL registered in-line
net sales growth of 16.9% yoy (3.5% qoq) to `6,031cr, driven by volume growth
of 11.3% yoy (2.9% qoq) and a 5% yoy (0.5% qoq) improvement in average net
realization. Volume performance was driven by 10.6% (2.6% qoq) and 20.4% yoy
(6.4% qoq) growth in motorcycle and scooter sales, respectively. Adjusted EBITDA
margin (adjusted for royalty payments) came in lower than expected at 11.9%
(down 30bp qoq) due to adverse product mix and higher royalty outgo, led by
unfavorable forex movement. Other expenses to net sales declined by 50bp qoq
due to lower advertisement and rebranding expenses. Net profit, however,
registered strong growth of 20.5% yoy (1.6% qoq) to `613cr aided by lower tax
rate and increased other income.
Outlook and valuation: We broadly maintain our volume estimates for HMCL and
model 10.4% volume growth in FY2013. We believe the benefits of lower
raw-material costs will be negated due to higher advertising and R&D expenses
that HMCL intends to incur going ahead. Further, due to increased competitive
activity in the two-wheeler segment, HMCLs market share will also remain under
pressure. At `1,951, HMCLs stock is fairly valued at 14.4x FY2013E earnings
(historical multiple 15x). We maintain our Neutral rating on the stock.
0.5
52 Week High / Low
2,248/1,378
Avg. Daily Volume
66,895
Face Value (`)
BSE Sensex
16,739
Nifty
5,049
Reuters Code
HROM.BO
Bloomberg Code
HMCL@IN
Shareholding Pattern (%)

Promoters
52.2
MF / Banks / Indian Fls
6.9
FII / NRIs / OCBs
33.9
Indian Public / Others
Abs. (%)
7.0
1yr
3yr
Sensex
(2.6) (12.3)
3m
83.9
Hero MotoCorp
(3.9)
10.1 133.9
Key financials
Y/E March (` cr)
FY2010
FY2011
FY2012E
FY2013E
Net sales
15,758
19,245
23,276
26,345
% chg
27.9
22.1
20.9
13.2
2,082
1,842
2,346
2,696
% chg
76.3
(11.5)
27.4
14.9
Adj. OPM (%)
16.9
12.4
14.7*
14.6*
EPS (`)
104.2
92.2
117.5
135.0
P/E (x)
18.7
21.1
16.6
14.4
P/BV (x)
11.2
13.2
8.9
6.4
RoE (%)
57.3
57.4
64.1
51.4
RoCE (%)
64.1
47.2
42.8
39.6
2.0
1.7
1.3
1.1
12.5
14.8
9.6
7.9
Adj. profit
EV/Sales (x)
EV/EBITDA (x)
Source: Company, Angel Research; Note: * OPM adjusted for change in treatment of royalty costs
Please refer to important disclosures at the end of this report
Yaresh Kothari
022-39357800 Ext: 6844
yareshb.kothari@angelbroking.com
Hero MotoCorp | 3QFY2012 Result Update
Exhibit 1: Quarterly performance

Y/E March (` cr)
3QFY12
3QFY11
yoy chg (%)
2QFY12
qoq chg (%)
9MFY12
9MFY11
% chg
Net Sales
6,031
5,162
16.9
5,829
3.5
17,544
14,010
25.2
Consumption of RM
15.2
4,224
4.0
12,863
10,184
26.3
73.3
72.7
11.1
543
451
3.1
3.2
(2.6)
1,458
1,588
4,395
3,815
(% of Sales)
72.9
73.9
Staff Costs
199
156
(% of Sales)
Other Expenses
(% of Sales)
Total Expenditure
Operating Profit
3.3
3.0
494
614
72.5
27.7
179
(19.5)
508
3.1
8.7
20.5
(8.2)
8.2
11.9
8.3
11.3
5,088
4,585
11.0
4,911
3.6
14,865
12,223
21.6
943
577
63.5
919
2.6
2,679
1,787
49.9
15.3
12.8
(29.2)
(10.9)
(10.0)
9.1
OPM
15.6
11.2
Interest
(3.2)
(5.2)
(39.1)
(4.5)
Depreciation
299
56
433.7
278
7.2
817
165
395.1
Other Income
76
62
23.0
80
(4.4)
244
194
26.1
724
588
23.1
724
(0.1)
2,118
1,826
16.0
(80)
42.5
724
(0.1)
2,118
1,746
21.3
12.1
12.5
343
320
16.2
18.3
PBT (excl. Extr. Items)

Extr. Income/(Expense)
15.8
(80)
PBT (incl. Extr. Items)
724
508
(% of Sales)
12.0
9.8
Provision for Taxation
111
79
(% of PBT)
15.3
15.6
Reported PAT
613
429
42.9
604
1.6
1,775
1,426
24.4
Adjusted PAT
613
509
20.5
604
1.6
1,775
1,506
17.8
12.4
40.2
121
(8.3)
16.7
PATM
10.2
8.3
10.4
10.1
10.2
Equity capital (cr)
39.9
39.9
39.9
39.9
39.9
EPS (`)
30.7
25.5
88.9
75.4
20.5
30.2
1.6
7.4
17.8
Exhibit 2: Quarterly volume performance

Volume (units)
3QFY12
3QFY11
yoy chg (%)
2QFY12
qoq chg (%)
9MFY12
9MFY11
% chg
Total two-wheelers
1,589,276
1,428,030
11.3
1,544,315
2.9
4,663,168
3,948,013
18.1
Domestic
1,543,212
1,389,551
11.1
1,504,470
2.6
4,538,844
3,844,614
18.1
46,064
38,479
19.7
39,845
15.6
124,324
103,399
20.2
Motorcycles
1,474,815
1,332,941
10.6
1,436,759
2.6
4,335,367
3,695,779
17.3
Domestic
Exports
1,438,160
1,299,110
10.7
1,407,172
2.2
4,238,702
3,604,308
17.6
Exports
36,655
33,831
8.3
29,587
23.9
96,665
91,471
5.7
Scooters
114,461
95,089
20.4
107,556
6.4
327,801
252,234
30.0
Domestic
105,052
90,441
16.2
97,298
8.0
300,142
240,306
24.9
9,409
4,648
102.4
10,258
(8.3)
27,659
11,928
131.9
Exports
January 20, 2012
Net sales up by healthy 16.9% yoy: HMCL reported in-line net sales growth of
16.9% yoy (3.5% qoq) to `6,031cr, driven by volume growth of 11.3% yoy (2.9%
qoq) and a 5% yoy (0.5% qoq) increase in average net realization. The companys
volume performance was driven by a 10.6% (2.6% qoq) and 20.4% yoy (6.4%
qoq) increase in motorcycle and scooter sales, respectively. Net average
realization, however, came in lower than expected at `37,649/vehicle. Led by
superior sales growth, HMCL increased its market share to 56.2% from 55% in the
domestic motor-cycle segment.
20.0
1,000,000
800,000
10.3
600,000
11.3
8.7
10.0
400,000
200,000
35,000
2.4
33,000
0.0
32,000
0.9
2.0
1.0
0.0
Exhibit 5: In-line growth in net sales
Exhibit 6: Domestic market share trend
60
30.0
5,000
25.0
20.4
4,000
16.9
3,000
12.4
20.0
40
1,000
5.0
10
0.0
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
20
4QFY10
10.0
3QFY10
15.0
2,000
54.8
53.9
53.0
47.0
44.8
44.1
12.8
14.6
55.6
55.8
56.5
43.4
45.4
45.7
46.8
15.3
15.8
16.7
18.0
18.4
55.0
56.2
44.2
45.3
15.0
15.9
50
30
12.1
57.3
Total 2-wheeler
1QFY12
35.0
Motor-cycle
4QFY11
28.1
Scooter
3QFY11
32.3
(%)
2QFY11
30.8
70
1QFY11
32.8
(%)
40.0
4QFY10
yoy change (RHS)

34.9
3QFY10
6,000
Net sales (LHS)
5.0
3.0
1.5
(` cr)
7,000
6.0
4.0
2.7
34,000
5.0
5.0
4.4
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
4QFY10
3QFY10
15.0
36,000
3QFY12
20.1
18.9
7.0
3QFY12
25.0
6.8
6.7
2QFY12
1,200,000
23.9
6.7
2QFY12
22.6
37,000
(%)
8.0
yoy growth (RHS)
1QFY12
1,400,000
30.0
Net average realisation/unit
4QFY11
28.5
(`)
38,000
3QFY11
29.6
1,600,000
(%)
35.0
2QFY11
yoy growth (RHS)
1QFY11
Total volume
3QFY10
(units)
1,800,000
Exhibit 4: Net average realization remains flat qoq
4QFY10
Exhibit 3: Healthy volume growth of 11.3% yoy
Lower than expected adjusted EBITDA margin: HMCLs adjusted EBITDA margin
(adjusted for royalty payments) came in lower than expected at 11.9% (down 30bp
qoq) due to adverse product mix and higher royalty outgo, led by unfavorable
forex movement. Royalty expense during 3QFY2012 stood at `228cr (`210cr in
2QFY2012) against our expectation of `200cr and normalized levels of `177cr.
Employee expenses as a percentage of sales also increased by 30bp yoy (20bp
qoq) on account of wage increases taken in August 2011. Other expenses to net
sales, however, declined by 50bp qoq due to lower advertisement and rebranding
expenses, thereby supporting margins to some extent. As a result, adjusted
operating profit grew by 24% yoy (flat qoq) to `715cr.
January 20, 2012
Exhibit 7: EBITDA margin trend

EBITDA margin
(%)
Exhibit 8: Adjusted net profit up 20.5% yoy

Raw material cost/sales
(` cr)
700
80.0
70.0
60.0
68.5
67.6
71.7
73.4
74.5
73.4
75.3
73.0
73.4
50.0
Net profit (LHS)

14.5
600
11.4
500
(%)
16.0
Net profit margin (RHS)
14.0
11.1
8.3
400
40.0
30.0
14.0
9.3
9.8
10.4
10.2
10.0
8.0
300
17.3
17.3
12.0
6.0
3QFY12
2QFY12
1QFY12
4QFY11
12.3
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
3QFY10
12.3
3QFY11
0.0
11.3
2QFY11
12.1
1QFY11
2.0
0.0
11.2
4QFY10
100
13.4
3QFY10
4.0
10.0
4QFY10
200
20.0
14.0
Higher other income and lower tax rate support bottom-line growth: Net profit
registered strong 20.5% yoy (1.6% qoq) growth to `613cr despite subdued
performance at the operating level, aided by other income (up 23% yoy) and lower
tax rate (15.3% in 3QFY2012 vs. 16.7% in 2QFY2012). Higher production from
HMCLs tax exempt plant at Uttarakhand resulted in a lower tax rate during the
quarter.
Conference call Key highlights
January 20, 2012
According to management, the two-wheeler industry is expected to register

moderate 10-12% volume growth in 4QFY2012.
Rural sales now account for ~45% of HMCLs total volumes and demand in
rural markets continues to remain buoyant according to the company.
Installed capacity is expected to reach 7mn units by the end of FY2012.
HMCL has increased its scooter capacity to ~50,000 units/month. The current
production from the Uttarakhand plant (tax free) is 8,000 units/day, which is
expected to ramp up to 9,500 units/day by FY2013.
HMCL plans to add ~500 new touch points every year and expects the total
number of touch points to reach 5,000 by the end of FY2013.
The company has increased its headcount in the R&D team to ~200 from
~75 in FY2011.
Management does not expect any substantial savings in raw-material costs

going ahead due to INR depreciation versus the USD.
Direct imports mainly in the form of cast wheels are at 1.5-2.0% (USD
denominated) and indirect imports are at 14-15% (USD as well as Yen
denominated).
Current inventory at the dealer end remains at normal levels of two to twoand-a-half weeks.
Investment arguments
Expect the demand scenario to moderate slightly: We believe demand

momentum will slightly moderate going ahead after strong volume growth
over the past three years, mainly due to macroeconomic concerns. We expect
HMCL to slightly underperform the industrys growth during the period, owing
to increasing competition in the industry.
Capacity expansion to meet increasing demand: HMCL commenced

expansion plans at its Haridwar plant in Uttarakhand, with the first plant
commissioned in April 2008, with an initial capacity of 500,000 units.
The company has increased its total installed capacity to 6.15mn units in
FY2011 from 5.4mn units in FY2010, with capacity of 2.25mn at Haridwar
and 1.95mn each at Dharuhera and Gurgaon. HMCL plans to further expand
its capacity to 7mn units by FY2012 through de-bottlenecking at existing
plants. As a result of capacity expansion, HMCL will be able to meet the
increasing demand and, as such, is expected to post a volume CAGR of
12.7% over FY2011-13E.
The Haridwar plant also avails tax benefits, including a 100% excise
exemption for 10 years and a 100% income tax exemption for the first five
years and 30% for the next five years. Besides the Haridwar plant, two plants
in Gurgaon also enjoy tax benefits.
Outlook and valuation

We broadly maintain our volume estimates for HMCL and model 10.4% volume
growth in FY2013. We believe the benefits of lower raw-material costs will be
negated due to higher advertising and R&D expenses that HMCL intends to incur
going ahead. Further, due to increased competitive activity in the two-wheeler
segment, HMCLs market share will also remain under pressure.
We believe HMCLs current valuations factor in the strong 31% earnings CAGR
that the company is likely to register over FY2011-13E. At `1,951, HMCL is fairly
valued at 14.4x FY2013E earnings (historical multiple 15x). Thus, we maintain
our Neutral rating on the stock.
January 20, 2012
Exhibit 9: Key assumptions

Y/E March (units)
FY08
FY09
FY10
FY11
FY12E
FY13E
Domestic
3,144,101
3,487,614
4,293,991
4,926,390
5,645,377
6,208,075
< 125cc
2,966,329
3,302,095
4,055,304
4,589,003
5,291,120
5,836,106
> 125cc
177,712
185,519
238,687
337,387
354,256
371,969
Exports
88,219
78,176
91,867
114,581
120,310
127,529
< 125cc
80,620
69,644
82,824
102,524
107,650
114,109
> 125cc
7,599
8,532
9,043
12,057
12,660
13,419
3,232,320
3,565,790
4,385,858
5,040,971
5,765,687
6,335,604
102,470
153,193
208,440
342,991
428,739
497,337
2,352
3,017
5,832
18,482
24,396
30,495
Motorcycle
Domestic
Exports
Scooters
104,822
156,210
214,272
361,473
453,135
527,832
3,337,142
3,722,000
4,600,130
5,402,444
6,218,822
6,863,436
Domestic
(0.1)
10.9
23.1
14.7
14.6
10.0
< 125cc
(2.5)
11.3
22.8
13.2
15.3
10.3
> 125cc
67.5
4.4
28.7
41.4
5.0
5.0
Total volume
Growth (yoy, %)
Exports
(8.7)
(11.4)
17.5
24.7
5.0
6.0
< 125cc
(14.0)
(13.6)
18.9
23.8
5.0
6.0
> 125cc
160.2
12.3
6.0
33.3
5.0
6.0
Motorcycle
(0.4)
10.3
23.0
14.9
14.4
9.9
Domestic
11.5
49.5
36.1
64.6
25.0
16.0
Exports
127.9
28.3
93.3
216.9
32.0
25.0
Scooters
12.8
49.0
37.2
68.7
25.4
16.5
0.0
11.5
23.6
17.4
15.1
10.4
Total volume
Exhibit 10: Angel vs. consensus forecast

Angel estimates
Net sales (` cr)
EPS (`)
Consensus
Variation (%)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
23,276
26,345
23,174
26,177
0.4
0.6
117.5
135.0
118.2
136.5
(0.6)
(1.1)
Source: Bloomberg, Angel Research
January 20, 2012
Exhibit 11: One-year forward P/E band

(`)
Share price (`)
8x
Exhibit 12: One-year forward P/E chart
12x
16x
20x
25
2,500
20
2,000
Absolute P/E
(x)
3,000
Five-yr average P/E
15
1,500
Jan-12
Apr-11
Aug-10
Dec-09
Mar-09
Jul-08
Nov-07
Feb-07
Jun-06
Sep-05
Jan-05
May-04
Aug-03
Apr-02
Jan-12
Mar-11
Jun-10
Aug-09
Oct-08
Jan-08
Mar-07
Apr-03
Jun-06
Aug-05
Nov-04
Jan-04
500
Dec-02
10
1,000
Source: Company, Bloomberg, Angel Research
Exhibit 13: Premium/Discount to Sensex P/E
Exhibit 14: Two-wheeler stock performance v/s Sensex

TVSL
Jan-12
Jan-12
Apr-11
Aug-10
Dec-09
Mar-09
Jul-08
Nov-07
Feb-07
Jun-06
Sep-05
Jan-05
May-04
Aug-03
Dec-02
Apr-02
(80)
Aug-11
(60)
Sensex
Mar-11
(40)
Sep-10
0
(20)
BJAUT
Apr-10
20
Nov-09
40
Jun-09
60
HMCL
500
450
400
350
300
250
200
150
100
50
0
Jan-09
Five-yr average P/E
Aug-08
Absolute premium
80
Mar-08
(%)
Exhibit 15: Automobile - Recommendation summary

CMP Tgt. price
(`)
(`)
P/E (x)
EV/EBITDA (x)
RoE (%)
FY11-13E EPS
Upside
(%)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
CAGR (%)
29
11.5
12.6
10.8
6.8
6.1
13.7
15.1
1.9
1,558
1,755
12.6
14.9
13.3
9.6
8.3
54.7
47.8
11.0
1,951
16.6
14.4
9.6
7.9
64.1
51.4
21.0
1,099
1,185
7.6
22.6
13.9
13.7
7.8
9.5
13.5
0.6
Buy
656
829
26.3
13.7
12.0
8.5
6.9
25.7
25.2
12.4
Neutral
219
8.1
7.4
5.2
4.7
39.4
33.9
1.6
51
66
28.4
9.4
8.6
4.7
4.0
24.1
22.5
17.4
Company
Reco.
Ashok Leyland
Accumulate
26
Bajaj Auto
Accumulate
Hero MotoCorp
Neutral
Maruti Suzuki
Accumulate
M&M
Tata Motors
TVS Motor
Buy
January 20, 2012
Profit & Loss Statement

Y/E March (` cr)
Gross sales
Less: Excise duty
FY08
FY09
FY10
FY11
FY12E
FY13E
12,039 13,543 16,781 20,662 24,974 28,252

1,703
1,224
1,022
1,417
1,698
1,907
Net Sales
10,335 12,319 15,758 19,245 23,276 26,345
Total operating income
10,335 12,319 15,758 19,245 23,276 26,345
% chg
4.5
19.2
27.9
22.1
20.9
13.2
Total Expenditure
9,005 10,635 13,096 16,865 19,845 22,512
Net Raw Materials
7,406
8,742 10,736 14,111 17,178 19,416
Other Mfg costs
152
187
225
265
303
369
Personnel
321
371
438
515
689
817
Other
1,126
1,335
1,697
1,973
1,676
1,910
EBITDA
1,330
1,684
2,662
2,380
3,431
3,833
% chg
15.3
26.7
58.0
(10.6)
44.1
11.7
(% of Net Sales)
12.9
13.7
16.9
12.4
14.7
14.6
Depreciation & Amortization
160
181
191
402
1,118
1,063
EBIT
1,170
1,504
2,471
1,978
2,312
2,770
% chg
15.4
28.6
64.3
(19.9)
16.9
19.8
(% of Net Sales)
11.3
12.2
15.7
10.3
9.9
10.5
16
12
21
243
280
363
443
509
539
Interest & other Charges

Other Income
(% of PBT)
Recurring PBT
% chg
Extraordinary Expense/(Inc.)
PBT
16.2
14.9
12.2
17.8
18.1
16.4
1,410
1,781
2,832
2,405
2,810
3,288
13.2
26.3
59.0
(15.1)
16.8
17.0
89
101
150
86
1,499
1,883
2,982
2,491
2,810
3,288
Tax
442
500
600
477
464
592
(% of PBT)
29.5
26.5
20.1
19.1
16.5
18.0
PAT (reported)
968
1,282
2,232
1,928
2,346
2,696
ADJ. PAT
879
1,181
2,082
1,842
2,346
2,696
% chg
13.1
34.3
76.3
(11.5)
27.4
14.9
(% of Net Sales)
8.5
9.6
13.2
9.6
10.1
10.2
Basic EPS (`)
48.5
64.2
111.8
96.5
117.5
135.0
Adjusted EPS (`)
44.0
59.1
104.2
92.2
117.5
135.0
% chg
13.1
34.3
76.3
(11.5)
27.4
14.9
Note: * OPM according to the new accounting policy for royalty payments
January 20, 2012
Balance Sheet
Y/E March (` cr)
FY08
FY09
FY10
FY11
FY12E
FY13E
SOURCES OF FUNDS
Equity Share Capital
40
40
40
40
40
40
Reserves & Surplus
2,946
3,761
3,425
2,916
4,328
6,089
Shareholders Funds
2,986
3,801
3,465
2,956
4,368
6,129
Total Loans
132
78
66
1,491
1,491
1,491
Deferred Tax Liability
125
144
153
247
247
247
3,244
4,024
3,684
4,694
6,105
7,867
1,756
2,310
2,519
5,308
6,046
6,861
Total Liabilities
APPLICATION OF FUNDS
Gross Block
Less: Acc. Depreciation
783
943
1,092
1,458
2,577
3,640
Net Block
974
1,367
1,427
3,850
3,469
3,221
Capital Work-in-Progress
408
121
48
125
121
137
Goodwill
182
207
232
231
231
231
2,567
3,369
3,926
5,129
6,716
9,047
Current Assets
937
1,013
2,883
1,505
2,502
2,964
Cash
131
220
1,907
72
877
1,124
Loans & Advances
191
317
431
778
815
922
Investments
Other
Current liabilities
Net Current Assets
Mis. Exp. not written off
Total Assets
615
477
545
656
811
919
1,825
2,053
4,831
6,145
6,933
7,733
(888) (1,039) (1,949) (4,640) (4,431) (4,769)

-
3,244
4,024
3,684
4,694
6,105
7,867
FY09
FY10
FY11
FY12E
FY13E
1,499 1,883
2,982
2,405
2,810
3,288
191
402
1,118
1,063
(633)
(692)
Cash Flow Statement

Y/E March (` cr)
Profit before tax
Depreciation
160
181
Change in Working Capital
(339)
(364) (2,674) (1,235)
Less: Other income
(381)
(183) (4,888) (3,548) (1,139) (1,231)
Direct taxes paid

Cash Flow from Operations
442
500
600
477
464
592
1,259 1,382
4,787
4,643
3,970
4,299
(Inc.)/Dec. in Fixed Assets
(325)
(265)
(137) (2,901)
(734)
(831)
(Inc.)/Dec. in Investments
(593)
(802)
(557) (1,203) (1,587) (2,331)
79
(103)
(94)
(393)
(45)
(69)
243
255
363
424
509
539
(597)
(916)
(Inc.)/Dec. in loans and advances

Other income
Cash Flow from Investing
Issue of Equity
Inc./(Dec.) in loans
Dividend Paid (Incl. Tax)
Others
Cash Flow from Financing
Inc./(Dec.) in Cash
January 20, 2012
FY08
(424) (4,073) (1,858) (2,692)

-
33
54
12
33
444
467
2,568
2,453
935
935
(1,044)
(899) (5,255) (4,893) (2,242) (2,295)
(567)
(378) (2,675) (2,406) (1,307) (1,360)
95
88
1,688 (1,836)
805
247
Opening Cash balances
36
131
220
1,907
72
877
Closing Cash balances
131
220
1,907
72
877
1,124
Key Ratios
Y/E March
FY08
FY09
FY10
FY11
FY12E
FY13E
P/E (on FDEPS)
44.3
33.0
18.7
21.1
16.6
14.4
P/CEPS
34.5
26.6
17.1
17.4
11.2
10.4
P/BV
13.0
10.2
11.2
13.2
8.9
6.4
Dividend yield (%)
1.0
1.0
5.6
5.4
2.1
2.1
EV/Sales
3.0
2.6
2.0
1.7
1.3
1.1
EV/EBITDA
27.4
21.0
12.5
14.8
9.6
7.9
EV / Total Assets
11.2
8.8
9.0
7.5
5.4
3.8
EPS (Basic)
48.5
64.2
111.8
96.5
117.5
135.0
EPS (fully diluted)
44.0
59.1
104.2
92.2
117.5
135.0
Cash EPS
56.5
73.2
113.8
112.4
173.5
188.3
DPS
19.0
20.0
110.0
105.0
40.0
40.0
149.5
190.3
173.5
148.0
218.7
306.9
11.3
12.2
15.7
10.3
9.9
10.5
Tax retention ratio
0.7
0.7
0.8
0.8
0.8
0.8
Asset turnover (x)
3.5
3.6
5.6
6.0
4.7
4.4
28.2
31.9
70.7
50.0
39.2
37.9
Valuation Ratio (x)
Per Share Data (`)
Book Value
Dupont Analysis
EBIT margin
ROIC (Post-tax)
Cost of Debt (Post Tax)
Leverage (x)
28.2
31.9
70.7
50.0
39.2
37.9
38.9
41.4
64.1
47.2
42.8
39.6
Angel ROIC (Pre-tax)
25.8
28.4
109.6
34.3
36.9
33.7
ROE
32.2
34.8
57.3
57.4
64.1
51.4
Asset Turnover
6.1
6.1
6.5
4.9
4.1
4.1
Inventory / Sales (days)
10
10
10
Operating ROE
Returns (%)
ROCE (Pre-tax)
Turnover ratios (x)
Receivables (days)
11
Payables (days)
42
42
62
84
86
88
(29)
(34)
(59)
(81)
(79)
(78)
(0.9)
(0.9)
(1.7)
(1.3)
(1.4)
(1.4)
WC (ex-cash) (days)
Solvency ratios (x)
Net debt to equity
Net debt to EBITDA
Interest Coverage
January 20, 2012
(1.9)
(2.1)
(2.2)
(1.6)
(1.8)
(2.3)
584.8
594.3
1,176
125.2
198.7
131.4
10
Research Team Tel: 022 - 39357800
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement

1. Analyst ownership of the stock
Hero MotoCorp
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
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Ratings (Returns):
January 20, 2012
Buy (> 15%)

Reduce (-5% to 15%)
Accumulate (5% to 15%)

Sell (< -15%)
Neutral (-5 to 5%)
11

Hero Moto Corp Result Updated

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3QFY2012 Result Update | Automobile

January 20, 2012

Y/E March (` cr)

Adj. EBITDA margin (%)

Source: Company, Angel Research

52 Week High / Low

Avg. Daily Volume

Face Value (`)

Shareholding Pattern (%)

MF / Banks / Indian Fls

FII / NRIs / OCBs

Indian Public / Others

Adj. OPM (%)

Please refer to important disclosures at the end of this report

Hero MotoCorp | 3QFY2012 Result Update

Exhibit 1: Quarterly performance

yoy chg (%)

qoq chg (%)

PBT (excl. Extr. Items)

PBT (incl. Extr. Items)

Provision for Taxation

Equity capital (cr)

Source: Company, Angel Research

Exhibit 2: Quarterly volume performance

yoy chg (%)

qoq chg (%)

January 20, 2012

Hero MotoCorp | 3QFY2012 Result Update

Source: Company, Angel Research

Exhibit 5: In-line growth in net sales

Exhibit 6: Domestic market share trend

Source: Company, Angel Research

yoy change (RHS)

Net sales (LHS)

Source: Company, Angel Research

yoy growth (RHS)

Net average realisation/unit

yoy growth (RHS)

Exhibit 4: Net average realization remains flat qoq

Exhibit 3: Healthy volume growth of 11.3% yoy

Source: Company, Angel Research

January 20, 2012

Hero MotoCorp | 3QFY2012 Result Update

Exhibit 7: EBITDA margin trend

Exhibit 8: Adjusted net profit up 20.5% yoy

Net profit (LHS)

Net profit margin (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Conference call Key highlights

January 20, 2012

According to management, the two-wheeler industry is expected to register

Installed capacity is expected to reach 7mn units by the end of FY2012.

Management does not expect any substantial savings in raw-material costs

Hero MotoCorp | 3QFY2012 Result Update

Expect the demand scenario to moderate slightly: We believe demand

Capacity expansion to meet increasing demand: HMCL commenced

Outlook and valuation

January 20, 2012

Hero MotoCorp | 3QFY2012 Result Update

Exhibit 9: Key assumptions

Exhibit 10: Angel vs. consensus forecast

Source: Bloomberg, Angel Research