India's largest two-wheeler maker Hero Motocorp 's second quarter (July-September) profit beat street expectations but rest of the numbers were in-line . Analysts, however, are reading the numbers quite differently.
Surjit Arora of Prabhudas Lilladher expects the stock to see some negative knee jerk reaction on opening on Friday and is also downgrading the earnings estimate by 2-3 percent.
Mitul Shah of Karvy Stock Broking, on the other hand, expects the stock to open in the green over improving business and market share.
Below is the verbatim transcript.
Q: Your quick reaction of what you make of the Hero MotoCorp numbers?
Arora: Broadly the numbers are in line but if you look at the EBITDA level they have reported EBITDA of Rs 935 crore vis-à-vis our estimate of Rs 960 crore. So it is tad lower than what we were expecting and the margins at 13.5 despite the fact that volume growth has been 19.4 percent is slightly disappointing.
Q: And why do you think the EBITDA has come in lower than what you were perhaps expecting? Do you have any of that information as yet?
Arora: We don't have the details in terms of expenses break up but broadly I believe it is more on the other expenditure which might have gone up due to their sponsorship of new events like IFL and all that and plus they have not taken any meaningful price hikes this quarter. So maybe there is some pressure on raw material front as well.
Q: Mitul your initial reactions, what do you make of the Hero MotoCorp numbers?
Shah: Revenues are more or less inline with our estimate, slightly lower than our estimate. On EBITDA front also it is slightly lower but there is no deviation more than 1 percent so we believe that because of the expenses related to the new launches there is some pressure on margins. However we believe that despite all these things, adverse competitive situation company is able to pass on majority of the expenses. On the net profit level it is more or less inline, in fact it is higher than our estimate of Rs 706 crore. So, we maintain our positive view on the company and we won't change our estimates.
In fact we will see that business is growing in a better way, company's market share has improved significantly. There is a improvement of more than 300 basis points in the market share for the motorcycle segment particularly in the 100cc and 110cc segment wherein company's market share improved by more than 500 basis points year on year to 69 percent. While this segment comprises two third of the industry volume wherein company enjoys a market share of 70 percent, going forward also we expect improvement in company's market share considering that our channel check reveals that the company's market share has recently improved in rural India wherein company enjoys market share close to 60 percent and going forward also we expect higher growth from rural India though company's market share in the urban is below 50 percent.
However growth is coming from rural wherein company has a strong dealer network with touch points of 6500 across India. So, this will benefit going forward with the improving economic situation and sentiment. Company being the leader in the segment it will enjoy that benefit.
Q: How do you expect the stock to open in trade tomorrow?
Shah: We expect some positive move on the stock.
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