Result Update Emkay

Document Sample
Result Update Emkay Powered By Docstoc
					                                                                                                                                           Result Update
 Emkay                                         HERO HONDA MOTORS LTD
   Research                                    Margin surprise continues
28th April 2008                                 Hero Honda’ s 4QFY08 numbers were above our expectations. While net
                                                sales, at Rs 27.9 bn were in line with our estimates, operating performance
HOLD                                            was above our estimates. The company reported EBIDTA of Rs 4.1 bn (YoY
                                                growth of 53%). The improvement in EBIDTA has been driven by significant
Price                     Target Price          reduction in raw material costs. As a % of sales, raw material cost declined
Rs 800                        Rs 982            by 240 bps YoY to 70.7%. Even on a per unit sold basis, raw material
                                                expenses declined by 100 bps YoY to Rs 22,301. This is the second
                                                consecutive quarter of decline in raw material cost (both as a % of sales on
Sensex 17649                                    per unit sold). Infact, other expense s registered a decline in absolute terms
                                                by 12.8% to Rs 3 bn. As a result net profits grew by 53% YoY to 3 bn as
                                                against our expectations of 2.4 bn. While we were expecting a reduction in
                                                raw material costs and other expenses on YoY basis, we were surprised by
Price Performance
                                                the magnitude of the improvement reported by the company.
(%)                 1M   3M    6M    12M
                                                We have a cautious view on the motorcycle segment largely due to non
Absolute            19   24     10     19       availability of consumer finance. Our recent channel check indicates the
Rel. to Sensex      11   25     23     (1)      scenario is not likely to change in the short term. Also, interest rates have
Source: Bloomberg
                                                reached as high as 24% in the two wheeler space.

                                                We have revised our FY09 and FY10 estimates to factor in the above
Stock Details                                   expected performance of the company. We are upgrading our rating on the
Sector                       Automobiles        stock from REDUCE TO HOLD as in a scenario of tight consumer finance
Reuters                       HROH.BO           scenario, Hero Honda is well placed to out perform the industry growth due
Bloomberg                         HH@IN         to lower penetration of consumer finance and s   trong brand equity of its
Equity Capital (Rs mn)               399
Face Value (Rs )                        2
                                                Splendor and Hunk.
No of shares o/s (mn)               199.7       At Rs 800, the stock trades at PE of 14times and 12.2 times our respectively
52 Week H/L (Rs )                815/556
Market Cap (Rs bn)                   161        and EV/EBIDTA of 8.5 times and 7.1 times respectively of our FY09 and FY10
Daily Avg Vol (No of shares)      389293        estimates.
Daily Avg Turnover (US$ mn)           7.0
                                                Improving product mix aid topline growth

                                                Aided by improving volume mix (as indicated in the table below), the net sales grew
Shareholding Pattern (%)
(30th Sep .’07)
                                                by 5.6% YoY to Rs 27.9 bn. This can be attributed to improving product mix backed
                                                by sales of ‘CBZ Extreme’ (launched in October 2006) and the ‘HUNK’ together
Promoters                             55.0
                                                with the brand equity for its ‘SPLENDOR’ range of products. However, average
FII/NRI                               24.7
Institutions                          11.5      realization improved by mere 2.3%, against our expectation of 4% YoY.
Private Corp.                          0.7
                                                 Product mix%      4QFY08     4QFY07    3QFY08     Product mix %         4QFY08   4QFY07   3QFY08
Public                                 8.1                                                          Motorcycles
                                                 Motorcycles          97.3       97.7       96.5   (Domestic)
                                                 Scooters               2.7       2.3        3.5   upto 125cc              93.0     93.4                   94.7
                                                 Total               100.0      100.0      100.0   125cc to 250 cc          7.0      6.6                    5.3
                                                                                                   Motorcycles
                                                                                                   (Exports)
Chirag Shah                                      Exports                3.5       2.1        2.0   upto 125cc              90.7     90.7                   90.7
chirag.shah@emkayshare.com                       Domestic             96.5       97.9       98.0   125cc to 250 cc          9.3      9.3                    9.3
+91 22 6612 1252


                                              The extent of control on the operating costs continue to surprise us

                                              While we were expecting improvement in EBIDTA margins, we were surprised us was the
                                              extent of improvement registered by the company. EBIDTA margins expanded by 460 bps
                                              YoY to 14.8% EBIDTA grew by 53% YoY to4.1 bn. This is on account of significant reduction


                              C-6, Ground Floor, Paragon Center Pandurang Budhkar Marg, Worli, Mumbai – 400 013. India
                  HERO HONDA MOTORS LTD                                                 Result Update

                                                                                    aw
                 in the raw material and other expenses. On per unit sold basis, r material expenses
                 declined by 1% YoY to Rs 19,716 per unit. As a % of sales, raw material expenses declined
                 by 240 bps to 70.7%. Other expenses have reduced in absolute terms by 12.8% YoY
                 to Rs 3 bn.

                 Valuation and View
                 We have a cautious view on the motorcycle segment largely due to non availability
                 of consumer finance. Our recent channel check indicates the scenario is not likely
                 to change in the short term. Also, interest rates have reached as high as 24% in the
                 two wheeler space.
                 For Hero Honda, we have revised our FY09 and FY10 estimates to factor in the
                 above expected performance of the company. We are upgrading our rating on the
                 stock from REDUCE TO HOLD as in a scenario of tight consumer finance
                 scenario, Hero Honda is well placed to out perform the industry growth due to lower
                 penetration of consumer finance and strong brand equity of its Splendor and Hunk.
                 At Rs 800, the stock trades at PE of 14times and 12.2 times our respectively and
                 EV/EBIDTA of 8.5 times and 7.1 times respectively of our FY09 and FY10
                 estimates.




Emkay Research       April 28, 2008                                                                   2
                                          HERO HONDA MOTORS LTD                               Result Update

 Quarterly Results summary


    Rs mn                      4QFY07         4QFY08        % change     FY07      FY08         % change
    Net Sales                   26,396         27,886             5.6    99,000    103,318           4.4
    Operating Expenses
    Raw Materials               19,290         19,716             2.2    71,787     74,025           3.1
    % of Sales                    73.1           70.7                       72.5      71.6
    Staff Costs                    905            988             9.2     3,538      3,835           8.4
    % of Sales                      3.4            3.5                       3.6        3.7
    Other Expenses               3,514          3,064           (12.8)   11,944     11,964           0.2
    % of Sales                    13.3           11.0                       12.1      11.6
    EBIDTA                       2,687          4,118            53.3    11,730     13,494          15.0
    EBIDTA %                      10.2           14.8                       11.8      13.1
    Depreciation                   355            435            22.4     1,398      1,603          14.7
    EBIT                         2,332          3,683            58.0    10,333     11,890          15.1
     Other Income                  445             551           23.9     1,899      1,854          (2.3)
     Interest (income)             (76)            (81)           6.6      (229)      (357)         55.9
     PBT                         2,853           4,316           51.3    12,460     14,102          13.2
     Extraordinary inc/(exp)         -               -                        -          -
     Tax                           904           1,329           47.1     3,882      4,424          14.0
     Net Profit                  1,949           2,987           53.2     8,578      9,678          12.8
     Net Margin %                   7.4           10.7                       8.7        9.4


     EPS                           9.8            15.0           53.2      43.0       48.5         12.8
     CEPS                         11.5            17.1           48.5      50.0       56.5         13.1




Emkay Research                             April 28, 2008                                                   3
                                                 HERO HONDA MOTORS LTD                                                                   Result Update



       Profit & Loss Account                                                       Balance Sheet
       Mar ending (Rs mn)           FY07       FY08E     FY09E       FY10E         Mar ending (Rs mn)                FY07       FY08E     FY09E       FY10E
       Net Sales                  99,000      103,318   119,058    135,734         Share Capital                      399         399        399           399
       Growth %                      13.6         4.4      15.2        14.0        Reserves                         24,301   29,564       35,376      42,028
       Operating Expenses                                                          Owned Funds                      24,701   29,963       35,775      42,428
       Raw Materials              71,787       74,025    84,671      96,667        Secured Loans                        0           0          0             0
       % of Sales                    72.5        71.6      71.1        71.2        Unsecured Loans                   1,652      1,452       1,252         1,052
       Staff Costs                  3,538       3,835     4,498       5,139        Loan Funds                        1,652      1,452       1,252         1,052
       % of Sales                     3.6         3.7       3.8         3.8        Deferred Tax Liability            1,282      1,282       1,282         1,282
       Other Expenses             11,944       11,964    14,168      15,881        Total                            27,634   32,697       38,309      44,761
       % of Sales                    12.1        11.6      11.9        11.7        Gross Fixed Assets               18,006   21,006       24,006      27,006
       EBIDTA                     11,730       13,495    15,721      18,048        Acc. Depreciation                 6,351      7,954       9,786     11,847
       Growth %                     -14.0        15.0      16.5        14.8        Net Fixed Assets                 11,655   13,052       14,220      15,159
       EBIDTA %                      11.8        13.1      13.2        13.3        Capital WIP                       1,899      1,100        500           500
       Other Income                 2,145       2,227     2,450       2,710        Net Block                        13,555   14,152       14,720      15,659
       Interest                        16         16         14          12        Investments                      19,739   21,739       23,739      25,739
       PBDT                       13,859       15,706    18,157      20,746        Sundry Debtors                    3,353      3,960       4,944         5,636
       Depreciation                 1,398       1,603     1,832       2,061        Inventory                         2,756      3,630       4,563         5,203
       PBT                        12,461       14,102    16,325      18,685        Cash & Bank                        358         317       3,707         7,745
       Extraordinary inc/(exp)          0          0          0           0        Advances                          2,631      4,133       4,167         4,751
       Tax                          3,882       4,424     4,897       5,605        Other Current Assets                36          36         36            36
       Net Profit                   8,579       9,678    11,427      13,079        Current Assets                    9,133   12,076       17,418      23,371
       Net Margin %                   8.7         9.4       9.6         9.6        Liabilities                      10,419      9,844     11,041      12,575
       Growth %                     -11.7        12.8      18.1        14.5        Provisions                        4,372      5,426       6,526         7,432
       EPS                           43.0        48.5      57.2        65.5        Current Liabilities              14,792   15,270       17,567      20,007
       CEPS                          50.0        56.5      66.4        75.8        Net Current Assets               -5,659      -3,194      -150          3,364
                                                                                   Total                            27,634   32,697       38,309      44,762

       Cash Flow                                                                  Ratios
       Mar ending (Rs mn)             FY07     FY08E     FY09E       FY10E        Mar ending (Rs mn)        FY07      FY08E       FY09E       FY10E
       Net Profit before tax        12,461     14,102    16,325      18,685       Per Share Data
       Add: Depreciation             1,398      1,603     1,832       2,061       EPS                        43.0       48.5        57.2        65.5
       Add: Interest                     16        16         14        12        Cash EPS                   50.0       56.5        66.4        75.8
       Less: Other income            2,145      2,227     2,450       2,710       BVPS                      123.7      150.0       179.2      212.5
       Other non operating
       items                            -24                                       Valuation ratio
       (Dec)/Inc in Working
       capital                       1,654      2,506      -346       -524        P/E                        18.6       16.5        14.0        12.2
       Less: Tax paid                3,802      4,424     4,897       5,605       Cash P/E                   16.0       14.2        12.0        10.6
       Cash from operations          6,251      6,565    11,170      12,966       P/BV                        6.5        5.3         4.5            3.8
       Capex                         -5,229    -2,201     -2,400     -3,000       EV/EBIDTA                  12.0       10.3         8.5            7.1
       Investments and otthers         353     -2,000     -2,000     -2,000       Retun Ratios (%)
       Other income                  2,145      2,227     2,450       2,710       AROE                       38.3       35.4        34.8        33.4
       Cash from Investing           -2,731    -1,974     -1,950     -2,290       AROCE                     244.0      130.8       129.2      144.4
       Borrowings                      -177      -200      -200       -200        Dupont
       Interest paid                    -45       -16        -14        -12       NPM (%)                     8.7        9.4         9.6            9.6
       Dividend paid                 -4,521    -4,416     -5,615     -6,427       Sales/TA                    2.3        2.2         2.1            2.1
       Cash from financing           -4,743    -4,632     -5,829     -6,639       TA/Equity                   1.7        1.6         1.6            1.5
       Cash generation               -1,224       -41     3,390       4,038       Other key ratios
       Opening Balance               1,587        358       317       3,707       D/E                         0.1        0.0         0.0            0.0
       Closing Balance*                363        317     3,707       7,745       NWC/Sales (%)              -6.1        -3.4        -3.2       -3.2
       * FY07 closing balance includes exchange gain of Rs 5.2 m and hence there will be a difference with the balance sheet figures




Emkay Research                                      April 28, 2008                                                                                            4
                                                                   HERO HONDA MOTORS LTD                                                                                             Result Update




     DISCLAIMER: This document is not for public distribution and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of
     circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are
     required to inform themselves of, and to observe, such restrictions. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This
     report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. No person associated with Emkay
     Share & Stock Brokers Ltd is obligated to call or initiate contact with you for the purposes of elaborating or following up on the information contained in this document. The material is based upon
     information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon. Neither Emkay Share & Stock Brokers Ltd, nor any person connected with
     it, accepts any liability arising from the use of this document. The recipient of this material should rely on their own investigations and take their own professional advice. Opinions expressed are our
     current opinions as of the date appearing on thi s material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or
     other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forw         ard-looking statements are not predictions and may be subject to change without notice. We
     and our affiliates, officers, directors, and employees world wide, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and
     buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market
     maker in the financial instruments of the company (ies) discussed herein or may perform or seek to perform investment banking services for such company(ies)or act as advisor or lender / borrower to
     such company(ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The same persons may have acted upon the information
     contained here. No part of this material may be duplicated in any form and/or redistributed without Emkay Share & Stock Brokers Ltd'sprior written consent. No part of this document may be distributed
     in Canada or used by private customers in the United Kingdom. In so far as this report includes current or historical information, it is believed to be reliable, although its accuracy and completeness
     cannot be guaranteed.

                                                                          Emkay Share and Stock Brokers Ltd.,
                                                                              Paragon Center, Ground Floor, C-6
                                                      Pandurang Budhkar Marg, Worli, Mumbai – 400 013. , Tel no. 66121212. Fax: 66121299




Emkay Research                                                         April 28, 2008                                                                                                                         5

				
DOCUMENT INFO
Description: Profit and Loss Account of Hero Honda document sample