Hero MotoCorp Q4 PAT tanks 25% YoY: should investors buy, sell or hold?

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Citigroup maintained its buy rating on Hero MotoCorp with a buy rating post March quarter results but slashed its target to Rs 3250 from Rs 3350 earlier.




Most of the global brokerages maintained their ratings on Hero MotoCorp but Citigroup and CLSA slashed their respective 12-month target prices after the two-wheeler maker reported 25 percent YoY fall in the net profit to Rs 730.32 crore as against Rs 967.4 crore in the same period last year.

Revenue from operations fell 7.92 percent to Rs 7,885 crore year-on-year.

Hero MotoCorp sold 17.81 lakh units in January-March quarter 2019, lower than 20.01 lakh units sold in the corresponding period last fiscal.

Numbers are largely in line with estimates. CNBC-TV18 poll estimates for profit were Rs 727.5 crore on revenue Rs 7,763 crore for the quarter.

At the operating level, EBITDA (earnings before interest, tax, depreciation, and amortisation) plunged 22 percent year-on-year to Rs 1,069.3 crore in Q4.

Margin contracted to 13.6 percent in the quarter ended March 2019, down by 240 bps against 16 percent in the same period last year.

The stock had plunged nearly 18 percent during the March quarter, underperforming Nifty (up 7 percent) and auto index (down 10 percent) in the same period.

Here what global brokerages recommended on Hero MotoCorp post Q4 results:

Citigroup: Buy| Cut target to Rs 3,250 from Rs 3,350 earlier

Citigroup maintained its buy rating on Hero MotoCorp with a buy rating post March quarter results but slashed its target to Rs 3,250 from Rs 3,350 earlier.

The two-wheeler maker reported modest operating beat in Q4 numbers. The FY19 market share remains solid. The global investment bank slashed FY20 EPS estimated by 10 percent due to subdued volume growth expectations and lower margin.

The FY21 EPS estimates are increased by 4 percent, reflecting an effective pricing strategy.

CLSA: Sell| Target cut to Rs 2,375 from Rs 2,400 earlier

CLSA retained its sell rating on Hero MotoCorp post March quarter results but slashed its target price to Rs 2,375 from Rs 2,400 earlier.

According to CLSA, subdued demand outlook, as well as margin concerns, are likely to weigh on the stock. The 2-wheeler demand has weakened post the new insurance norms in September.

Cost-push from regulatory changes over the next 1-year will be a further drag. The 2-wheeler OEMs would find it tough to pass on the full cost impact.

CLSA slashed FY20-21 EPS estimates by 5-7% on lower volumes as well as margins. In terms of valuation, it is not cheap for a 6 percent EPS CAGR in FY20-21.

Morgan Stanley: Underweight| Target: Rs 2459

Morgan Stanley maintained its underweight call on Hero MotCorp post March quarter results with a target price of Rs 2,459.

The EBITDA growth may be weak due to competitive and regulatory pressures. The key factor to monitor will be market share in scooters as well as premium bikes.

Morgan Stanley expects the margin to remain under pressure as Hero launches new models. In FY21, BS-VI norms hit will come through as well. Going forward, Scooters and premium bikes will be the key growth segments.

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