Trade Nivesh Upgrading the stock to an 'add', Kotak has said stock's valuation makes it attractive.
A day after suffering losses of nearly 6 percent, the share price of Hero MotoCorp climbed 3 percent in the morning trade on BSE on March 17.
The stock of the country's largest two-wheeler maker rose in line with a rise in the broader market, which analysts termed as value buying.
In a report on March 16, Kota Institutional Equities upgraded Hero MotoCorp to an “add” from a “sell”. The brokerage firm has fixed the fair value of the stock at Rs 2,150, a 20 percent upside from the current market price.
The stock has been under pressure for reasons varying from economic slowdown to regulatory and technological shift. The stock is trading 41 percent lower from its 52-week high level.
Upgrading the stock, Kotak said its valuation made it attractive.
"We upgrade the stock to 'add' from 'sell' on attractive valuations (11 times FY2022E core EPS). While the catalysts for near- term growth are absent due to impact on consumption because of Covid-19 and shift to BS-VI norms from April 2020, we believe growth will resume for the company from the second half of FY21 led by revival in rural demand," Kotak said.
Kotak highlighted that Hero had maintained its market share in the domestic motorcycle segment in the past six years despite concerns of escalating competition from Bajaj Auto.
The brokerage, however, cut the earnings estimates due to shrinking volume and profitability in the wake of the coronavirus outbreak.
"We have cut our earnings estimates by 9-13 percent for FY2021-22E due to cut in our volume estimates and profitability due to concerns on Covid-19 outbreak and a sharp rise in costs related to BS-VI norms," Kotak said.
"We have thus cut our fair value to Rs 2,150 from Rs 2,550 earlier, which is based on 13 times March 2022E core EPS, excluding cash and cash equivalents."
The stock trades at an FCF yield of 5-7 percent in FY2021-22E and Kotak said the company can deliver a 5-7 percent volume CAGR over the next 10 years.
The company had reported a 19.27 percent decline in sales at 4,98,242 units in February.
The road ahead looks tough as the coronavirus outbreak has impacted production.
In February, the company commenced dispatches of five new BS-VI products including some of its key products like the Splendor+, Super Splendor, Glamour and Passion Pro motorcycles and Maestro Edge 125 and Destini 125 scooters.
Hero MotoCorp shares were trading 2.96 percent up at Rs 1,836.80 at 1015 hours.
A day after suffering losses of nearly 6 percent, the share price of Hero MotoCorp climbed 3 percent in the morning trade on BSE on March 17.
The stock of the country's largest two-wheeler maker rose in line with a rise in the broader market, which analysts termed as value buying.
In a report on March 16, Kota Institutional Equities upgraded Hero MotoCorp to an “add” from a “sell”. The brokerage firm has fixed the fair value of the stock at Rs 2,150, a 20 percent upside from the current market price.
The stock has been under pressure for reasons varying from economic slowdown to regulatory and technological shift. The stock is trading 41 percent lower from its 52-week high level.
Upgrading the stock, Kotak said its valuation made it attractive.
"We upgrade the stock to 'add' from 'sell' on attractive valuations (11 times FY2022E core EPS). While the catalysts for near- term growth are absent due to impact on consumption because of Covid-19 and shift to BS-VI norms from April 2020, we believe growth will resume for the company from the second half of FY21 led by revival in rural demand," Kotak said.
Kotak highlighted that Hero had maintained its market share in the domestic motorcycle segment in the past six years despite concerns of escalating competition from Bajaj Auto.
The brokerage, however, cut the earnings estimates due to shrinking volume and profitability in the wake of the coronavirus outbreak.
"We have cut our earnings estimates by 9-13 percent for FY2021-22E due to cut in our volume estimates and profitability due to concerns on Covid-19 outbreak and a sharp rise in costs related to BS-VI norms," Kotak said.
"We have thus cut our fair value to Rs 2,150 from Rs 2,550 earlier, which is based on 13 times March 2022E core EPS, excluding cash and cash equivalents."
The stock trades at an FCF yield of 5-7 percent in FY2021-22E and Kotak said the company can deliver a 5-7 percent volume CAGR over the next 10 years.
The company had reported a 19.27 percent decline in sales at 4,98,242 units in February.
The road ahead looks tough as the coronavirus outbreak has impacted production.
In February, the company commenced dispatches of five new BS-VI products including some of its key products like the Splendor+, Super Splendor, Glamour and Passion Pro motorcycles and Maestro Edge 125 and Destini 125 scooters.
Hero MotoCorp shares were trading 2.96 percent up at Rs 1,836.80 at 1015 hours.
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