Hero MotoCorp rises 2%, nears 52-week high as February sales improve

Shares of Hero MotoCorp, on Tuesday, rose 2.2 per cent to Rs 3,423.50 on the BSE after the two-wheeler maker reported a 1.45 per cent increase in total sales at 5.05 lakh units in February.

The company had sold 4.98 lakh units in the same month of the previous year, Hero MotoCorp said in a statement. Total motorcycle sales stood at 4.63 lakh units last month as against 4.79 lakh units in February 2020, down 3.25 per cent. Total scooter sales, however, increased over two fold to 41,744 units as compared with 18,932 units in the year-ago month, it added.

In the domestic market, sales rose marginally to 4.84 lakh units last month as compared with 4.80 lakh units in the same period a year ago. Exports last month stood at 21,034 units as compared with 18,046 units in the year-ago period.

Hero MotoCorp said it remains optimistic about growth in the coming months, as a credible recovery in the Indian economy and a positive momentum towards personal mobility is likely to further strengthen the demand for two-wheelers.

At 9:50 AM, the stock was trading 1.5 per cent higher at Rs 3,401.10. The stock was trading close to its 52-week high of Rs 3,628.55, hit on February 18. A total 2.86 lakh shares have changed hands on the NSE and BSE, combined, so far.

The country's largest two-wheeler maker had posted 13.7 per cent increase in its consolidated profit after tax at Rs 1,029.17 crore for the third quarter ended December 31, 2020. Its revenue from operations rose to Rs 9,827.05 crore during the period under review.

"Going forward, we expect input costs to remain under pressure due to the rising prices of commodities and fuel. The price increase on our range of products that we undertook from January 1 will partially offset these cost pressures. We will continue to focus on driving cost savings, and take judicious price increases if & when necessary," the company had said.

In a post-earnings company note, ICICI Securities had said that while the demand scenario is favourable, prevailing sharp increase in input costs are set to pressurise Hero MotoCorp's gross margins over the medium term

"For HMCL, we build 17 per cent sales, 20 per cent PAT CAGR in FY21E-23E. We upgrade HMCL from 'HOLD' to 'BUY', valuing it at Rs 4,000 (20x P/E on FY23E EPS; previous target price Rs 3,480) on healthy demand outlook and unchanged long term comfort drivers i.e. capital efficiency, high dividend payouts, debt free b/s along with consistent cash generation," the brokerage said.

Meanwhile, analysts at Axis Securities believe that HMCL will continue to benefit from premiumization of its products, its strong hold in the economy and executive motorcycle segments, and aggressive products offerings in the premium bike and scooters segments. 

"Also, exports will provide another driver for the company in medium to long term. We maintain our 'BUY' rating on the stock and have revised our TP to Rs 3,850 (from Rs. 3,450 earlier) valuing the stock at 17x its FY23E EPS," it said.

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