HERO MOTOCORP LTD - Q2 FY18

HERO MOTOCORP Ltd reported stable second quarter FY18 with double digit sequential growth. Revenue or Income From Operations witnessed mild decline of 1% YOY and stood at Rs. 83620 Mn compared to Rs. 84487 Mn in September quarter FY17. Profit After Tax grew 1% YOY and 11% sequentially at Rs. 10105 Mn against Rs. 10042 Mn same period previous year. EBDITA was up 3% YOY at Rs. 15733 Mn against Rs. 15212 Mn corresponding quarter previous year. On sequential basis, growth was stronger at 10% in the current September quarter. After a sluggish Q3 & Q4 FY17, FY18 has started on a strong note for HERO MOTOCORP and the company has maintained its double digit June growth momentum though on lower pace. Operating Expenditure declined 2% YOY from Rs. 70799 Mn in Q2 FY17 to Rs. 69063 Mn in the current September quarter. On quarterly basis, expenditure was further curtailed by 6% in Q2 FY18. As a result, both EBDITA & Net Profit Margins improved yearly & sequentially and were reported at 18.81% & 12.08% respectively in Q2 FY18. YOY jump was 81 & 20 basis points whereas on sequential basis, expansion was 224 & 147 basis points for EBDITA & Net Profit Margins respectively in the September quarter FY18. One basis point is equivalent to 0.01%. Net Profit Margins were slightly restrained as taxation & depreciation expenditure jumped 7% & 14% YOY. The effective tax rate was higher due to phasing out of investment allowance and reduction in allowable deduction of R&D expenditure. Interest expense was almost constant on yearly terms and was reported at Rs. 15.60 Mn in Q2 FY18. Other income was reported at Rs. 1176 Mn against Rs. 1524 Mn in Q2 FY17.

Hero MotoCorp Ltd. is the world's largest manufacturer of two - wheelers, based in India. The company achieved this feat in  2001 and still retains this position in terms of unit volume sales in a calendar year. The company has crossed 75 million units in cumulative sales in July-September period and also clocked 2 million unit sales in a quarter which included more than 7 lakh sales in the month of September. YOY, Hero Motocorp grew 11% in unit sales and 9% sequentially in September quarter. Moving into the next quarter, October unit sales fell short by about 5% YOY, whereas November sales have grown 26% YOY. The company has witnessed strong rebound aided by the festive season and supported by strong urban and rural demand and is expected to continue this momentum in the next quarter. We recommend BUY for the stock for medium & long term investment with a target price of Rs. 4320.

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