Pick of the Week

 In an ever-changing business environment, some of our investment ideas seem more convincing than
others due to better earning visibility and/or attractive valuation. Every Monday, we bring you such
fundamental stock ideas through our “Pick of the Week” report.

 Investment Horizon: Though the ideal investment horizon for such ideas remain 6-9 months, our picks may provide some

profit-making opportunities even to short-term investors.

 Risk-Return Profile: Pick of the week ideas are the best high return research ideas at this point in time.

Mcap CMP Target Potential

Scrip Reco
(Rs Cr) (Rs)* Price Upside (%)

Hero Motocorp Ltd 62,981 3,153 3,450 9% BUY

* Note: Investment horizon Approx. 6-9 months., CMP as on 1st October, 2020
 Buy
Pick of the Week Hero Motocorp Limited Target Price
5th October, 2020
Auto
3,450
Hero Motocorp Ltd (HMCL) is the market leader in the 2W industry with a market share of ~39% (as of Aug 2021). Hero is
present in both the motorcycles and the scooter segments, having market share of about ~53% and ~10%, respectively.
Motorcycles form the major chunk of its revenue, contributing about 90% to total volumes, while scooters contribute 10% to
its total volumes. Hero is a domestically focused company deriving about 96% of volumes from the Indian market. Entry-level
motorcycles (75 cc to 110 cc) form a major chunk of about 70% of overall volumes. The company has six plants in India and
CMP Target two international plants: one in Villa Rica, Columbia and the other in Jessore, Bangladesh. Hero has a combined
(Rs) (Rs) manufacturing capacity of 9.1 mn units per annum.
Investment Rationale
3,153 3,450
 Sharp recovery in Volumes led by strong Rural demand and upcoming Festive Season: HMCL is in a sweet spot as
strong rural-led recovery plays to its strength in the Economy–Executive category in the Motorcycles segment. With an apt
product portfolio for the rural market, the highest brand recall, and a strong distribution network, it is best placed to benefit
from the ongoing momentum in the rural economy (50% of the company’s domestic volumes is derived from rural India).
Wholesale dispatches for the company are expected to be healthy in the near term given low channel inventory ahead of the
MARKET DATA Festive season. The channel filling to build up inventory will drive volumes in the near term.
 Renewed focus on Premium Motorcycles and Scooters: HMCL is working hard towards recovering its lost market share in
No. of Shares : 19.97 cr the Premium Segment as well as the Scooter segment. Hero launched four new models under its Xtreme & XPulse brands
over the year, marking a re-entry in the premium motorcycle segment. Co’s latest offering Xtreme 160R has been well
Market Cap : Rs.62,981 Cr received by the customers. In the scooter segment, the company has launched Destini 125 scooter with start-stop technology
and Maestro Edge 125 scooter.
52-week High / Low : Rs.3,221.6/1,475  Exports: Hero is focusing on growing export markets by concentrating on African, Latin American, & Southeast Asian regions.
Hero has continuously expanded its geographic footprint in export markets, increasing its presence from 29 countries in FY16
BSE Code : 500182 to 40+ countries in FY20. The company would follow market-specific strategies to enhance export volumes going ahead.
 Possibility of GST Rate Cut: While there is no clarity on whether the GST cut would actually happen and whether it would
NSE Code : HEROMOTO
be across 2W segments, we do believe that there is a case for GST cuts for commuter segment (100–125cc 2Ws). This
augurs well for HMCL considering >90% of volumes come from <125cc segment (incl. Scooters). HMCL would be the biggest
beneficiary if the GST rate cut goes through.
 We recommend to buy with a target price of Rs. 3,450.

Financial Summary (Standalone)

Y/E Revenue EBITDA PAT EV/Ebitda P/BV EPS P/E ROCE ROE D/E
March (Rs mn) (Rs mn) (Rs mn) (x) (x) (Rs) (x) (%) (%) (X)
2020 2,88,361 39,666 29,077 15.1 4.2 145.6 21.7 19.3 19.8 -
2021E 2,91,424 37,216 27,535 16.0 4.1 137.9 22.9 17.4 17.7 -
2022E 3,36,981 47,169 35,737 12.5 3.8 179.0 17.6 21.4 21.8 -
2023E 3,81,012 56,933 43,057 10.2 3.4 215.6 14.6 23.5 23.9 -

Source: Axis Securities

 Performance: Pick of the Week

Strike rate based on rolling 6 months Strike rate since Jan 2018
POW Cumulative Strike Rate
Pick of Week Strike Rate
70
90
62
81 61 61
58
80 77 78 57 57
60 57 57
73 73 55 54
69 70 51 51 52 52
70 50 50
64 49
62 62 50 46 46
46 45 46
58 58 58 4545
60 4343
54 54 42 42
4039
50 38
40
50 46
44 33
42
38
40 30
35 35

30
20

20

10
10

0 0
Apr-19
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Apr-20
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Feb-20

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Dec-18

Mar-19

Jun-19

Dec-19
Jan-20

Mar-20

Jun-20
Oct-19

Jan-19

Jan-20
Mar-18

Jun-18

Oct-18

Mar-19

Jun-19

Oct-19

Mar-20

Jun-20
May-18

May-19

May-20
Apr-18

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Apr-20

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Feb-18

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Dec-18

Dec-19
Note: We have changed our methodology of calculation of strike rates for PoW product from July 2020; and shifted to calculations using 6 months rolling returns method and cumulative basis as against
earlier method of calculating the strike rate for last 9 months. The performance under the revised methodology is as above.
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