Sell Hero Honda Motors: Anand Rathi Securities

Anand Rathi Securities is bearish on Hero Honda Motors and has recommended sell rating on the stock with a target of Rs 1783 in its November 3, 2010 research report.

“Hero Honda Motors’ (HHML) results were disappointing for the second successive quarter, with the company registering lower-than-expected operating performance. We maintain our Sell recommendation.”

“The 2QFY11 net sales growth of 12.1% yoy was fuelled by 8.7% volume growth and 3.2% better realisations, which was in line with expectations. EBITDA margin during the quarter was 13.4%, 60bp lower qoq and 490bp lower yoy, on account of the higher raw material cost. As a result, profit for the quarter declined 15.3% yoy.”

“We expect HHML to be pressured due to: i) limited potential of incremental benefits from higher production at the Haridwar plant, ii) margin pressure sustaining, iii) competition resulting in yoy slide in market share, and iv) uncertainty regarding future structure of the HHML joint venture.”

“We lower our FY11e earnings 13% (and by 13.5% for FY12) on expectation of lower EBITDA margin ahead. Also, we introduce our FY13e EPS at Rs 139.4 (15.3% yoy rise). We lower our target price to Rs 1783 from Rs 1800 based on 13.5x FY12e core EPS (~15% discount to the past five-year core PE average). We maintain Sell,” says Anand Rathi Securities research report.