11 May 2017
Q4FY17 Results Update | Sector: Automobiles
Hero MotoCorp
Neutral
BSE SENSEX
30,251
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
9,422
HMCL IN
Discounts, RM cost hurt margins; Guides for double-digit growth
200
EBITDA margin hurt by BS-III-related discounts and RM cost:
Net revenue declined
691.7 / 10.7
7.9% YoY to ~INR69.2b (est. of ~INR68.4b), as volume/realization fell 5.8%/2.2%
3740 / 2844
YoY. Realization of ~INR42.6k/unit (est. of ~INR42.2k) was impacted by discounts
6/3/-1
1367
offered to liquidate BS-III inventory at ~INR1.9b (est. of ~INR1.6b). EBITDA margin
65.4
shrunk 320bp QoQ (-200bp YoY) to 13.8% (est. of 16.3%). RM cost rose 240bp QoQ
CMP: INR3,464
TP: INR3,622(+5%)
Financials & Valuations (INR b)
2017
2018E
Y/E Mar
284.7
320.2
Net Sales
46.3
54.6
EBITDA
33.8
39.6
PAT
169.1
198.1
EPS (INR)
6.9
17.1
Gr. (%)
506.3
596.0
BV/Sh (INR)
35.7
35.9
RoE (%)
34.5
34.7
RoCE (%)
20.5
17.5
P/E (x)
6.8
5.8
P/BV (x)
(360bp YoY) due to discounts (~190bp impact) and cost inflation (~50bp). Lower tax
2019E
restricted PAT decline to 14% YoY (to ~INR7.2b v/s est. of ~INR7.8b). For FY17,
revenues were flat, EBITDA margin expanded 60bp to ~16.3% and PAT grew ~7% to
~INR33.8b. FY17 dividend at INR85/share (v/s INR72 in FY16).
343.8
54.7
40.2
201.2
1.6
688.8
31.3
30.4
17.2
5.0
Earning call highlights:
a) Guided for double-digit growth in FY18, driven by good
monsoon, rural recovery, infra spend and recovery post demon. HMCL targeting
market share gain in scooters, led by product actions. b) Strong double-digit retail
sales growth in FY18 YTD, leading to lower inventory at 4-5 weeks (normal levels at
5-6 weeks). c) Expects further increase in RM cost in 1QFY18 (over & above 75-
100bp inflation in 4QFY17). HMCL has been taking adequate price increases (~1%
each in 4Q and 1QFY18) to cover large part of cost inflation. d) New product
launches: New 200cc motorcycle by 4QFY18. HMCL to launch six new products (incl.
refreshes) in FY18. e) HMCL did not cut marketing spend or employee strength due
Estimate change
TP change
Rating change
to weak demand in 4QFY17. e) Capex guidance of INR25b over FY18/19 toward
capacity expansion, upgradation, product development and digitization.
Valuation and view:
We raise FY18E/FY19E EPS by 7% as we raise our volume
assumption with ~60-70bp increase in EBITDA margins (price hikes + operating
leverage). Valuations at 17.5x/17.2x FY18E/19E EPS. Maintain
Neutral
with a TP of
INR3,622 (18x FY19 EPS).
Quarterly Performance
Y/E March
(INR Million)
Total Volumes ('000 nos)
Growth YoY (%)
Net Realization
Growth YoY (%)
Net Op Revenues
Change (%)
RM Cost (% sales)
Staff Cost (% sales)
Other Exp (% sales)
EBITDA
EBITDA Margins (%)
Other Income
Interest
Depreciation
PBT
Effective Tax Rate (%)
Adj. PAT
Growth (%)
1Q
1,646
-4.1
41,960
2.3
69,048
-1.9
69.7
4.5
10.7
10,420
15.1
1,044
12
1,030
10,422
28.3
7,475
32.8
FY16
2Q
3Q
1,575
1,690
-7.0
2.5
43,237 42,738
5.8
3.0
68,093 72,235
-1.5
5.6
68.5
67.6
4.5
4.7
10.9
12.0
10,956 11,308
16.1
15.7
1,115
902
12
12
1,091
1,139
10,968 11,058
28.3
28.3
7,861
7,932
3.0
36.1
4Q
1,722
9.3
43,595
1.1
75,052
10.5
66.1
4.7
13.3
11,892
15.8
1,168
12
1,147
11,900
30.0
8,333
31.9
1Q
1,745
6.1
42,391
1.0
73,989
7.2
67.1
4.5
11.7
12,301
16.6
1,204
15
1,152
12,337
28.4
8,831
18.1
FY17
2Q
3Q
1,823
1,473
15.8
-12.8
42,755 43,202
-1.1
1.1
77,963 63,646
14.5
-11.9
66.5
64.9
4.6
5.9
11.4
12.3
13,689 10,797
17.6
17.0
1,524
1,319
16
15
1,193
1,249
14,004 10,853
28.3
28.9
10,042
7,720
27.7
-2.7
FY16
FY17
4Q
1,622
6,632
6,664
-5.8
0.0
0.5
42,635 42,886 42,729
-2.2
3.1
-0.4
69,152 284,427 284,750
-7.9
3.1
0.1
68.5
67.9
66.8
4.7
4.6
4.9
12.9
11.8
12.1
9,576 44,550 46,348
13.8
15.7
16.3
1,182
4,224
5,224
15
49
61
1,353
4,376
4,927
9,390 44,349 46,585
23.6
28.7
27.5
7,178 31,602 33,771
-13.9
24.4
6.9
4QE
1,622
-5.8
42,198
1.0
-3.2
68,437
1.0
-8.8
65.3
320bp
5.6
-80bp
12.8
10bp
11,182
-14.4
16.3
-250bp
1,113
6.2
14
3.5
1,294
4.5
10,987
-14.5
29.1
-560bp
7,788
-7.8
-6.7
Var.
(%)
0.0
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Deep A Shah
(Deep.S@MotilalOswal.com);
Jigar Shah
(Jigar.Shah@MotilalOswal.com)

Hero MotoCorp
Higher BS-III discount impact realizations, despite price increase in Jan-17
Total sales volumes declined ~6% YoY (+~6% QoQ) as recovery post
demonetization remains gradual.
Realizations declined ~2.2% YoY (-1% QoQ) to ~INR 42.6k (v/s est ~INR42.2k) on
account of high discount due to liquidate BS-III inventory at ~INR1.9b (est. of
~INR1.6b). In 4QFY17, it took a price increase of up to ~INR800/unit.
Consequently, net revenues declined by ~7.9% YoY to ~INR69.2b (est INR
68.4b).
Exhibit 2: Realizations declined 2.2% YoY and 1% QoQ
Exhibit 1: Demonetization impact continued in 4QFY17
Volumes ('000 units)
Growth (%)
19.5
15.8
9.3 6.1
6.3 6.9 4.1 10.0
2.5
-1.9 -0.9 -4.1
-5.1
-5.8
-7.0
-12.8
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY14
FY15
FY16
FY17
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY14
FY15
FY16
FY17
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Trend in Segment Mix ('000 units)
Total Motorcycles
% of total
Scooters
% of total
Total 2Ws
Of which exports
% of total
4QFY17
1,444
89.3
177
18.0
1,621
51
2.2
4QFY16
1,441
83.7
281
16.3
1,722
54
3.3
YoY %
-1.6
-37.0
-5.8
-5.5.
3QFY17
1,291
87.6
183
12.4
1,474
43
2.9
QoQ %
5.7
-10.6
3.7
-8.8
FY17
5,754
87.6
816
12.4
6,570
168
2.6
FY16
5,736
86.5
896
13.5
6,632
210
3.2
YoY %
0.3
-9.0
-0.9
(20)
Source: Company, MOSL
Exhibit 4: Share of Executive 100 and Economy segment increased YoY and QoQ
Economy
11
11
57
18
12
14
52
18
11
13
59
15
12
13
56
18
Executive 100
11
14
56
16
10
13
57
18
12
10
58
18
Executive 125
13
9
60
17
9
11
61
17
10
12
58
18
Premium
15
10
54
18
16
11
52
20
12
13
53
20
Scooters
13
13
51
21
12
11
52
23
11
9
54
24
Source: Company, MOSL
11 May 2017
2

Hero MotoCorp
Exhibit 5: Scooters and Executive 125 segments pull down domestic market share
Segment
Economy
Executive - 100
Executive - 125
Premium
Dom. Motorcycles
Dom. Scooters
Total 2W (Domestic)
4QFY17
65.3
91.6
33.9
7.5
100.0
12.8
43.9
4QFY16
55.1
85.7
43.9
3.5
52.5
19.8
39.8
Chg YoY
(BP)
1,030
590
-1,000
410
4,750
-700
410
3QFY17
54.1
84.8
44.5
5.0
50.5
14.2
36.2
Chg QoQ
(BP)
1,120
680
-1,060
250
4,950
-140
770
Source: Company, MOSL
EBITDA margins contracted 200bp YoY to 13.8% led by discount and
commodity cost pressures
Gross margins at 31.5%, decline of 235bp YoY (-363bp QoQ) led by higher RM
costs during the quarter (RM costs were at 68.5% of net revenues in 4QFY17
v/s 64.9% in the previous quarter and 66.1% in the previous year).
EBITDA came in at ~INR9.5b (v/s est. ~INR11.1b) down ~19% YoY (-11% QoQ)
due to commodity cost inflation.
EBITDA margins were lower than est at 13.8% (v/s est 16.3%), decline of 200bp
YoY (-320bp QoQ). The benefit of lower staff cost due to actuarial valuation
effect(-114bp QoQ) was more than offset by higher RM cost.
Due to weak operating performance, PAT declined by ~13.9% YoY and ~7% QoQ
at ~INR7.2b (v/s est ~INR7.8b) supported by low tax rate.
Exhibit 7: EBITDA/unit declined ~19.5% QoQ
EBITDA (INR/unit)
Exhibit 6: EBITDA margins declined by 200bp YoY
EBITDA Margins (%)
16.617.617.0
15.116.115.715.8
13.8
13.5
12.012.3
11.610.510.010.510.6
EBITDA (INR m)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY14
FY15
FY16
FY17
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY14
FY15
FY16
FY17
Source: Company, MOSL
Source: Company, MOSL
11 May 2017
3

Hero MotoCorp
Key takeaways from management interaction
FY18 double digit growth outlook:
FY18 start has been very strong due to
double digit retail growth. HMCL expects this momentum to continue in FY18
and guides for double digit growth in FY18, driven by good monsoon, rural
recovery, infra spend and recovery post demon.
HMCL targeting market share gain in scooters led by product actions.
Commodity costs:
Witnessed commodity inflation of 75-100bp in 4QFY17, and
expects further increase in 1QFY18 as commodity cost inflation is with 1 quarter
lag. HMCL has been taking adequate price increase (~1% each in 4Q and
1QFY18) to cover large part of cost inflation.
HMCL’s dealer inventory
stood at 4-5 weeks which is below normal level of 5-6
weeks.
New product launches:
New 200cc motorcycle by 4QFY18. Total 6 new products
(incl refreshes) targeted in FY18.
Capex:
HMCL has guided for capex of INR25b over FY18/19 toward capacity
addition, upgradation, product development and digitization.
Hero Fincorp’s
financed ~10% of HMCL volume v/s. ~7% last year.
Advertisement spends
for FY17 was at 2.5% of revenues; HMCL didn’t cut
marketing spend or employee strength due to weak demand in 4QFY17.
Exports:
HMCL is present in 35 countries. HMCL indicated Columbia market is
currently facing headwinds while it expects good growth from neighboring
markets such as Sri Lanka, Bangladesh and Nepal.
Valuation and view
Industry growth to bounce back in FY18:
Domestic 2W industry is expected to
witness strong recovery in Y18 post decline of ~6% since demonetization. With
~50% of sales coming from rural markets, we believe Hero is likely to benefit
with strong brand equity in the economy and executive segments along with
increasing share in the scooter segment.
EBITDA margins to sustain above 15%, despite Haridwar incentives going in
FY19:
We believe large part of commodity cost inflation is in reported
performance. Part pass through of commodity cost inflation to customers and
HMCL’s cost cutting initiative under ‘Leap 20’. Further, sales tax incentives at
recently commissioned Rajasthan plant (~90bp benefit in FY17) and Gujarat
plant (est 50-60bp) would also provide support to EBITDA margins. Exhaustion
of Haridwar excise exemption would have impact of ~100bp in FY19, resulting in
our estimate of EBITDA margin at 15.9% in FY19E.
Export market to offer huge headroom for growth, but scale-up would be
challenge and back-ended:
HMCL plans to double its target export markets
from currently 20 to 40 countries over next few years. While motorcycle exports
to emerging market is a huge opportunity (~2x of India market), HMCL being
one of the last entrant could find it difficult to compete against incumbents
(especially Bajaj Auto) due to limited scope to differently position its product.
This coupled with turmoil in currencies of these markets would make entry and
ramp-up even more difficult.
11 May 2017
4

Hero MotoCorp
Valuations fair, maintain Neutral:
We raise our FY18/FY19 EPS by ~7% each as
we upgrade volume assumptions by ~3% in FY18/FY19 and build in EBITDA
margin expansion by ~60bp/~70bp in FY18/FY19 (to factor in for price hikes and
operating leverage). We estimate EPS CAGR of 9% over FY17-19. Valuations at at
17.5x/17.2x FY18/FY19 EPS are fair reflection of near term recovery but longer
term challenge of value migration from Executive segment (HMCLs stronghold)
to scooter and premium (where it is yet to build strong franchise). We maintain
Neutral
with a TP of INR3,622 (18x FY19 EPS - ~15% premium to 10 yr average).
Exhibit 8: Change in estimates
(INR B)
Volumes ('000 units)
Net Sales
EBITDA
EBITDA Margins (%)
Net Profit
EPS (Rs)
Rev
7,379
314.7
54.6
17.1
39.6
198.1
FY18E
Old
7,137
304
51
16.4
37
185.1
Chg (%)
3.4
3.5
7.2
60
7.0
7.0
Rev
8,047
337.6
54.7
15.9
40.2
201.2
FY19E
Old
7,806
327
51
15.2
38
188.3
Chg (%)
3.1
3.2
8.1
70
6.9
6.9
Source: MOSL
Exhibit 9: PE and PB band
30
20
10
0
P/E (x)
5 Yrs Avg(x)
17.2
15.8
14.6
15 Yrs Avg(x)
10 Yrs Avg(x)
16.0
12.0
8.0
4.0
0.0
6.9
6.4
6.5
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Source: MOSL
Source: MOSL
Exhibit 10: Comparative Valuation
Auto OEM's
Bajaj Auto
Hero MotoCorp
TVS Motor
M&M
Maruti Suzuki
Tata Motors
Ashok Leyland
Eicher Motors
Auto Ancillaries
Bharat Forge
Exide Industries
Amara Raja Batteries
BOSCH
Endurance Tech
CMP
(INR)*
2,998
3,464
499
1,373
6,763
427
86
29,402
1,129
248
923
23,425
796
Rating
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
TP
(INR)
3,282
3,622
581
1,570
7,319
619
98
30,402
1,266
274
1,084
22,924
861
P/E (x)
FY18E FY19E
19.4
17.2
17.5
17.2
29.9
18.7
18.2
15.3
22.5
18.2
14.5
6.9
16.7
13.1
33.0
25.9
30.4
26.2
24.8
35.1
25.8
22.3
21.0
21.3
30.7
20.8
EV/EBITDA (x)
FY18E FY19E
13.8
11.7
11.2
11.0
19.9
12.8
14.9
12.6
13.6
11.2
4.0
2.3
9.0
7.0
27.5
22.5
16.5
16.7
14.6
25.7
12.8
12.7
13.6
12.5
21.3
10.7
RoE (%)
FY18E FY19E
30.2
30.0
35.9
31.3
29.2
35.9
13.9
14.7
21.2
22.3
11.0
19.7
22.3
24.9
41.9
38.5
20.5
14.5
22.9
24.5
22.7
23.7
15.8
22.0
23.4
23.3
Div Yield (%) EPS CAGR (%)
FY18E FY19E
FY17-19E
2.5
3.0
14.1
2.6
2.6
9.1
0.6
0.9
50.9
1.5
1.5
20.5
1.3
1.5
22.1
0.1
0.1
131.9
2.3
2.6
24.9
0.5
0.6
36.0
0.9
0.9
0.5
0.6
0.5
0.9
0.9
0.6
0.7
0.9
41.6
20.2
21.7
27.2
27.7
Source: Company, MOSL
11 May 2017
5

Hero MotoCorp
Story in charts: EPS CAGR of ~9% over FY17-19E
Exhibit 11: Adding capacity ahead of growth
98
Capacity ('000 units)
100
96
96
88
Cap. Utilization (%)
86
79
87
87
Exhibit 12: Recovery in volumes in FY18, post 2 years of
muted growth
23.6
Volumes ('000 units)
17.4 15.4
-2.6
2.8
6.2
0.0
0.5
Volume growth (%)
10.7
9.1
FY11
FY12
FY13
FY14
FY15
FY16
FY17 FY18E FY19E
Source: Company, MOSL
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, MOSL
Exhibit 13: EBITDA margins to remain steady
EBITDA (INR b)
EBITDA Margin (%)
17.1
16.3
15.9
15.7
Exhibit 14: PAT to rise on robust growth
PAT (INR b)
19.4
18.4
26.6
6.9
Growth (%)
17.1
12.5
11.8
10.2
10.6
35.4
FY14
12.1
-10.8
35.4
FY15
44.5
FY16
46.3
54.6
54.7
20
24
-10.9
21
-0.4
1.6
26.1
FY11
36.2
FY12
32.8
FY13
21
25
32
34
40
40
FY17 FY18E FY19E
Source: Company, MOSL
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, MOSL
Exhibit 15: Return ratios to moderate, but are still healthy…
62.0
65.6
45.6
RoCE (%)
RoE (%)
Exhibit 16: …as cash levels rise further
Net Cash (INR b)
74
64
Net Cash (% of Cap Emp)
57
66
65
39.8
41.1
41.1
35.7
35.9
50
31.3
37
52
44.3
FY11
41.4
FY12
36.5
FY13
38.3
FY14
41.1
FY15
40.5
FY16
34.5
34.7
30.4
23
FY12
35
FY13
42
FY14
33
FY15
47
FY16
60
FY17
82
91
FY17 FY18E FY19E
FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
11 May 2017
6

Hero MotoCorp
Exhibit 17: Snapshot of Revenue Model
000 units
Total M/Cycles
Growth (%)
% of total volumes
Total Scooters
Growth (%)
% of total volumes
Total volumes
Growth (%)
- of which Exports
% of total volumes
Avg. Net Realn (INR/unit)
Growth (%)
Net Revenues (INR b)
Growth (%)
FY12
5,780
14.7
92.7
456
26.0
7.3
6,235
15.4
0
0.0
37,478
5.2
234
21.4
FY13
5,501
-4.8
90.5
574
26.1
9.5
6,076
-2.6
0
0.0
38,816
3.6
236
0.9
FY14
5,538
0.7
88.7
708
23.2
11.3
6,246
2.8
113
2.0
40,226
3.6
251
6.5
FY15
5,800
4.7
87.5
832
1758.1
12.5
6,632
6.2
120
2.0
41,242
2.5
274
8.9
FY16
5,736
-1.1
86.5
896
772.7
13.5
6,632
0.0
133
2.2
42,220
2.4
280
2.4
FY17
5,834
1.7
87.5
830
-742.1
12.5
6,664
0.5
141
2.3
42,017
-0.5
280
0.0
FY18E
6,425
10.1
87.1
954
15.0
12.9
7,379
10.7
162
2.4
42,651
1.5
315
12.4
FY19E
6,950
8.2
86.4
1,097
15.0
13.6
8,047
9.1
186
2.5
41,948
-1.6
338
7.3
Source: Company, MOSL
11 May 2017
7

Hero MotoCorp
Financials and Valuations
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
Income Statement
2012
235,790
21.6
36,188
15.3
10,973
25,214
213
3,646
0
28,647
4,866
17.0
0
23,781
23,781
19.4
2012
399
42,499
42,898
17,143
2,083
62,124
63,083
25,228
37,855
388
39,643
21,003
6,756
2,723
768
10,756
36,765
25,865
10,901
-15,762
62,124
2013
237,681
0.8
32,845
13.8
11,418
21,427
119
3,984
0
25,292
4,110
16.3
0
21,182
21,182
-10.9
2013
399
49,663
50,062
3,022
1,324
54,408
67,355
36,645
30,710
621
36,238
28,848
6,368
6,650
1,810
14,020
42,008
27,610
14,399
-13,161
54,408
2014
252,755
6.3
35,401
14.0
11,074
24,327
118
4,464
0
28,673
7,582
26.4
0
21,091
21,091
-0.4
2014
399
55,599
55,999
245
0
56,243
69,089
46,657
22,433
8,541
40,888
29,112
6,696
9,206
1,175
12,035
44,730
28,787
15,943
-15,618
56,243
2015
275,853
9.1
35,422
12.8
5,400
30,022
111
4,927
-1,550
33,288
9,432
28.3
0
23,856
24,968
18.4
2015
399
65,014
65,413
313
0
65,727
81,140
52,013
29,127
2,883
31,541
41,666
8,155
18,138
1,593
13,780
39,490
31,494
7,997
2,175
65,727
2016
284,427
3.1
44,550
15.7
4,376
40,173
49
4,224
0
44,349
12,747
28.7
0
31,602
31,602
26.6
2016
399
87,945
88,344
0
2,225
90,569
97,928
56,390
41,538
2,883
45,810
35,497
6,730
12,828
1,314
14,626
35,159
34,187
973
338
90,570
2017
284,750
0.1
46,348
16.3
4,927
41,421
61
5,224
0
46,585
12,813
27.5
0
33,771
33,771
6.9
2017
399
100,714
101,113
0
4,143
105,256
105,273
61,317
43,956
4,651
58,899
39,438
6,563
15,619
1,367
15,889
41,686
40,543
1,143
-2,249
105,256
2018E
320,230
12.5
54,626
17.1
5,569
49,057
(INR Million)
2019E
343,819
7.4
54,743
15.9
6,112
48,631
45
5,365
0
54,377
14,818
27.3
0
39,559
39,559
17.1
2018E
399
118,615
119,014
0
4,143
123,157
108,924
66,886
42,037
11,000
58,899
65,612
7,377
17,555
22,821
17,859
54,390
43,561
10,829
11,222
123,157
35
6,081
0
54,677
14,489
26.5
0
40,188
40,188
1.6
2019E
399
137,145
137,544
0
4,143
141,688
123,924
72,998
50,925
11,000
58,899
78,417
7,913
18,830
32,519
19,155
57,553
46,724
10,829
20,864
141,688
Balance Sheet
(INR Million)
11 May 2017
8

Hero MotoCorp
Financials and Valuations
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
Ratios
2012
119.1
132.0
214.8
45.0
43.5
29.1
16.1
2.8
18.5
1.3
65.6
41.4
187.2
3.8
4
11
35
0.4
2012
36,188
-241
-6,906
-5,827
815
24,029
-5,034
18,995
5,962
0
928
0
0
-213
-24,369
-24,582
375
393
768
2013
106.1
120.2
250.7
60.0
65.1
32.7
13.8
2.8
20.0
1.7
45.6
36.5
96.8
4.4
11
10
29
0.0
2013
32,845
-137
-7,872
-6,133
-5,741
12,961
-6,004
6,957
5,079
0
-925
0
0
-119
-10,444
-10,563
1,473
337
1,810
2014
105.6
118.1
280.4
65.0
70.8
32.8
12.4
2.6
18.4
1.9
39.8
38.3
167.4
4.5
14
10
33
0.0
2014
35,401
-101
545
-6,495
795
30,145
-9,328
20,818
-6,866
0
-16,193
0
0
-118
-14,031
-14,149
-197
1,373
1,175
2015
125.0
146.5
327.6
60.0
57.8
27.7
10.6
2.4
18.6
1.7
41.1
41.1
121.7
4.2
25
11
38
0.0
2015
35,422
-1,471
-3,359
-9,998
2,519
23,113
-11,530
11,583
11,651
0
121
0
0
-111
-22,194
-22,305
928
664
1,592
2016
158.2
180.2
442.4
72.0
52.3
21.9
7.8
2.3
14.5
2.1
41.1
40.5
81.5
3.1
17
9
34
0.0
2016
44,550
4,175
510
-12,747
49
36,537
-5,244
31,293
-14,218
0
-19,462
0
0
-49
-17,304
-17,353
-278
1,593
1,314
2017
169.1
193.8
506.3
85.0
57.8
20.5
6.8
2.2
13.6
2.5
35.7
34.5
74.2
2.7
21
9
42
0.0
2017
46,348
5,164
2,640
-12,813
61
41,399
-9,112
32,287
-11,718
0
-20,831
0
0
-61
-20,454
-20,515
54
1,314
1,367
2018E
198.1
226.0
596.0
90.0
52.2
17.5
5.8
1.9
11.2
2.6
35.9
34.7
100.8
2.6
21
9
39
-0.2
2018E
54,626
5,320
7,983
-14,818
45
53,156
-10,000
43,156
0
0
-10,000
0
0
-45
-21,657
-21,702
21,453
1,367
22,821
2019E
201.2
231.8
688.8
90.0
51.4
17.2
5.0
1.7
11.0
2.6
31.3
30.4
102.6
2.4
21
9
39
-0.2
2019E
54,743
6,046
56
-14,489
35
46,391
-15,000
31,391
0
0
-15,000
0
0
-35
-21,657
-21,692
9,698
22,821
32,519
Cash Flow Statement
(INR Million)
11 May 2017
9

Hero MotoCorp
Corporate profile
Company description
Exhibit 1: Sensex rebased
Hero MotoCorp (HMCL), erstwhile JV between
Honda Corporation Japan and the Munjal family, is
the leader in domestic 2W market with ~41% share,
benefiting from a strong dealership network and
high penetration in the rural areas (~45% of sales)
as well. Post-split from Honda, Hero MotoCorp is
free to tap global opportunity in 2W.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Mar-17
34.6
12.5
42.7
10.2
Promoter
DII
FII
Others
Dec-16
34.6
13.4
42.9
9.1
Mar-16
34.6
16.4
39.7
9.3
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Life Insurance Corporation of India Ltd.
Oppenheimer International Growth Fund
Lazard Emerging Markets Portfolio
Templeton Growth Fund INC
Aberdeen Emerging Markets Fund
% Holding
4.3
3.5
1.9
1.4
1.3
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Pawan Munjal
Ramni Sood
Designation
CMD & CEO
Company Secretary
Exhibit 5: Directors
Name
Suman Kant Munjal
Meleveetil Damodaran
Pradeep Dinodia
Ravi Nath
V P Malik
Name
Anand C Burman
Paul Edgerley
Pritam Singh
Shobana Kamineni
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Deloitte Haskins & Sells
JRA & Associates
KPMG
Price Waterhouse & Co LLP
Internal
Internal
Internal
Source: Capitaline
Type
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
169.1
198.1
201.2
Consensus
forecast
168.8
206.2
233.3
Variation (%)
0.2
-3.9
-13.8
Source: Bloomberg
11 May 2017
10

Hero MotoCorp
NOTES
11 May 2017
11

Disclosures
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company (ies) and/sector(s), if any, covered in the report and may be distributed by it
and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an
offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution
and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into
account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their
particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses
on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some
companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are
seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate
investors on investments in such business . The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of
gathering, applying and interpreting information. Our research professionals are paid on twin parameters of performance & profitability of MOSt.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and
other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and
investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things,
may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and
buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the
financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other
related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent
of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a
company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles, investment horizon,
etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees
from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or
employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly
available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party
either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or
developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be
regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may
arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any
matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own
investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this
report or for any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned
in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
Pending Regulatory inspections against Motilal Oswal Securities Limited:
SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry
and adjudge violation of SEBI Regulations; MOSL replied to the Show Cause Notice whereby SEBI granted us an opportunity of Inspection of Documents. Since all the documents requested by us were not covered we have
requested to SEBI vide our letter dated June 23, 2015 to provide pending list of documents for inspection.
List of associate companies of Motilal Oswal Securities Limited -Click
here to access detailed report
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research
receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Hero MotoCorp
Disclosure of Interest Statement
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures
Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has
an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of
Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation
of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not
conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is
not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.
Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.
persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors").
This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors
and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and
interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S.
registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in
the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
HERO MOTOCORP
11 May 2017
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
12