Global brokerages maintained their ratings on Hero MotoCorp after the motorcycle manufacturer reported a drop in profit for the September quarter, dented by a one-time loss.CLSA said the forthcoming emission norms would create more headwinds for Hero MotoCorp.
India is going to implement BS-VI emission norms from April 2020, which will mean more difficulties for vehicle makers.
Hero said it would launch a BS-VI compliant motorcycles after the festive season.CLSA noted that Heros Q2 Ebitda fell 20 per cent year-on-year (YoY), though it was 8 per cent above its estimates.
The Hong Kong-based brokerage said the company was seeing some demand revival but there are regulatory pressures ahead.It does not see any more margin improvement for the company, as manufacturing costs will rise after BS-VI implementation.
Heros Ebitda stood at Rs 1,101 crore for the quarter ended September 2019, reflecting a 14.5 per cent Ebitda margin (versus 14.4 per cent in Q1FY20 and 15.2 per cent in Q2FY19)CLSA said valuations are not favourable at this point and has retained sell rating on the stock with a price target of Rs 2,500, which translates into a 7.8 per cent downside.Macquarie also retained its neutral stance on the stock with a price target of Rs 2,550, a 6 per cent downside.
It said despite lower vehicle sales, Ebitda remained stable for the company.The Sydney-based brokerage raised FY20-22 earnings per share (EPS) estimates by 2-4 per cent.
Macquarie also sees BS-VI transition and inventory piling up as challenges in near term.Hero MotoCorp on Wednesday posted a 10.39 per cent YoY fall in net profit at Rs 874.80 crore for the quarter ended September 2019 on account of one-time loss of Rs 60.11 crore.
It had posted a net profit of Rs 976.28 crore in the corresponding quarter last year.It, however, beat Street estimates.