Hero Motors: Corrections is over ?

Technically HM (CMP: 2300) has good support of around 2289-2247 & sustain  below that 2190-2135-2122 zone should provide strong positional support. Consecutive closing below 2122, HM may further fall to 1755-1711-1662-1638-1515 zone under worst bear case scenerio.

On the upside, sustain above 2315, its immediate to short term target may be around 2355-2400-2448-2486 zone. Consecutive closing above 2486, HM may target 2677-2750 zone in the mid term & sustain above that, it may again scale 3270 zone in the long term (FY:16) under bull case scenerio.

Bottom Line (Positional Cyclical Trading Levels):


 

	SL</>5	FROM SLR
		HEROMOTOS	CMP	2301
			T1	T2	T3	T4	T5	T6	T7	SLR
Strong >	2298-2315		2355	2415	2486*	2515	2586	2677	2777	<2285
Weak <	2285		2247*	2190	2122*	2000	1890	1700	1638	>2298

HM posted its Q4 result, which is well below market expectations, but if we add back the one time impairment charge of Rs.155 cr, the net earnings would have been 631.50 cr against consensus street estimate of 636.7 cr. This one time impairment charges is on account of equity infusion in its US based technology partner EBR, which has filed for bankruptcy. But this issue of EBR was reported around mid April and stock price may has already factored in. HM entered into EBR for R&D technology for its future products after ending its JV with Honda in 2013.  EBR  already designed a sports bike for HM which was scheduled to be launched in 2015, but later postponed as it is now planning to launch a slew of scooters which is the most growing segments in 2-W segment as of now. 

Honda is now nearest rival of HM and is growing around 20% compared to HM's 6%, thanks to this scooter segment, specially Activa Brand. In the urban market, in a middle class household, such light scooter is the 1-st/2-nd choice, specially for ladies & aged people.



HM is trying hard to develop new product in alliance with other JV partners based in Australia, Italy and is also developing its own R&D facillity at Jaipur by hiring key personnel. After separation from Honda, HM was not able to develop a single product indigenously.

HM also tied up with EBL for its product distribution in US. The company may scout for another distributor or may go of its own in future. To counter falling domestic sales, HM is now gearing up more (50% growth target) on exports in lucrative markets such as Argentina, Mexico, Nigeria etc

Around 50% of HM's market is rural India and sales were badly effected due to weakening of rural economy for unseasonal rains, poor corp realisations, moderating wages and various other macro factors. Going forward, the HM management is not confident enough on rural India for forecast of poor rain this year. The earnings was also affected by higher wages & marketing costs (for brand promotion in several overseas markets).

 HM is now not required to pay royalty payment to Honda wef June'2014. All the above bad news may be largely discounted by the market, considering its 30% correction in the last few months. This year's monsoon may not be so bad as IMD is projecting whereas prediction of Sky Met is normal rain fall.

Various other analysis indicate that effect of EL-NINO may not be severe as being projected. Apart from rain factor, rural economy/discretionary spending may get more boost from "Modinomics" in the coming days & GST/Land bills may be some of the game changers.

Looking ahead, market may not underestimate the power of HM further, being the number one 2W company in the world.

As par BG metrics, median valuation of HM is around 2423 & its projected value is around 2800-3200 (FY:16-17) under the current market conditions. 

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	LONG TERM	SHORT TERM	MEDIAN VALUE	200-DEMA	10-DEMA
HEROMOTOCO	119.47	399.9	19.65	2497.65	2350.25	2423.95	2657.31	2352.91

HEROMOTOCO

160

459.85

19.65

2890.43

2719.84

2805.14

2657.31

2352.91

HEROMOTOCO

205

528.83

19.65

3271.74

3078.65

3175.20

2657.31

2352.91