Hero Motors: Will Be "Hero" Only Sustaining Above 3020-3060 Area

Trading Idea: Hero Motors

CMP: 2894

Either Sell around 2930-2950 or on rise around 3000-3020;

TGT: 2840*-2790-2760*-2710-2675*-2630-2585-2540-2500-2365 (1-3/6M)

TSL> 3060

Note: Consecutive closing (3 days), HM may further rally up to 3100-3180*-3220-3275*-3335 & 3360-3500-3900 in the near to long term (alternative bullish case scenario).

Q4FY16 result of HM printed slightly below street estimates and going ahead, there may be pressure on EBITDA margin as advantage of lower base effect of commodity prices and ED concessions from the Haridwar plant may not be there.

Also, with current state of extreme heat waves and drought accompanied by previous two years insufficient and disorderly rainfalls, rural India demand may not pick up sufficiently. 

All eyes will be on the actual rain fall and its distribution/timing this year and even if we have normal monsoon this time, this may not be sufficient to address the rural distress problem for the last few years.

Unless macroeconomic situation improves in India considerably, consumers will also hesitate to spend more on discretionary spending even with 7PC induced liquidity (lack of consumer confidence).

For HM, Q4FY16 EPS came at 40.77 against result day consensus of 41.06 (lagged by 0.7%) and earlier estimate of 42.65 (lagged by 4.6%).

For HM: Standalone

Q4FY16 TTM EPS: 156.85 (FY16/Actual)

Projected FWD EPS: 174.95-195.15-217.50 (FY:17-19/Estimates)

Average PE: 20 (15-25)

As par BG metrics and current market parameters:

Present median value may be around: 2975 (FY:16/TTM)

Projected fair value might be around: 3140-3315-3500 (FY:17-19/FWD)

HEROMOTOCO	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
Q4FY16/TTM	156.85	384.9	20	2904.61	3030.74	2967.68	2689.437	2928.0801
FY17/FWD	174.95	452.45	20	3067.63	3200.84	3134.23	2689.437	2928.0801
FY18/FWD	195.15	531.55	20	3239.89	3380.58	3310.23	2689.437	2928.0801
FY19/FWD	217.5	625.45	20	3420.39	3568.91	3494.65	2689.437	2928.0801

Analytical Charts: