Hero Motocorp released its first quarter 2017 results yesterday which look like this:

Hero Motocorp Q1 – 2017 Q4 – 2016 Q1 – 2016 % change Q-Q % change Y-Y
Nos of vehicles sold 17,45,389 17,21,240 16,45,867 1.40% 6.05%
Total Income 8,010.66 8,111.16 7,435.47 -1.24% 7.74%
EBIT 1,235.22 1,193.23 1,043.43 3.52% 18.38%
EBIT Margin 15.42% 14.71% 14.03% 0.71 Bpt 1.39 Bpt
Net Profits 883.10 834.65 747.54 5.80% 18.13%

 

Hero Motocorp profit grew by 18% and total income from operations by 8% on year-on-year basis. There has been tough competition in the market and they have managed to sell almost 100,000 vehicles more compare to what they sold last year same quarter. The healthy rise in the profits were due to the improvement in its margin.

They also managed to sell around 24,000 extra vehicles compare to last quarter but their total income fell down by 1.24%, indicating pricing pressure on its two wheelers. However, they managed to improve their EBIT margins resulting in growth of almost 6% in its profits on quarter-on-quarter basis.

Analysts are expecting its profits for the 2017 to be in range of Rs 3,250 – Rs 4,188 crore. It looks that we can expect them around Rs 3,700 crore, today’s market price is pointing out profits of around Rs 3,950 crore. So market is expecting that they will be able to maintain their EBIT margins for all the remaining three quarters.

Our biggest concern is not what profits they will report in 2017, it is over its sales price pressure, where they had to bring down the price or give discounts to sell their products. Or is it because of the fluctuation in the currencies had eaten up the growth in the top line as they also export.

On analysts’ estimates, its intrinsic value spectrum comes in range of Rs 2,389 – Rs 3,829 per share. We do not expect Hero Motocorp profits beyond Rs 4,000 crore, so we do expect its intrinsic value for 2017 to end up in Rs 3,200 – Rs 3,300 levels.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.