Hero Motocorp world’s biggest manufacturer of two wheeler bike reported its q2 and half yearly results two days back. The stock price is trading at Rs 3,350 and if you are looking to buy, sell or hold this stock then you should know these few facts of the business.

Hero Motocorp sold 6,74,961 units in September and 18,23, 498 in the July – September 2016 quarter. The total income from operations for the quarter was up by 15% to Rs 8,448.74 crore on YoY basis. Earnings before taxes stood at Rs 1,400.43 crore and net profit after taxes were up by 26.69% to Rs 994.72 crore on YoY basis.

Its half yearly results look like this:

Hero Motocorp 1H – 2017 % 1H – 2016 % % change
No of vehicle sold 35,68,887 32,20,728 10.81%
Revenues 16,459.40 100% 14,781.94 100% 11.35%
EBT 2,634.15 16% 2,139.05 14.47% 23.15%
Net Profit 1,876.80 11.40% 1,531.82 10.36% 22.52%

 

The results of Hero Motocorp looks positive. They had sold more two wheelers this half compare to last year, resulting growth in the revenues by 11.35%. The margins also had improved resulting into solid growth in earnings before taxes (23.15%) and its profits (22.52%). The guidance given by management is to expect second half results like its first half as we had seen adequate monsoon this year.

With its first half report card and positive expectation for the second half earnings by the management, is stock price trading at fair value today?

Analysts who follow this stock are expecting its profits for 2017 in range of Rs 3,304 crore – Rs 4,189 crore. Looking at its first half results and forecast by management, it looks to us that they might be able to report their full year earnings closer to the upper band of expectations. Below is the chart that displays how the earnings forecast (average) had behaved from the start of this financial year.

hero-eps-2017

If we look at the earnings forecast chart, from August they started rising up as the sales of their two wheeler saw sharp increase due to the satisfactory monsoon condition. If we assume those forecast numbers to be real and calculate its intrinsic value spectrum, Rs 2,451 – Rs 3,826 per share is the result we get today for 2017. This means we do not expect its stock price to fall below Rs 2,451 in worst case scenario and expect not to go beyond Rs 3,826.

Analysts are also expecting earnings to grow by 11% in the 2018 year against their expectation of 17% this financial year. A slower earning growth compare to its 2017 will impact negatively to its 2018 intrinsic value spectrum if we compare with its 2017. If you are interested to know its 2018 intrinsic value spectrum then please leave your comment below.

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 tell you to take professional advice before going ahead with our views.