Brokers’ call on Hero MotoCorp, L&T and Lanco Infratech

‘Hero Moto may Touch Rs 1,930’

HSBC has reiterated an ‘Underweight’ rating on Hero MotoCorp with a target price of Rs 1,930. Increasing competition and down-trading in the motorcycle market continues as well, impacting HMCL. Further scooter sales have picked up, but are unlikely to offset weakness in motorcycles.

The stock is currently trading at 15x FY13e EPS. HSBC sees limited upside to sales and earnings as the industry experiences a slowdown and competition is intensifying. “We assume a risk-free rate of 3.5%, a cost of equity of 10.8% and a cost of debt of 10.1% to arrive at a WACC of 10.8%,” an HSBC note said.

L&T to Underperform: CLSA

CLSA has recommended an ‘Underperform’ rating on Larsen & Toubro with a target price of Rs 1,500. L&T is the most credible investment play in India but amid a cyclical slowdown and policy paralysis, order flow should remain weak.

While the firm will get better terms from its business partners by offering them financial support, the resultant cost savings will be inadequate to offset competitive pressures. Excess industry capacity and a shrinking portion of lucrative build-operate-transfer orders will erode margins.

Lanco Infra a Buy: Nomura

Nomura has maintained a ‘Buy’ rating on Lanco Infratech and set target price of Rs 30. As against forecast of a normalised loss of Rs 130 crore, Lanco posted a normalised net loss of Rs 210 crore in 1QFY13.

Consolidated EBITDA surprised positively due greater proportion of profits in external sales.