Hero MotoCorp disappoints St with Q4 results; foreign brokerages see up to 16 per cent downside

Hero MotoCorp has come out with a weak set of quarterly earnings. The numbers were a bit lower than Street expectations. Yet the stock is trading firm on Thursday. Foreign brokerages have neutral to negative stance on the stock, suggesting up to 16 per cent downside potential over Wednesday’s closing.

Brokerage Morgan Stanley (MS) has maintained ‘underweight’ on the stock with a target of Rs. 2,795. The stock was trading at Rs. 3,362. up 1.21 per cent on BSE.

MS noted that the company had to give out Rs. 93 crore of discounts during the quarter to pro-actively clear old BS III inventory.

“Slippage in adjusted margin was driven by raw material cost pressures,” it said, adding that it sees muted earnings growth and pressure on its market share.

Goldman Sachs has maintained its sell call on the stock with a target of Rs. 2,806 as it sought more colour from management on surprise drop in staff expenses and the company’s strategy for reviving scooters.

This brokerage said that it was looking for rationale for new plant in AP despite just 74 per cent capacity utilisation for FY17.

Nomura India, meanwhile, has maintained neutral on the stock with a target price of Rs 3,167.

“Need to see if current levels of employee costs and other expenditure are sustainable, it said.

The company has taken price hike of Rs. 500-2,200 per vehicle, it noted, adding that it should alleviate cost pressures in FY18.