Edelweiss maintains 'Buy' on Hero Honda

MUMBAI: Edelweiss has maintained ‘ Buy’ recommendation on Hero Honda after Munjal family owned Hero Group announced the end of 26-year old joint venture with Japan’s Honda Motors.

“The broad contours of the deal seem to indicate that with continuity in products, branding and royalty, the company’s operations are unlikely to be impacted in the medium term (until 2014).

Further, we note that in the past few quarters, Hero Honda’s market share has stabilised and recent price hikes indicate an uptick in EBITDA margins.

We expect these operational positives, along with potential lower royalty expenses, to offset higher R&D costs. We maintain our earnings estimate (EPS FY12: Rs 127). Hero Honda has underperformed the broader market by ~28% since July end (when rumours of the split first appeared) and is now trading at ~13x FY12E EPS (~15% discount to its peers).

We maintain ‘BUY’ on the stock with a target price of Rs 2,000 (implying 16x FY12E EPS),” the report said.