Hero Motor Corp is a stock we have in all our portfolios: Prashantha Seth
The earnings growth would probably be in the range of 18% to 20% or more and at these valuations you could probably look to have Hero MotoCorp.
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| Updated: Prashastha Seth of IIFL Wealth, India Infoline gives his market outlook in an interview to ET Now.
Is a merit in buying Hero MotoCorp?
That is one stock we have in all our portfolios and we continue to buy that. There are two things that probably will support the stock: First; the fact that the demand momentum continues to be exceptionally strong for all the two wheeler companies. Be it Hero or Bajaj, both of them are doing exceptionally well on the volume count and they will probably continue to do the same in the near future.
The other reason why Hero MotoCorp should do well according to me is essentially the fact that they are having an EBITDA margin which is like 400 or 500 bps lower than what Bajaj has or even relatively slightly more 600 bps plus. We believe that some of this margin gap would go away because Hero MotoCorp would realise some sort of a pricing gains because of lower raw material cost as it is moving out from a joint venture with a Honda.
Second, their royalty payments over a period of time will decrease. These two factors will ensure that over a period of time the EBITDA margin improves from where it is now. Hero has not touched 20 EBITDA where Bajaj is trading but it can definitely move to 16%-17% EBITDA. So the earnings growth would probably be in the range of 18% to 20% or more and at these valuations you could probably look to have Hero MotoCorp.
Is a merit in buying Hero MotoCorp?
That is one stock we have in all our portfolios and we continue to buy that. There are two things that probably will support the stock: First; the fact that the demand momentum continues to be exceptionally strong for all the two wheeler companies. Be it Hero or Bajaj, both of them are doing exceptionally well on the volume count and they will probably continue to do the same in the near future.
The other reason why Hero MotoCorp should do well according to me is essentially the fact that they are having an EBITDA margin which is like 400 or 500 bps lower than what Bajaj has or even relatively slightly more 600 bps plus. We believe that some of this margin gap would go away because Hero MotoCorp would realise some sort of a pricing gains because of lower raw material cost as it is moving out from a joint venture with a Honda.
Second, their royalty payments over a period of time will decrease. These two factors will ensure that over a period of time the EBITDA margin improves from where it is now. Hero has not touched 20 EBITDA where Bajaj is trading but it can definitely move to 16%-17% EBITDA. So the earnings growth would probably be in the range of 18% to 20% or more and at these valuations you could probably look to have Hero MotoCorp.
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