Revenues remain flattish (+1.8% yoy) despite weak volumes as realizations come in higher (+4.8% yoy)
Margins at 13.8% were ahead of expectations and were higher on qoq basis helped by lower raw material costs. Weaker yen help cuts the raw material costs in quarter (benefit of Rs150/vehicle)
Yen weakening also helped depreciation which includes royalty payments to Honda. Depreciation was noted lower by 6.2% qoq
Amidst a fragile macro situation we build in moderate growth of 5% in FY14
Upgrade to BUY on valuations with a revised 9-month price target of Rs1,837.
|(Rs m)||Q4 FY13||Q4 FY12||% yoy||Q3 FY13||% qoq|
|OPM (%)||13.8||15.3||(150) bps||12.6||124 bps|
|Effective tax rate (%)||16.3||19.2||16.3|
|PAT margin (%)||9.3||10.0||(66) bps||7.9||146 bps|
|Ann. EPS (Rs)||115.0||120.9||(4.9)||97.7||17.7|
While volumes remain muted, ASP improve on better product mix … Net sales remain flat (+1.8% yoy)
During Q4 FY13, HMCL volumes witnessed ~3% declines (yoy and qoq). However, realizations increased 4.8% yoy and 2.3% qoq on back of a better product mix. Resultantly, net sales at Rs61.4bn were higher by 1.8% yoy.
Domestic scooter volumes for HMCL grew by 32% vis-à-vis the industry growth of 14% in the segment. Growing faster than the market enabled HMCL to increase its market share in the segment to 20%+ in Q4 FY13. In the motorcycle segment HMCL recorded a market share of ~54% at the end of Q4 FY13. Going ahead, management indicated of increasing the capacity in scooters at existing plants to further reap the growing market and informed of an additional upcoming capacity at Neemrana plant (800 scooters/day) by Q4 FY14.
|As a % of net sales||Q4 FY13||Q4 FY12||% yoy||Q3 FY13||% qoq|
|>125cc and <250cc||56,251||82,166||(31.5)||56,533||(0.5)|
|>125cc and <250cc||4,575||3,891||17.6||5,661||(19.2)|
OPM retracts from the declining trajectory… Yen depreciation helps
In Q4 FY13, HMCL reported an OPM of 13.8% in Q4 FY13 reflecting a sequentially improved operational performance (+124bps qoq). Operating profit/vehicle surged 12.5% qoq thereby underlining the good operational performance. Material costs (as a percentage of sales) cooled off 187bps qoq led by weaker yen and some moderation in metal costs. We note, that HMCL has downstream import of 9.5% of which a half is yen denominated. With a weaker outlook on yen, we expect further benefits to accrue on margin front in the subsequent quarters. Other expenses continued to remain high on the back of new product launches, higher power and transportation expenses when compared yoy.
Key takeaways from the conference call
HMCL has introduced an unprecedented five-year warranty scheme for its products. Management pegged the cost for the scheme to be ~Rs60/vehicle. Company continues to carry out various rural programs like doorstep servicing scheme and increasing its dealerships to sway away the intensifying competition. As on date, company has ~5,500 touch points across the country with more than 800 fully fledged dealerships.
On the exports, we note that the dispatches have already begun to new territories like Africa and Latin America. In the domestic portfolio, price increases ranging from Rs500-1,500 haven been taken across the product range a week back.
On the royalty payments, we note that HMCL has covered ~40% of its royalty payables for FY14 at favourable rates of 98-99 yen against dollar.
The company has guided for a tax rate of 22-24% over the next five years, given that only 30% of profits from the Haridwar plant will now be entitled for tax breaks.
The company expanded it reach during FY13 by adding 500 touch points (total 5,500 by end of FY13). The expansion will continue with addition of about 500 more touch points in the near term.
R&D expenses accounted for about 0.4% of net sales during FY13. The same is expected to go up to 1-1.5% of net sales.
|As a % of net sales||Q4 FY13||Q4 FY12||bps yoy||Q3 FY13||bps qoq|
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