2QFY2013 Result Update | Automobile

October 23, 2012

Hero MotoCorp
Performance Highlights
Y/E March (` cr) Net Sales EBITDA Adj. EBITDA margin (%) Adj. PAT
Source: Company, Angel Research

ACCUMULATE
CMP Target Price
% chg (yoy) (11.0) (27.7) (230)bp (27.0) 1QFY13 6,247 717 11.5 615 % chg (qoq) (17.0) (28.4) (158)bp (28.4)

`1,796 `1,956
12 Months

2QFY13 5,187 513 9.9 441

2QFY12 5,826 710 12.2 604

Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Automobile 35,865 (3,321) 0.7 2,279/1,703 48,559 2 18,710 5,691 HROM.BO HMCL@IN

Hero MotoCorp (HMCL) reported marginally lower-than-expected results for 2QFY2013 led by a sharp deterioration in operating margins which declined 230bp yoy (158bp qoq) to 9.9%. The poor performance during the quarter can be attributed to slowdown in demand, increasing competition and inventory pile-up at the dealer end. While the current inventory stands at around six weeks, the management expects the inventory to reach normal levels of three-four weeks post the festival season which is expected to witness pick-up in demand. We revise our volume estimates downwards to factor in weak demand environment and also lower our operating margin estimates to account for the poor performance during the quarter. We maintain our Accumulate rating on the stock. Marginally lower-than-expected 2QFY2013 results: HMCLs top-line during the quarter registered a decline of 11% yoy (17% qoq) to `5,187cr which was on the expected lines considering that the volumes had declined 13.7% yoy (18.7% qoq) due to slowdown in demand and build-up in dealer inventory. The net average realization however, increased 3.2% yoy (2.1% qoq) benefitting primarily from a strong growth (~15% yoy) in the spare parts revenue. On the operating front, the EBITDA margins (adjusted for change in accounting for royalty payments) declined 230bp yoy (158bp qoq) to 9.9% largely due to lower operating leverage benefits (due to production cuts) and higher employee expenses. However, higher spare parts revenue and savings on the royalty amortization cost supported margins to a certain extent. Nonetheless, due to a weak operating performance, the net profit registered a decline of 27% yoy (28.4% qoq) to `441cr, marginally lower than our estimate of `462cr. Outlook and valuation: At `1,796, the stock is trading at 13.8x FY2014E earnings. We believe that a gradual pick-up in retail demand, new model launches in FY2014E and localization benefits will enable the company to clock a healthy CAGR of ~10% in net profit over FY2012-14E. We maintain our Accumulate rating on the stock with a revised target price of `1,956.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.2 8.1 32.5 7.2

Abs. (%) Sensex Hero MotoCorp

3m 10.9

1yr 11.5

3yr 11.3 13.2

(12.5) (12.5)

Key financials (Standalone)

Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 19,398 22.3 1,842 (11.5) 13.1 92.2 19.5 12.1 57.4 50.8 1.5 12.1

FY2012 23,579 21.6 2,163 17.4 15.3 108.3 16.6 8.4 59.7 49.2 1.3 8.8

FY2013E 24,743 4.9 2,360 9.1 14.8 118.2 15.2 6.5 48.3 40.3 1.1 7.8

FY2014E 27,996 13.1 2,604 10.3 15.2 130.4 13.8 5.2 41.9 40.1 0.9 6.5

Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com

Please refer to important disclosures at the end of this report

Hero MotoCorp | 2QFY2013 Result Update

Exhibit 1: Quarterly financial performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT Adj PAT Adj. PATM Equity capital (cr) Reported EPS (`)
Source: Company, Angel Research

2QFY13 5,187 3,770 72.7 192 3.7 506 9.8 4,468 719 13.9 3 290 99 526 526 10.1 85 16.3 441 441 8.5 39.9 22.1

2QFY12 5,826 4,224 72.5 179 3.1 506 8.7 4,909 917 15.7 3 278 89 724 724 12.4 121 16.7 604 604 10.4 39.9 30.2

% chg (yoy) (11.0) (10.7) 7.1 (0.0) (9.0) (21.6) 1.4 4.0 11.9 (27.4) (27.4) (29.3) (27.0) (27.0)

1QFY13 6,247 4,603 73.7 205 3.3 503 8.1 5,310 937 15.0 3 303 104 735 735 11.8 119 16.3 615 615 9.9 39.9

% chg (qoq) (17.0) (18.1) (6.1) 0.5 (15.9) (23.2) 0.7 (4.6) (4.9) (28.4) (28.4) (28.4) (28.4) (28.4)

1HFY13 11,435 8,373 73.2 397 3.5 1,009 8.8 9,779 1,656 14.5 6 593 204 1,261 1,261 11.0 205 16.3 1,056 1,056 9.2 39.9

1HFY12 11,508 8,468 73.6 344 3.0 950 8.3 9,763 1,745 15.2 15 518 183 1,394 1,394 12.1 233 16.7 1,162 1,162 10.1 39.9 58.2

% chg (yoy) (0.6) (1.1) 15.4 6.2 0.2 (5.1) (61.9) 14.4 11.6 (9.5) (9.5) (11.9) (9.1) (9.1)

(27.0)

30.8

(28.4)

52.9

(9.1)

Exhibit 2: 2QFY2013 Actual vs Angel estimates

Y/E March (` cr) Net Sales EBITDA Adj. EBITDA margin (%) Adj. PAT
Source: Company, Angel Research

Actual 5,187 513 9.9 441

Estimates 5,160 565 11 462

Variation (%) 0.5 (9.2) (106)bp (4.6)

Exhibit 3: Quarterly volume performance

(units) Total two-wheelers Domestic Exports Motorcycles Domestic Exports Scooters Domestic Exports
Source: Company, Angel Research

2QFY13 1,332,805 1,298,624 34,181 1,201,143 1,170,409 30,734 131,662 128,215 3,447

2QFY12 1,544,315 1,492,636 51,679 1,436,759 1,397,240 39,519 107,556 95,396 12,160

% chg (yoy) (13.7) (13.0) (33.9) (16.4) (16.2) (22.2) 22.4 34.4 (71.7)

1QFY13 1,640,290 1,595,625 44,665 1,520,954 1,486,654 34,300 119,336 108,971 10,365

% chg (qoq) (18.7) (18.6) (23.5) (21.0) (21.3) (10.4) 10.3 17.7 (66.7)

1HFY13 2,973,095 2,894,249 78,846 2,722,097 2,657,063 65,034 250,998 237,186 13,812

1HFY12 3,073,892 2,979,021 94,871 2,860,552 2,786,460 74,092 213,340 192,561 20,779

% chg (yoy) (3.3) (2.8) (16.9) (4.8) (4.6) (12.2) 17.7 23.2 (33.5)

October 23, 2012

Hero MotoCorp | 2QFY2013 Result Update

Net sales decline 11% yoy (17% qoq): HMCLs top-line in 2QFY2013 registered a decline of 11% yoy (17% qoq) to `5,187cr which was in-line with our estimates considering that the volumes had declined 13.7% yoy (18.7% qoq) due to demand slowdown and inventory build-up at the dealers end. While total domestic volumes declined 13% yoy (18.6% qoq); export volumes posted a 33.9% yoy (23.5% qoq) decline during the quarter. The net average realization however, increased 3.2% yoy benefitting primarily from a strong growth (~15% yoy) in the spare parts revenue. The sequential improvement in net average realization by 2.1% was

on account of a better product-mix (higher contribution of spares, scooters). Exhibit 4: Volume growth impacted by slowdown
(units) 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0
8.7 28.5 22.6 23.9 Total volume yoy growth (RHS)

Exhibit 5: Net average realization up 3.2% yoy

(`) 39,000 38,000 37,000 36,000 35,000 34,000 33,000
35,082 35,841 36,791 36,858 37,456 37,650 37,929 37,846 38,649 Net average realisation/unit yoy growth (RHS)

20.1 11.3 8.1 7.2

(%) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 (13.7) (5.0) (10.0) (15.0) (20.0)

6.7

6.7

6.8 5.0 3.1 3.2

(%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

4.4 2.7

2.7

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

Source: Company, Angel Research

2QFY13

Source: Company, Angel Research

Exhibit 6: Net sales decline in-line with estimates

(` cr) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
4,552 5,162 5,391 5,682 5,826 6,031 6,035 6,247

Exhibit 7: Domestic market share trend

(%) 40.0 30.0 (%) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 15.8 16.7 18.6 18.3 14.7 16.2 16.4 15.9 43.4 45.4 46.0 46.7 44.0 45.6 44.5 45.3 39.8 17.5 53.0 Scooter 55.9 55.6 Motor-cycle 56.4 54.8 56.5 Total 2-wheeler 56.5 56.2 50.0

34.9

Net sales (LHS)

yoy change (RHS)

30.8

32.2

28.0 16.9

12.1

11.9

10.0

20.0 10.0 (11.0)

5,187

0.0 (10.0) (20.0)

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13 2QFY13

Source: Company, Angel Research

Source: Company, SIAM, Angel Research

Adjusted EBITDA margin at 9.9%: HMCLs EBITDA margins (adjusted for change in accounting for royalty payments) declined 230bp yoy (158bp qoq) to 9.9%, largely due to lower operating leverage benefits (led by production cuts to align inventory levels with market demand) and higher employee expenses. Other expenses as a percentage of net sales increased sharply by 110bp yoy (170bp qoq) mainly due to lower operating leverage benefits. However, higher spare parts revenue and savings on the royalty amortization cost supported margins to a certain extent. The royalty expense stood at `206cr (`220cr in 1QFY2013) as against a normalized levels of `177cr. The adjusted operating profit was down by 27.7% yoy (28.4% qoq) to `513cr.

October 23, 2012

Hero MotoCorp | 2QFY2013 Result Update

Exhibit 8: EBITDA margin pressure persists

(%) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 13.4 11.2 12.1 11.3 12.2 12.0 11.9 11.5 9.9 73.4 74.5 73.4 75.3 73.0 73.4 74.1 74.1 73.2
EBITDA margin Raw material cost/sales

Exhibit 9: Net profit slightly lower-than-expected

(` cr) 700 600 500 400 300 200 100 0
506 429 502 558 604 613 604 615 441

11.1 8.3

Net profit (LHS)

Net profit margin (RHS)

9.3

9.8

10.4

10.2

10.0

9.9 8.5

(%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

Source: Company, Angel Research

2QFY13

Source: Company, Angel Research

Net profit marginally lower-than-expected: Led by a weak operating performance, the net profit registered a decline of 27% yoy (28.4% qoq) to `441cr which was marginally lower than our expectations of `462cr.

October 23, 2012

2QFY13

Hero MotoCorp | 2QFY2013 Result Update

Conference call Key highlights

The management has lowered the industry growth outlook to ~5% from ~10% earlier citing headwinds in the form of weak macro-economic environment and slowdown in rural demand. According to the management, the festival season so far has seen flat to positive growth and the demand is likely to gain momentum going forward. In an attempt to boost sales during the festival season, HMCL has entered into financing arrangement with HDFC Bank to offer loans at an interest rate of 6.99%. The management clarified that it is not offering any discounts in order to boost sales volumes. HMCL has commenced dispatches of Passion X Pro (110cc motorcycle) which will be available for retail sales before Diwali. The current dealer inventory remains around four weeks and inventory in transit is around two weeks. The company has taken a price hike of `300/vehicle effective from October 1, 2012 to pass on the inflationary pressures. According to the company, the Maestro has been received well by the market and is clocking volumes of ~20,000/month. HMCL intends to hike scooter capacity to 60,000 units/month. Rural markets contributed ~46% of companys volumes in FY2012. The management indicated that it would target African and Latin American markets initially to launch 100cc-125cc bikes. HMCL aims to increase exports to 1mn units by FY2017. Imports constitute ~15% of its net sales, of which direct imports (USD denominated) form 5.5%, while indirect imports (Yen denominated) form 9.5%. HMCL compensates its vendors with a lag of one quarter.

October 23, 2012

Hero MotoCorp | 2QFY2013 Result Update

Investment arguments
Expect the demand scenario to remain moderate: We believe that the demand environment will remain moderate in FY2013 given that consumer sentiments remain subdued led by macro-economic concerns and rising fuel and product prices. Nonetheless, expected easing of interest rates going ahead will revive demand in FY2014. We expect HMCL to register a 6-8% volume CAGR over FY2012-14E led by new product launches and strength of its popular models, Splendor and Passion. Capacity expansion to meet future increase in demand: HMCL commenced expansion plans at its Haridwar plant in Uttarakhand, with the first plant commissioned in April 2008, with an initial capacity of 500,000 units. The company has increased its total installed capacity to 6.15mn units in FY2011 from 5.4mn units in FY2010, with capacity of 2.25mn at Haridwar and 1.95mn each at Dharuhera and Gurgaon. HMCL plans to further expand its capacity to 7mn units by August 2012 through de-bottlenecking at existing plants. The company is also setting up two new plants in Rajasthan (0.75mn units) and Gujarat (1.5mn units) which will come on stream in FY2014 taking the overall capacity to 9.25mn units. As a result of capacity expansion, HMCL remains well-poised to meet increasing demand going ahead.

Outlook and valuation

HMCLs volumes are down 3.3% yoy in 1HFY2013 led by slowdown in demand, increasing competition and build-up in inventory levels. While the current inventory stands at around six weeks, the management expects the inventory to reach normal levels of three-four weeks post the festival season which is expected to witness pick-up in demand. We revise our volume estimates downward to factor in weak demand environment and also lower our operating margin estimates to account for the poor performance during the quarter.

Exhibit 10: Change in estimates

Y/E March Net Sales (` cr) OPM (%) EPS (`) Earlier Estimates 24,941 15.0 122.5 28,706 15.5 134.0 Revised Estimates 24,743 14.8 118.2 27,996 15.2 130.4 % chg (0.8) (15)bp (3.6) (2.5) (30)bp (2.7) FY2013E FY2014E FY2013E FY2014E FY2013E FY2014E

Source: Company, Angel Research

At `1,796, the stock is trading at 13.8x FY2014E earnings. We believe that a gradual pick-up in retail demand, new model launches in FY2014E and localization benefits will enable the company to clock a healthy CAGR of ~10% in net profit over FY2012-14E. We maintain our Accumulate rating on the stock with a revised target price of `1,956.

October 23, 2012

Hero MotoCorp | 2QFY2013 Result Update

Exhibit 11: Key assumptions

Y/E March (units) Domestic < 125cc > 125cc Exports < 125cc > 125cc Motorcycle Domestic Exports Scooters Total volume Growth (yoy, %) Domestic < 125cc > 125cc Exports < 125cc > 125cc Motorcycle Domestic Exports Scooters Total volume
Source: Company, Angel Research

FY2009 3,487,614 3,302,095 185,519 78,176 69,644 8,532 3,565,790 153,193 3,017 156,210 3,722,000 10.9 11.3 4.4 (11.4) (13.6) 12.3 10.3 49.5 28.3 49.0 11.5

FY2010 4,293,991 4,055,304 238,687 91,867 82,824 9,043 4,385,858 208,440 5,832 214,272 4,600,130 23.1 22.8 28.7 17.5 18.9 6.0 23.0 36.1 93.3 37.2 23.6

FY2011 4,926,390 4,589,003 337,387 114,581 102,524 12,057 5,040,971 342,991 18,482 361,473 5,402,444 14.7 13.2 41.4 24.7 23.8 33.3 14.9 64.6 216.9 68.7 17.4

FY2012 5,651,066 5,320,340 330,726 128,555 114,308 14,247 5,779,621 418,224 37,360 455,584 6,235,205 14.7 15.9 (2.0) 12.2 11.5 18.2 14.7 21.9 102.1 26.0 15.4

FY2013E 5,674,791 5,426,747 248,045 121,130 108,593 12,537 5,795,921 514,416 41,096 555,512 6,351,433 0.4 2.0 (25.0) (5.8) (5.0) (12.0) 0.3 23.0 10.0 21.9 1.9

FY2014E 6,173,271 5,888,020 285,251 139,299 124,881 14,418 6,312,571 617,299 47,260 664,559 6,977,130 8.8 8.5 15.0 15.0 15.0 15.0 8.9 20.0 15.0 19.6 9.9

Exhibit 12: Angel vs consensus forecast

Angel estimates FY13E Total op. income (` cr) EPS (`) 24,743 118.2 FY14E 27,996 130.4 Consensus FY13E 25,101 124.0 FY14E 28,207 135.0 Variation (%) FY13E (1.4) (4.7) FY14E (0.7) (3.4)

Source: Bloomberg, Angel Research

October 23, 2012

Hero MotoCorp | 2QFY2013 Result Update

Exhibit 13: One-year forward P/E band

(`) 3,000 2,500 2,000 1,500 1,000 500 0 Share price (`) 8x 12x 16x 20x

Exhibit 14: One-year forward P/E chart

(x) 25 20 15 10 5 0 Absolute P/E Five-yr average P/E

Feb-04

Sep-06

Dec-04

Jul-07

Jun-08

Apr-03

Nov-05

Mar-10

Apr-09

Jan-11

Nov-11

Oct-12

Feb-03

May-08

Feb-10

Jan-04

Jul-07

Aug-06

Apr-02

Nov-04

Apr-09

Jan-11

Nov-11 Apr-12

Oct-05

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 15: HMCL Premium/Discount to Sensex P/E

(%) 80 60 40 20 0 (20) (40) (60) (80) Absolute premium Five-yr average premium

Exhibit 16: Two-wheeler stock performance vs Sensex

TVSL 500 450 400 350 300 250 200 150 100 50 0 HMCL BJAUT Sensex

Jan-04

Aug-06

Apr-02

Nov-04

Apr-09

Jan-11

Nov-11

Oct-05

Feb-03

May-08

Feb-10

Oct-12

Jul-07

Mar-08

Mar-09

Mar-10

Mar-11

Sep-08

Sep-09

Sep-10

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 17: Automobile - Recommendation summary

Company Ashok Leyland Bajaj Auto Hero MotoCorp Maruti Suzuki Mahindra & Mahindra Tata Motors TVS Motor Reco. Buy Neutral Accumulate Neutral Accumulate Buy Buy CMP Tgt. price (`) (`) 23 1,771 1,796 1,367 828 265 41 30 1,956 944 316 49 Upside (%) 29.5 8.9 14.1 19.5 19.0 P/E (x) FY13E 10.7 16.3 15.2 20.5 16.4 6.8 8.7 FY14E 8.5 14.4 13.8 14.8 14.7 5.9 7.6 EV/EBITDA (x) FY13E 5.5 11.1 7.8 9.8 9.1 3.8 2.8 FY14E 4.7 9.5 6.5 6.8 7.7 3.2 2.4 RoE (%) FY13E 13.3 46.2 48.3 12.0 22.6 32.6 17.9 FY14E 15.6 41.6 41.9 14.8 21.5 28.8 18.1 FY12-14E EPS CAGR (%) 14.1 7.3 9.7 35.3 9.8 11.6 1.7

Source: Company, Angel Research

October 23, 2012

Sep-11

Oct-12

Oct-12

Hero MotoCorp | 2QFY2013 Result Update

Company background
Hero MotoCorp (HMCL) is a leading 2W manufacturer in the world and the market leader in the domestic motorcycle segment with a 54.6% market share (48% market share including exports). HMCL has three manufacturing facilities in India, located at Gurgaon (1.95mn units), Dharuhera (1.95mn units) and Haridwar (2.25mn units), with a total capacity of 6.15mn units/year. Over 200712, HMCL recorded a healthy volume CAGR of 13.3%, backed by its strong brands (Passion and Splendor) and a well-entrenched dealership network, which has a good presence across rural areas (~45% of total volumes).

October 23, 2012

Hero MotoCorp | 2QFY2013 Result Update

Profit and loss statement (Standalone)

Y/E March (` cr) Total operating income % chg Total expenditure Net raw material costs Other mfg costs Employee expenses Other EBITDA % chg (% of total op. income) Depreciation & amortization EBIT % chg (% of total op. income) Interest and other charges Other income Recurring PBT % chg Extraordinary income/(exp.) PBT Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of total op. income) Basic EPS (`) Adj. EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 12,382 19.4 10,635 8,742 187 371 1,335 1,747 28.4 14.1 181 1,567 30.5 12.7 3 217 1,781 26.3 101 1,883 500 26.5 1,282 1,181 34.3 9.5 64.2 59.1 34.3 15,856 28.1 13,096 10,736 225 438 1,697 2,760 58.0 17.5 191 2,568 63.9 16.3 2 265 2,832 59.0 150 2,982 600 20.1 2,232 2,082 76.3 13.2 111.8 104.2 76.3 19,398 22.3 16,865 14,111 265 619 1,870 2,533 (8.2) 13.1 402 2,130 (17.1) 11.0 15 290 2,405 (15.1) 86 2,491 477 19.1 1,928 1,842 (11.5) 9.5 96.5 92.2 (11.5) 23,579 21.6 19,960 17,282 300 736 1,643 3,619 42.9 15.3 1,097 2,521 18.4 10.7 21 365 2,865 19.1 215 3,079 487 15.8 2,378 2,163 17.4 9.2 119.1 108.3 17.4 24,743 4.9 21,081 18,136 346 817 1,781 3,662 1.2 14.8 1,187 2,475 (1.9) 10.0 22 408 2,861 (0.1) 2,861 501 17.5 2,360 2,360 9.1 9.5 118.2 118.2 9.1 27,996 13.1 23,729 20,437 381 924 1,988 4,267 16.5 15.2 1,273 2,994 21.0 10.7 25 457 3,426 19.8 3,426 822 24.0 2,604 2,604 10.3 9.3 130.4 130.4 10.3

October 23, 2012

10

Hero MotoCorp | 2QFY2013 Result Update

Balance sheet statement (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders Funds Total loans Deferred tax liability Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net Block Capital work-in-progress Goodwill Investments Long term loans and advances Other noncurrent assets Current assets Cash Loans & advances Other Current liabilities Net current assets Misc. exp. not written off Total Assets 2,310 943 1,367 121 207 3,369 1,013 220 317 477 2,053 4,024 2,519 1,092 1,427 48 232 3,926 2,883 1,907 431 545 4,831 3,684 5,308 1,458 3,850 50 231 5,129 342 16 1,109 72 382 656 6,017 4,710 6,079 2,523 3,556 39 230 3,964 534 26 1,541 77 516 948 4,341 5,547 7,196 3,710 3,486 72 230 4,723 534 26 4,113 2,650 544 919 6,436 (2,323) 6,747 8,484 4,983 3,501 85 230 5,733 534 26 3,994 2,340 616 1,038 5,912 (1,918) 8,191 40 3,761 3,801 78 144 4,024 40 3,425 3,465 66 153 3,684 40 2,916 2,956 247 1,471 36 4,710 40 4,250 4,290 208 1,011 38 5,547 40 5,449 5,489 208 1,011 38 6,747 40 6,893 6,933 208 1,011 38 8,191 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

(1,039) (1,949) (4,908) (2,801)

October 23, 2012

11

Hero MotoCorp | 2QFY2013 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in working capital Others Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in fixed assets (Inc.)/Dec. in investments Other income Cash Flow from Investing Issue of equity Inc./(Dec.) in loans Dividend paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E 1,883 181 261 (248) (217) (500) 1,359 (265) (802) 217 (850) 54 467 (825) (305) 204 15 220 2,982 191 2,581 (2,202) (265) (600) 2,687 (137) (557) 265 (429) (12) 2,568 (3,125) (570) 1,688 220 1,907 2,491 402 185 (57) (290) (477) 2,254 (361) (1,203) 290 (1,274) (66) 599 (3,348) (2,815) (1,836) 1,907 72 3,079 1,097 (691) (275) (365) (487) 2,360 (760) 1,164 365 769 2,097 (5,221) (3,124) 5 72 77 2,861 1,187 2,095 (408) (501) 5,234 (1,150) (759) 408 (1,501) 1,160 (1,160) 2,573 77 2,650 3,426 1,273 (715) (457) (822) 2,704 (1,301) (1,010) 457 (1,854) 1,160 (1,160) (310) 2,650 2,340

October 23, 2012

12

Hero MotoCorp | 2QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) (0.9) (2.0) 619.2 (1.7) (2.1) 1,223.0 (1.8) (2.1) 140.4 (0.9) (1.1) 118.4 (1.3) (2.0) 110.7 (1.2) (1.9) 118.4 6.1 9 7 42 (34) 6.6 9 3 61 (59) 5.0 9 2 83 (83) 4.1 9 3 64 (61) 3.7 10 3 63 (58) 3.6 10 3 65 (60) 43.1 29.6 34.8 66.6 113.9 57.3 50.8 36.8 57.4 49.2 38.3 59.7 40.3 49.8 48.3 40.1 38.9 41.9 12.7 0.7 3.6 33.3 33.3 16.3 0.8 5.7 74.0 74.0 11.0 0.8 6.0 53.7 53.7 10.7 0.8 4.7 42.0 42.0 10.0 0.8 5.2 42.7 42.7 10.7 0.8 5.6 45.7 45.7 64.2 59.1 73.2 20.0 190.3 111.8 104.2 113.8 110.0 173.5 96.5 92.2 112.4 105.0 148.0 119.1 108.3 163.3 45.0 214.8 118.2 118.2 177.6 50.0 274.9 130.4 130.4 194.1 50.0 347.2 30.4 24.5 9.4 1.1 2.4 18.5 8.0 17.2 15.8 10.4 6.1 1.8 10.9 8.2 19.5 16.0 12.1 5.8 1.5 12.1 6.5 16.6 11.0 8.4 2.5 1.3 8.8 5.7 15.2 10.1 6.5 2.8 1.1 7.8 4.2 13.8 9.3 5.2 2.8 0.9 6.5 3.4 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

October 23, 2012

13

Hero MotoCorp | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Hero MotoCorp No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 23, 2012

14