Hero MotoCorp Ltd., a dominant player in rural markets, is expected to see strong recovery in rural demand, which will support its earning outlook in the near term.
Morgan Stanley said Hero MotoCorp's management is positive about an uptick in rural demand, and momentum in its entry-level bike segment.
Morgan Stanley has kept 'Underweight' on Hero MotoCorp, and raised the target price to Rs 4,110 from Rs 3,638. The current target price implies a 21.65% downside from Wednesday's closing price.
The Splendor-maker's management is banking on a good monsoon, and government policies to boost rural consumption, Citi Research said in a report on Wednesday.
Though it maintained a 'buy' on the stock, the brokerage cut the target price to Rs 5,800 from Rs 6,300. The current target implies a 14.7% return potential from Wednesday's closing price.
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The company has announced the launch of new models in the premium segment. Morgan Stanley expects growth in the premium segment to be a key driver for the company in the near term.
In the entry level, the company has announced a ramp-up of its Passion model. Additionally, in the ICE scooter segment, it has announced a model refresh of Destini, Morgan Stanley added.
Product refreshes, and innovative financing methods have increased demand for its entry level bikes such as the 125cc, Citi Research said.
As far as international markets are concerned, Hero MotoCorp has flagged challenges arising from political instability in the Bangladesh market, which constitutes 13% of its exports, Morgan Stanley said.
The two-wheeler manufacturer has reported weaker than estimated results for the June quarter as losses in electric vehicle sales, lower spare sales dampened the higher margin of its internal combustion engine segment, both the brokerages said.
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Shares of Hero MotoCorp rose as much as 1.16% to Rs 5,131, the highest since August 14. The stock has snapped two days of decline. It was trading 0.31% higher at Rs 5,088.10 as of 09:30 a.m., as compared to 1.01% advance in the NSE Nifty 50 index.
The stock rose 70.71% in 12 months, and 23.35% on year-to-date basis. Total traded volume so far in the day stood at 2.8 times its 30-day average. The relative strength index was at 32.72.
Out of 42 analysts tracking the company, 28 maintain a 'buy' rating, six recommend a 'hold,' and eight suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 3.3%.
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