Credit Suisse downgrades Hero MotoCorp on demand concerns, cuts

• Posted by Sindhuri G August 30, 2012 - Filed in Business - 2,090 views

  NEW DELHI: Hero MotoCorp slipped below its psychological level of Rs 1,800 in trade on Thursday and was the top loser both in the Bombay Stock Exchange and the National Stock Exchange.
  
  Industry experts are of the view that two-wheeler makers including Hero MotoCorp are expected to go in for major production cuts soon. Dealers are of the view that with contraction in demand, inventories are piling up and in some cases it is as high as up to 40 days.
  
  India's biggest two-wheeler manufacturer is likely to produce less by about 20 per cent in the month of August, ET Now reports.
  
  Credit Suisse has downgraded Hero Motocorp to 'neutral' from 'outperform' with a cut in the price target to Rs 2,056 from 2,401.
  
  The brokerage firm although likes Hero on a medium-term basis, but in near term it expects the company's earnings to get hit due to slowdown in domestic two-wheeler market.
  
  The brokerage firm has lowered its FY13/FY14 volume estimates for Hero by 4 per cent.
  
  Last week, HSBC reiterated an 'Underweight' rating on Hero MotoCorp with a target price of Rs 1,930. Increasing competition and down-trading in the motorcycle market continues as well, impacting HMCL. Further scooter sales have picked up, but are unlikely to offset weakness in motorcycles.
  
  The stock is currently trading at 15x FY13e EPS. HSBC sees limited upside to sales and earnings as the industry experiences a slowdown and competition is intensifying.