For 4QFY2009, Hero Honda (HH) clocked 22.2% growth in net Sales to Rs3,423 crore, which was marginally above our expectation of Rs3,305 crore.
Sales came on the back of good 12.9% y-o-y growth in volumes and better average realizations, which grew 8.4% primarily due to the change in sales mix and better performance by high-realization segments during the quarter.
The company’s bottomline, which increased 34.6% y-o-y to Rs402 crore, also exceeded our expectation. This was due to the 93bp y-o-y increase in OPM, primarily aided by decline in raw material costs.
The HH stock has been showing strength on the bourses and enjoying premium valuations on account of the poor growth performance registered by other leading companies.
Along with this, being a debt-free company with surplus cash and substantial investments have aided HH emerge as a good defensive bet amidst uncertain market conditions.
However, post returns of 46% and 84% outperformance relative to the Sensex in FY2009 absolute upside appears to be capped. At the CMP, the stock is fairly valued at 14.3x FY2010E Earnings. We remain NEUTRAL on the stock.